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Early Stage Marketplace Data                                           ©


Slide             2      Life in the Liquidity Food Chain – Problem
Slide             3      Life in the Liquidity Food Chain – Solution
Slide             4      The Liquidity Food Chain
Slide             5      Art of Investing vs. Science of Investing
Slide             6      Members of the Early Stage
Slide             7      Buying & Selling in the Early Stage
Slide             8      VCs Sell to Validation Partners
Slide             9      VCs Buy from Sponsored Sources
Slide            10      Size of Angel Market
Slide       11 - 14      Private Market Providers & the Rise of the Internet
Slide       15– 18       Changing Global Demand – BRIC & Beyond




Elliott Dahan   The Growth Group   elliott@thegrowthgroup.com     650 814 7644

                                                                               1
LIFE IN THE LIQUIDITY FOOD CHAIN


         THE PROBLEM


   All Startups need BOTH
   Validation and Funding


                               2
LIFE IN THE LIQUIDITY FOOD CHAIN

          THE SOLUTION


 Create a global marketplace that
satisfies the self interests of each
    member of the Early Stage
            Community
                                   3
The Liquidity Food Chain
BUY EXIT - IPO & Corporate M&A (2)                                                                             SELL
      PRE-IPO - Private Networks (Sharespost/2ndMarket)
      GROWTH – Alternative Trading Systems,
      Series B +++, Corp Dev /Corp M&A
      EXPANSION - Series A/B – VC / Corp Dev


      THE EARLY STAGE MARKETPLACE
      Early Stage Funders – Angels/VCs/Work-For-Hire
      Sponsoring Organizations – Accelerators, Incubators,
      Univ. Public & Private Mentoring Organizations
      Sponsored Companies – startups
      Validation Partners (1) – Corporate Partners / Corp. Dev.
      NOTES (1) Validation Partners can provide either funding and or partnership (2) ―venture capitalists
      report selling to a public company (49.9%) as the most likely course of action for a liquidity event.
      Nearly 24.6% indicate their plans to sell to a private company while 16.8% are planning for an initial
      public offering.‖ Pepperdine – ―Private Capital Markets Project‖ – August 2009
BUY                                                                                                              4
                                                                                                               SELL
BUYING DECISIONS OF THE LIQUIDITY FOOD CHAIN
Public IPO / Corp. M&A                               Hardcore Financial Data
                                                           Corp M&A

Pre-Exit
PMN – 2ndMkt /                                 Short term / Liquidity
Sharespost /VCs/PE/Corp                             Corp M&A
M&A



Series B++                                  Strong Potential
ATS – Xpert Financial/ VC                  Corp Development
/Corp Dev



Early Stage Marketplace        Team / Mkt Size /
Angels/VCs/Corp Dev            Solution /. . “GUT”
Seed/Series A

                            ART of Investing            SCIENCE of Investing
                                                                         5
The Members of the Early Stage
  Community (www.earlystagemarketplace.com)




                                              6
EARLY STAGE MEMBERS ARE CONSTANTLY
   BUYING AND SELLING FROM EACH OTHER

ESM MEMBER             BUY FROM                     SELL TO

Validation Partner   Sponsored Companies     Internal Oper. Divisions,
                     Funders                 Funders, Corp Spinout VCs


Sponsoring           Sponsored Companies     Funders, Non Profit Grants,
                                             Corp. Sponsorships,
Organizations                                Mentors/Advisors/Pro Bono

Sponsored            Sponsoring              Sponsoring Orgs, Funders,
                     Organizations           Validation Partners, other
Companies                                    Sponsored Companies

                     Sponsored Companies,    Validation Partners,
Funders              Tech Transfers, Corp.   Upstream Funders, Funders
                     Spinouts, Funders       to syndicate current round
                                                                     7
VCs & Validation Partners Working Together in
   the Early Stage Collaboration Community
                                  Pepperdine – ―Private Capital Markets Project‖ – August 2009


―Regarding exit plans, venture capitalists report selling to a public company (49.9%)
   as the most likely course of action for a liquidity event. Nearly 24.6% indicate
   their plans to sell to a private company while 16.8% are planning for an initial
   public offering.‖




VCs report that 75% of their projected
                                                                                                 8
Exit/Liquidity will be with Validation Partners
VCs and Deal Flow Sources
                               Pepperdine – ―Private Capital Markets Project‖ – August 2009

