LP Survey Results January 2017
1 Mark Suster, @msuster Chang Xu, @_changxu

LPs continue to be optimistic
about the venture capital asset class 2

3 The mood of LPs
over the past 5 years has gotten consistently more optimistic about venture capital off of a low period from 2009-2012. Source: Upfront Ventures survey of LPs (N=82 and N=73, respectively), Jan 2017, Jan 2016 2016 2017 4%4% 28%22% 58%67% 11%7% Right allocation Too much Aggressively grow Trying to grow Q. How would you describe your fund’s current allocation to VC?

4 We have seen a
steady recognition over the past 5 years by LPs that there is a need to find new managers to drive alpha in addition to established firms. 2016 2017 3%2% 43%39% 36%40% 16%19% 3% Too many Looking to add Aggressively add Cutting back, may add 1-2 Happy with roster Q. How would you describe your fund’s current outlook on VC managers? Source: Upfront Ventures survey of LPs (N=82 and N=73, respectively), Jan 2017, Jan 2016

5 Perhaps the biggest shift
we’ve seen is the increasing focus on LPs in co- investments and in fact some LPs now specialize in this. 2016 2017 1%1% 29% 17% 18% 20% 38% 45% 13%16% Q. How would you describe your fund’s position on direct investments? Only reason we fund VCs Some, opportunistic Starting to do more Never Very important Source: Upfront Ventures survey of LPs (N=82 and N=73, respectively), Jan 2017, Jan 2016

6 LPs believe that a
large correlating factor driving our industry is large pools of capital chasing higher yields due to low interest rates affecting other asset classes. Low interest rate environment Late-stage VC funds raising larger funds Many new VC funds Increases in corporate VC arms Mutual funds and hedge funds Increases in Sovereign Wealth Funds Increases in Chinese money Increases in LPs making direct investments 21% 23% 28% 41% 41% 59% 66% 77% Note: Survey asked respondents to rate each item on a scale of 1-5. Above chart indicates percent of respondents that rated 4 (relevant) or 5 (most relevant). Source: Upfront Ventures survey of LPs (N=82), Jan 2017 Q. In 2016 many investors warned “Winter is Coming” referring to a slowdown in venture markets. That slowdown happened but was very short lived. Which of the following are relevant in influencing why “Winter was Mild”?

7 LPs expect to continue
to fund the venture industry at a relatively stable pace over the next 3 years, which should mean consistent capital available for entrepreneurs. Source: Upfront Ventures survey of LPs (N=82 and N=73, respectively), Jan 2017, Jan 2016 2016 2017 12%8% 79%82% 9%10% Q. How would you describe your likely investment pace in venture over the next 3 years? Increase pace Keep pace Slow down pace

LPs do believe VCs need
to slow down our pace 8

9 LPs have noticed the
“valuation creep” in venture-backed companies and have some concerns about burn rates and financial discipline. Source: Upfront Ventures survey of LPs (N=82 and N=73, respectively), Jan 2017, Jan 2016 2016 2017 26%26% 71%68% 3%6% Q. How would you describe your fund’s outlook on your existing (VC) managers activities? Very happy Deeply concerned A bit concerned by pace, valuation creep and burn rates

10 VCs have been shortening
the cycles in which they raising money from LPs, which also has LPs a bit concerned. Source: Upfront Ventures survey of LPs (N=82 and N=73, respectively), Jan 2017, Jan 2016 2016 2017 24%24% 11%15% 66%61% Q. How would you describe your fund’s outlook on your existing (VC) managers funding (and fundraising) pace? More quickly; it concerns us Normal cadence More quickly; we’re fine with it

LPs expressed that they are
discerning about which VC managers they fund 11

12 Compared with a year
ago there are far fewer bears amongst LPs - likely driven by a sense that the industry has gotten through its short-lived tough patch. 2016 2017 6% 1% 76% 70% 17% 29% 1% Q. How would you describe your current views on venture capital overall? Bearish Haven’t changed Too much capital More bullish Source: Upfront Ventures survey of LPs (N=82 and N=73, respectively), Jan 2017, Jan 2016

13 And most LPs we’ve
spoken with over the past 5 years have now acknowledge that the seed stage of the venture market is here to stay. Source: Upfront Ventures survey of LPs (N=82 and N=73, respectively), Jan 2017, Jan 2016 2016 2017 7% 11% 75%66% 18%23% Q. How would you describe your fund’s outlook on the seed market? Fund, but discerning Invest heavily Over-done

14 Traditional A/B round venture
capital is still the most favored part of the venture industry but LPs acknowledge they need a healthy mix of seed, A/B & growth. Source: Upfront Ventures survey of LPs (N=82 and N=73, respectively), Jan 2017, Jan 2016 2016 2017 30%32% 57%51% 14%16% Q. How would you describe your fund’s outlook on traditional Series A/B venture capital? Best fit Being squeezed Want a healthy mix

