13. 0%
10%
20%
30%
40%
50%
60%
70%
80%
US Germany Brazil India China
COUNTRY
GDP/Employment
Agriculture GDP Agr Employment Industry GDP Industry Emp Services GDP Services Emp Investment
Structural Differences Will Narrow
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16. 16
1. Source: NVCA 2011 Year Book.
2. Source: Dow Jones VentureSource as of December 31, 2010, as reported on May 5, 2011.
Industry Contraction in the US in Contrast to Asia
706
396
293
0
100
200
300
400
500
600
700
800
2000 2005 2010
86
649
157
0
100
200
300
400
500
600
700
800
1990 2000 2010
Number of VC Funds Raising
Capital in a Given Year1
Number of VC Investors that
Made at Least 4 Investments in
a Given Year2
Confidential/Trade Secret
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17. 0%
20%
40%
60%
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
% of ES Capital Uninvested
$0
$10
$20
$30
$40
$50
$60
Billions
$85.6
17
1. Source: Dow Jones VentureSource as of September 30, 2011, as reported on October 10, 2011.
2. Original concept from Steven N. Kaplan, University of Chicago Booth School of Business.
3. Source: Thomson Reuters, VentureXpert as of June 30, 2011, as reported on November 3, 2011.
Right-Sizing of the Industry
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
VC Commitments as % of Total Stock Market Capitalization
Industry contractions typically yield outsized returns
Confidential/Trade Secret
Cumulative Percentage of Early Stage Capital Uninvested3
Annual VC Fundraising1 VC Funding Raised as a % of
Stock Market Capitalization1,2
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18. 18
Source: Thomson Reuters, VentureXpert as of June 30, 2011, as reported on November 3, 2011.
1. Represents the average of the median and upper quartile thresholds per vintage year, respectively, vintages 1985 to 2009.
Significant Premium for Top Quartile Access
Confidential/Trade Secret
9.3%
24.8%
0%
5%
10%
15%
20%
25%
30%
35%
Average
Median
Average Upper
Quartile
IRR
Early Stage Venture
1554 bps avg
UQ premium
1 1
8.4%
22.8%
0%
5%
10%
15%
20%
25%
30%
35%
Average
Median
Average Upper
Quartile
IRR
All Stages Venture
1442 bps avg
UQ premium
1 1
• Critically important to be in top funds due to large upper quartile
premium and ‘persistence’ of returns
• Early stage, top quartile venture outperforms
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19. 19
Fertile Environment for Value Creation
• Opportunities abound across the sectors backed by VCs
IT Life Sciences Cleantech
• Market disruptions are occurring
– Across the global theater
– Across multiple subsectors…which are intersecting
• Venture-backed companies are redefining markets
– At a seemingly accelerating pace
Confidential/Trade Secret
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20. 20
Growth Drivers for IT
Confidential/Trade Secret
• Strong relative value in the venture-backed sectors
– Internet: penetrating daily life, globally
– Wireless bandwidth: connected always-on devices are now ubiquitous
– Social networking: allowing us to stay in touch, communicate,
collaborate
– Commodity CPU, storage and bandwidth: enterprises undergoing major
architectural transition – cloud computing
– Application delivery: on-demand infrastructure/services acting as
enablers; technology is available “by the drink”
– Consumerization of IT: technology reaching the mainstream consumer
and the rural poor
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21. 21
• Healthcare systems in a state of change
– From traditional fee-for-service toward integrated delivery systems
– Value of technology shifts to improving patient outcomes, reducing cost
• “Hierarchy of innovation:”
– Treating previously untreated diseases
– New physiological insights leading to greenfield treatments
– Little innovations that improve clinical outcomes
• Changes in regulation and reimbursement
• Low cost delivery of basic health care services
Confidential/Trade Secret
Growth Drivers for Life Sciences
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22. • Increasing energy demand and
environmental concerns
‐ Aging and outmoded grid
‐ Rising demand for portable and
dispatchable energy
• Increasing energy security
requirements
• Restructuring of global power
industry
• Clean, renewable energy sources
• New meter and communication
technologies
• Mobile power stations and
chargeable demand shifters
• Domestic energy solutions and
reduced reliance on imports
• Products that improve
performance and reduce costs
Growth Drivers for Cleantech
“It’s very simple; we need to cost-effectively produce usable energy with a smaller
carbon footprint, and we need to use that energy far more efficiently - radical new
technology, Black Swans, can get us there.”
~Vinod Khosla, Khosla Ventures
Solutions:Challenges:
Confidential/Trade Secret 22
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23. 23
Cleantech Core Themes
• Broad investment universe
– Demand-side management and energy efficiency
– IT and energy communications
– Advanced power conversion
– Power electronics and semiconductors
– Electrical and fuel storage
– Clean fuel processes
– Pollution control
– Distributed power
Confidential/Trade Secret
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24. Attractive Asset Classes
• Infrastructure
– More Productive Movement of Goods, Services, People, Information
– Productive Use of Water
• Fossil Fuels and Alternative Energy
– Carbon Capture and/or Elimination
– More Productive Plants
– Transmission
– Grid
– Distributed Power
• Efficiency/Productivity
– Structures
– Products
– Transportation
25. Attractive Asset Classes
• Agritech
• Information Technology
– Consumer
– Business
• Health Care
– New Products
– Efficiency
– Mode of Care
• Education
• Financial Services
• Hard Assets
• Global Demand
26. 26
Summary
• Abundant VC opportunities for major market disruptions exist across multiple
sectors and on a global basis
• Innovation is occurring at an accelerating pace
• India is innovating into growth
• Experienced VCs contribute by:
– Selecting the most compelling and game-changing innovations
– Backing visionary entrepreneurs who recognize the benefits of top VC
backing
– Creating powerful competitive advantages
– Using their network of talent, expertise, and investors
Confidential/Trade Secret
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Let’s look at our third area of investment - our cleantech investments.Clearly, the world has to address significant problems in the areas of power generation and environmental concerns. To illustrate this point, there are 5 billion people who would like to enjoy the energy-rich lifestyles currently enjoyed by 500 million people, mostly in the developed world. We will need non-linear improvements and the ingenuity of entrepreneurs to bridge this gap. Other drivers include the need to address today’s aging and outmoded grid with new meter and communication technologies and the need to increase energy security, not only in the US but also in Europe, China, and India. These problems represent tremendous market and investment opportunities for savvy investors in cleantech.