  ―Deal flow comes from a variety of sources. The largest category is
     entrepreneurs themselves (26.6%) followed by members (25.9%)
     and word of mouth (13.5%).‖




1) 85% of VC Deal Flow is sourced from a “Sponsor” with 12% sourced
   from Other and 4% from Websites


2) “Vouching” is important at all levels – From the Angellist homepage -
                                                                                         9
―Who do you trust?   Who do you know? -
SIZE OF ANGEL MARKET
•   Angel investors are estimated to provide 90 percent of the seed and start-up
    capital in this country— for 30,000 to 50,000 companies per year. Angels
    invest $15 to $30 billion per year in U.S. start-up companies
           William H. Payne Entrepreneur, Angel Investor, and Kauffman Foundation Entrepreneur-
    in-Residence 2010 Ewing Marion Kauffman Foundation


•   SBA estimates that there are at least 250,000 angels active in the country,
    funding about 30,000 small companies a year. The total investment from
    angels has been estimated at anywhere from $20 billion to $50 billion as
    compared to the $3 to $5 billion per year that the formal venture capital
    community invests. http://www.smallbusinessnotes.com/ 2010

•   EBAN estimates that the number of business angels in Europe is around
    75,000, a small number in comparison to the US, which has an estimated
    250,000. The European angel market represents circa 25% of the
    American angel market.      EBAN (European Business Angel Network) White Paper 2010



                                                                                           10
Private Market Providers
  COMPANY          LICENSE         STAGE                       TRANSACTION TYPE
                   NEEDED                                    LINEAR OR COMMUNITY


MicroVest         No            Seed            Linear - aggregates to invest in global micro for profit
                                                funds
Angel List        No            Seed-Series A   Linear - startup to Angel - good example of Vouching
Angelsoft         No            Seed-Series A   Linear - startup to Angel - application driven - deal flow
                                                tools - no Vouching
Angel Pool        No            Seed-Series A   Linear - Angel to Angel syndication
Angel Bridge      No            Seed-Series A   Linear - Angel to Angel syndication
Xpert Financial   Yes           Mid Growth      Linear - Private Offerings, Secondary Markets -
                                                Broker/Dealer to Investor
Axial Market      Yes           Mid Growth      Linear - Private Placements - Broker/Dealer to Investor
Sharespost        Yes           Late Growth     Linear - Pre IPO companies NOTE 1
Second Market     Yes           Late Growth     Linear - Pre IPO companies
ESM               NO            Seed-Series A   Collaborate Community -


(1) has its own special-purpose funds to buy up private-company shares and charge participants a 5
percent fee to manage them. Sharespost has raised three such funds — two for Facebook shares and one
for shares in LinkedIn, which is in registration for IPO.                                          11
―The New Financial Matchmakers‖
                       Bob Rice Booz & Com Summer 2011

― a new generation of private securities platforms that has
   begun to emerge over the past few years provides much
   more (than traditional platforms): opportunity discovery
   and recommendation engines; analytics and evaluation
   tools; secure virtual diligence rooms with tiered access
   rights; industry benchmarks and comparables; deal
   and deal flow management systems.
These platforms also offer the reach equal to that of the
   Internet itself.‖

The Early Stage platform is not Linear – it is a Community
  where all members are both Buyers and Sellers –
  constant transactions between Members
                                                         12
SEC may let startups use social
  networks to raise money                                       April 9, 2011 | Dean Takahashi



Federal securities regulators are weighing demands to make it easier for fast-growing
   companies to use social networks such as Facebook and Twitter to raise money by
   tapping thousands of investors for very small amounts of shares.

The Securities and Exchange Commission is looking at adapting its rules to encourage
   Internet-age techniques for small companies raising capital. The issue is part of a
   wider review by the agency into whether to ease decades-old constraints on share
   issues by closely held companies.

Crowd funding could be a cheap source of cash, competing with angel investors who
   specialize in giving seed rounds to start-ups. Since the amounts of money are small,
   the downside risk isn’t too bad for investors. But the trick will be in protecting the
   public from scammers who have no intention of following through on promises.