15 LP dollars still go
disproportionally to large funds that end up doing later stage investing but this is also the stage of the market they are most concerned about. Source: Upfront Ventures survey of LPs (N=82 and N=73, respectively), Jan 2017, Jan 2016 2016 2017 1% 38% 32% 60% 68% Q. How would you describe your fund’s outlook on later stage venture capital / growth equity? Want a healthy mix Over-valued Bullish

How did LPs feel about
Trump — before the inauguration? (of course we had to ask) 16

17 Prior to the inauguration
LPs didn’t seem overly concerned about the economic & political environment. LPs 10%32%32%24%1% Very bullish Optimistic Neutral Somewhat concerned Very concerned Q. Overall, looking at the current economic & political environment globally I would say I am Source: Upfront Ventures survey of LPs (N=82), Jan 2017

18 But on point issues
LPs did express concern about areas that may affect underlying investment opportunities. China relations Surveillance / Immigration Offshore development 1% 6%7% 25% 9% 31% 48%16% 15% 60% 30% 43% 68% 3%14%16%8% Very concerned Worried No impact Good Very positive Q. Do you believe a Trump Presidency could have an impact on the following areas? / manufacturing cyber security Source: Upfront Ventures survey of LPs (N=82), Jan 2017

19 LPs seem concerned about
Trump’s impact on social issues with 1/3rd “concerned or deeply worried” LPs 15%19%35%30%1% Right direction No impact Discourage from entering tech Concerned Deeply worried Q. How will a Trump presidency impact startup companies and tech company employment & social policies including ethnic diversity, immigration, religious tolerance, gender equality and transgender rights? Source: Upfront Ventures survey of LPs (N=82), Jan 2017

20 The majority of LPs
we surveyed were clearly anti-Trump. Q. How do you personally feel about a Trump presidency? Source: Upfront Ventures survey of LPs (N=82), Jan 2017 LPs 11%40%20%29% Right leader Fine, too much drama Dislike, but irrelevant Anti-Trump Deeply offended

21 However, most LPs didn’t
think the Trump presidency will have a major impact venture capital. LPs 15%69%12%4% Very beneficial No impact Uncertainty but limited impact Concerned Q. Considering all these issues (offshore development, H1-B, M&A, surveillance, China relations / manufacturing, etc.), how will a Trump presidency impact venture capital? Source: Upfront Ventures survey of LPs (N=82), Jan 2017

Appendix Annual Upfront LP Survey
Participants 82 respondents in January 2017 73 respondents in January 2016 22

2017 LP respondent demographics (I)
23 Fund type 0 10 20 30 9 2 5 12 34 20 Fund size 0 10 20 $0-250M $250-750M $750M-1.5B $1.5-5B $5-10B $10B+ N/A 5 18 7 13 7 15 16 Which of the following best describes your focus on VC? 0 20 40 Only VC Mostly VC Very diverse Not much VC 3 30 2524 Foundation or Endowment Fund of Funds Family Office Discretionary Advisor Insurance Company Other Survey respondent geography 0 15 30 SF/Bay Area Greater LA NY Boston Other US ROW 7 28 2 13 4 25 Source: Upfront Ventures survey of LPs (N=82), Jan 2017

2017 LP respondent demographics (II)
24 Position 0 20 40 60 Partner / MD Analyst to Principal 21 60 How long has your firm been investing in VC (years) 0 20 40 0-3 3-10 10-20 20+ 2 33 26 15 4 How long has your firm existed (years) 0 20 40 0-3 3-10 10-20 20+ 44 27 8 1 Personal investment experience (years) 0 20 40 0-3 3-6 6-10 10-15 15+ 3028 14 7 2 Haven’t invested much in VC Source: Upfront Ventures survey of LPs (N=82), Jan 2017

2016 LP respondent demographics (I)
25 Fund type 0 10 20 30 9 445 23 28 Fund size 0 10 20 $0-250M $250-750M $750M-1.5B $1.5-5B $5-10B $10B+ Blank 4 16 7 18 3 11 14 Which of the following best describes your focus on VC? 0 25 50 Only VC Mostly VC Very diverse Not much VC 2 42 10 19 Foundation or Endowment Fund of Funds Family Office Discretionary Advisor Insurance Company Other Survey respondent geography 0 15 30 NorCal SoCal NE US Other US ROW Blank 2 4 28 11 6 22 Source: Upfront Ventures survey of LPs (N=73), Jan 2016

2016 LP respondent demographics (II)
26 Position 0 20 40 60 Partner / MD Analyst to Principal Blank 1 18 54 How long has your firm been investing in VC (years) 0 20 40 0-3 3-10 10-20 20+ 1 23 30 16 3 How long has your firm existed (years) 0 20 40 0-3 3-10 10-20 20+ 38 1614 5 Personal investment experience (years) 0 20 40 0-3 3-6 6-10 10-15 15+ 27 23 15 44 Haven’t invested much in VC Source: Upfront Ventures survey of LPs (N=73), Jan 2016