1.
Perspectives on VC and the European opportunity Ben Holmes Stockholm, March 2008

2.
About Index Ventures <ul><li>Over €1.3bn under management, managing parallel investment vehicles </li></ul><ul><ul><li>Ventures Fund €350m doing €0-€20m investments </li></ul></ul><ul><ul><li>Growth Fund €300m doing €10-€40m investments </li></ul></ul><ul><li>Focus on Europe including Eastern Europe and Israel </li></ul><ul><li>Pan European Venture Fund </li></ul><ul><li>Based London & Geneva </li></ul><ul><li>Life Science, Software, Internet, Semiconductors, Communications, Materials, Energy and Cleantech </li></ul>Selected Investments

3.
About Index Ventures <ul><li>Over €1.3bn under management, managing parallel investment vehicles </li></ul><ul><ul><li>Ventures Fund €350m doing €0-€20m investments </li></ul></ul><ul><ul><li>Growth Fund €300m doing €10-€40m investments </li></ul></ul><ul><li>Focus on Europe including Eastern Europe and Israel </li></ul><ul><li>Pan European Venture Fund </li></ul><ul><li>Based London & Geneva </li></ul><ul><li>Life Science, Software, Internet, Semiconductors, Communications, Materials, Energy and Cleantech </li></ul>Selected Investments from Nordic region

4.
Agenda Is there an internet/tech investment bubble? Key investment themes: 2008 – 2012? What role can Europe play?

5.
Are we in another bubble? Reasons to worry… Crazy Ideas! Crazy Names! @ Crazy Prices! <ul><li>“ Social Network for dog-owners” </li></ul><ul><li>Raised financing from VC and well known US angels </li></ul><ul><li>Developer of SuperPoke, Top Friends and Funwall widgets </li></ul><ul><li>Raised $50m at $550m in Jan 2008 </li></ul><ul><li>Most popular social network in Tunisia… </li></ul><ul><li>Raised financing from Russian investment firm at $300m valuation </li></ul><ul><li>“ Human-powered search engine” </li></ul><ul><li>Raised $20m at $100m in Dec 2007 </li></ul>

6.
Are we in another bubble? Reasons to be confident… Unlike 2000, we are all online now…

7.
Are we in another bubble? Reasons to be confident 22% 27% 27% 33% 31% ‘ 06-’10 CAGR … and spending money…

8.
Are we in another bubble? Reasons to be confident <ul><li>Untargetted </li></ul><ul><li>Expensive </li></ul><ul><li>No RoI visibility </li></ul>Online advertising 2007 Online advertising circa 1999 <ul><li>Controlled </li></ul><ul><li>Trackable </li></ul><ul><li>Effective </li></ul>

9.
Are we in another bubble? Reasons to be confident In short – a healthy investment environment <ul><li>Salaries in tech sector are high – but not as astronomic as in 1999 </li></ul><ul><li>“ Land-grab” mentality has dissipated </li></ul><ul><ul><li>Businesses which monetise effectively are spending to acquire users </li></ul></ul><ul><ul><li>Businesses with don’t yet monetise strongly generally aren’t paying to acquire customers </li></ul></ul><ul><li>Cost and capex related to software and web development has shrunk dramatically (<5x) </li></ul><ul><ul><li>Use of open source software (Linux, PHP, MySQL, Ruby) vs. Oracle and Intershop </li></ul></ul><ul><ul><li>Leverage third party infrastructure (e.g. Mashups, Amazon S3 and EC2) </li></ul></ul>

10.
Agenda Is there an internet/tech investment bubble? Key investment themes: 2008 – 2012? What role can Europe play?

11.
Disparate Sectors – one unifying theme … Software Development Tools and Services Database Software Telecommunications Wireless Networking Web Telephony Mobile Telephony Financial Markets Currency Trading Weather Derivatives Betting Entertainment “ Fame, Fashion and Friends” Advertising Ad server software TV advertising destination

12.
“Democratisation” <ul><li>Providing Access at fair terms … </li></ul><ul><ul><li>To closed markets (e.g. Weatherbill, Betfair, Oanda) </li></ul></ul><ul><ul><li>To closed networks (e.g. Rebtel, Skype, Fon) </li></ul></ul><ul><li>Providing Tools and Services free or affordably … </li></ul><ul><ul><li>To build (MySQL, Zend) </li></ul></ul><ul><ul><li>To create and share (e.g. Moo, Spreadshirt, Youtube, Stardoll) </li></ul></ul><ul><ul><li>To promote (e.g. Google, Spotrunner, Craigslist) </li></ul></ul><ul><ul><li>To transact (e.g. eBay, etsy, Paypal) </li></ul></ul>Consumers Producers Price-takers Price-setters Shops Marketplaces Retail Mkt Participants Wholesale Mkt Participants

13.
Biggest venture returns (10-100x+) will still be driven by opening up large closed markets to broader participation <ul><li>Relies on fundamental traits of human nature </li></ul><ul><ul><li>Creative </li></ul></ul><ul><ul><li>Commercial </li></ul></ul><ul><ul><li>Communicative </li></ul></ul><ul><li>More can be achieved with less capital driving massive returns for successful ventures </li></ul><ul><ul><li>Lower product development and testing costs </li></ul></ul><ul><ul><li>Lower sales and marketing costs are lower </li></ul></ul><ul><ul><li>Entrenched communities become hard to displace </li></ul></ul><ul><li>The Challenge … </li></ul><ul><ul><li>No clear or repeatable formula for success </li></ul></ul><ul><ul><li>Building userbase, trust and liquidity can take time </li></ul></ul><ul><ul><li>Forming the correct monetisation model is tricky </li></ul></ul>

14.
Agenda Is there an internet/tech investment bubble? Key investment themes: 2008 – 2012? What role can Europe play?

15.
Dozens of multi-billion dollar tech success stories ... ... handful of truly global leaders, but changing fast ... Contrasting EU and US Number of leading tech companies

16.
<ul><li>Many firms </li></ul><ul><li>Lengthy track records </li></ul><ul><li>Established hierarchy </li></ul><ul><li>Fewer firms </li></ul><ul><li>Shorter track records </li></ul><ul><li>Leadership up for grabs </li></ul>Contrasting EU and US Maturity of VC Industry etc … Fund VI 1995 Benchmark Capital Fund VIII 1985 DFJ Fund VI 1983 Battery Ventures Fund IX 1983 Accel Fund XI 1978 Oak Fund XI 1978 NEA Fund XI 1972 Sequoia Capital Fund XI 1972 Kleiner Perkins Fund XI 1965 Greylock Fund VII 1911/1970 Bessemer etc … Fund I 1999 Add Partners Fund II 1997 Amadeus Capital Fund V Fund IV 1994 1996 Northzone Index Ventures Fund IV 1991 Wellington Fund V 1989 Sofinnova Fund VI 1986 Atlas Venture Fund IV 1982 Partech

17.
Contrasting EU and US Amount of VC investment Venture Captial Investment ($bn / qtr) US Venture Capital European Venture Capital

18.
The “Cinderella” of alternative assets <ul><li>European VC has been marginalised far too long by LPs </li></ul><ul><ul><li>In favour of buyout and hedge funds </li></ul></ul><ul><ul><li>In favour of US Venture Capital </li></ul></ul><ul><li>Last two years have been a genuine turning point </li></ul><ul><ul><li>European VC generating more successful exits relative to funds invested and companies backed (twice as capital efficient based on recent survey*) </li></ul></ul><ul><ul><li>Global $bn+ companies built out of Europe </li></ul></ul>*Simon Cook, DFJ Esprit & EVCA Research, 2007.

19.
Summary European VC Encouraging prospects for European VC <ul><li>Tremendous pool of engineering and scientific talent </li></ul><ul><li>Easy access to Eastern Europe and Russian Markets </li></ul><ul><li>Dominance in certain sectors </li></ul><ul><ul><li>Wireless </li></ul></ul><ul><ul><li>ERP </li></ul></ul><ul><ul><li>Open source software </li></ul></ul><ul><li>Growing pool of entrepreneurial and managerial talent </li></ul><ul><ul><li>Returning Europeans from US </li></ul></ul><ul><ul><li>Early serial entrepreneurs </li></ul></ul>

20.
Summary European VC Perspectives on Swedish Startups Europe’s most socially cohesive country Calm, productive and unpoliticised work culture <ul><li>High technical awareness from non-technical staff; & </li></ul><ul><li>Reasonable business awareness from technical staff </li></ul>No chasm between “business” and “technical” staff exist <ul><li>High levels of social security </li></ul><ul><li>High direct and indirect taxes and tough tax regime around options </li></ul><ul><li>High levels of confidence to become entrepreneurs </li></ul><ul><li>Weak incentives and rewards to grow and exit a business </li></ul>

21.
Summary European VC Swedish startups: Challenges and Opportunities <ul><li>“ Europe’s Korea” </li></ul><ul><ul><li>Highly tech savvy population </li></ul></ul><ul><ul><li>High density of programmers, scientists and technicians </li></ul></ul><ul><ul><li>Early investors in infrastructure (e.g. mobile, broadband) </li></ul></ul><ul><ul><li>Early and eager adopters of new devices, technologies and services </li></ul></ul><ul><li>Future seems to arrive quicker in Sweden . Challenges are… </li></ul><ul><ul><li>As a society, to remain on the leading edge of innovation and adoption </li></ul></ul><ul><ul><li>Capitalise on early insights and access you have to export technology and develop global leaders… </li></ul></ul><ul><li>Win foreign customers early </li></ul><ul><li>Expand abroad early </li></ul><ul><li>Take on international investors early… </li></ul>

22.
Thank you Ben Holmes Email : benh@indexventures.com Skype : ben_holmes Image Credit s. Vorm, nshepard, Hamed Saber, charles chan * all from Flickr, licensed under Creative Commons