REGISTERED SPONSORING ORGANIZATIONS AND
  FUNDERS ELIMINATE THE “SCAMMING” ELEMENT
                                                                                                 13
Cantor Fitzgerald Bets On An Expanding
    Private-Stock Market       VentureWire October 10, 2011




•   Cantor Fitzgerald is looking to cash in on a growing secondary market for shares in hot
    private companies such as Facebook and Twitter. The financial services firm is creating
    a private markets group to afford clients opportunities to invest in private company
    stock ―For us this is an opportunity to be the dominant player in a very fragmented
    market,‖ Shawn Matthews, the firm’s chief executive, told VentureWire.

•   The market has also drawn interest lately from J.P. Morgan Chase, which raised $1.2
    billion for a digital growth fund, and Goldman Sachs Group, which raised $1 billion
    from its foreign clients to invest in Facebook.

•   Matthews also said his firm doesn’t plan to rely on existing secondary market players to find
    deals. ―We come already with a significant investment bank behind us,‖ he said. “We’ll be
    sourcing our own deals. I think that’s where our competitive advantage lies.”

•   Based in New York, Cantor Fitzgerald has more than 5,000 institutional clients and
    1,400 employees in 30 offices worldwide, the firm said.

                                                                                            14
½ of US VCs will invest outside
        of US in 2011




                             15
Number of venture firms expected to
decline in traditional markets; expected to
        grow in emerging markets
             Increase    Increase     Remain       Decrease      Decrease
             +30%        1% - 30%     the Same     1% - 30%      +30%
Brazil       30%         68%          3%           NA            NA
China        48%         51%          NA           1%            NA
India        21%         73%          NA           9%            9%
US           NA          4%           4%           68%           24%


the team (Yuri Milner and DST) is studying opportunities across Asia,
including China, India, Indonesia and South Korea. Over the next five years,
DST expects to devote 40 percent of its capital to the region. NYT, 9/28/2011
                                                                            16
                              Deloitte 2010 Venture Capital Global Report
Limited Partners inclination to invest in
VC home country –Next 5 yrs

           More            No Change            Less
           Inclined                             Inclined

 Brazil    92%             8%                   NA
 China     91%             6%                   3%
 India     76%             18%                  6%
 US        15%             29%                  56%

                      Deloitte 2010 Venture Capital Global Report

                                                                    17
Venture Capitalists Chase Seed-Stage Deals
                                                   DEALS INDIA OCTOBER 25, 2011


• Large investment funds in India such as Sequoia Capital India, Norwest
  Venture Partners India, Nexus Venture Partners and Draper Fisher
  Jurvetson have started focusing strongly on their India "seed" initiatives.
  Over the last one year, Sequoia has made at least nine such
  investments.
• Helion Venture Partners, SAIF Partners and a few others also incubate
  start-ups, and back them in their next rounds of funding.
• Norwest, Nexus and Draper Fisher have started their own seed capital
  programs. Blume Venture Advisors, which is still in the midst of raising
  money for its fund, has completed more than a dozen deals, including its
  $300,000 investment in Adepto Solutions Pvt. Ltd, a Mumbai-based
  developer of social commerce platform Trol.ly.
• Other recent seed-stage deals include My First Cheque's investment of
  an undisclosed amount in MeriCAR Workshops, which runs
  MeriCAR.com, India's first dedicated car-servicing portal.

                                                                          18

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Esm slideshare ppt

  • 1. Early Stage Marketplace Data © Slide 2 Life in the Liquidity Food Chain – Problem Slide 3 Life in the Liquidity Food Chain – Solution Slide 4 The Liquidity Food Chain Slide 5 Art of Investing vs. Science of Investing Slide 6 Members of the Early Stage Slide 7 Buying & Selling in the Early Stage Slide 8 VCs Sell to Validation Partners Slide 9 VCs Buy from Sponsored Sources Slide 10 Size of Angel Market Slide 11 - 14 Private Market Providers & the Rise of the Internet Slide 15– 18 Changing Global Demand – BRIC & Beyond Elliott Dahan The Growth Group elliott@thegrowthgroup.com 650 814 7644 1
  • 2. LIFE IN THE LIQUIDITY FOOD CHAIN THE PROBLEM All Startups need BOTH Validation and Funding 2
  • 3. LIFE IN THE LIQUIDITY FOOD CHAIN THE SOLUTION Create a global marketplace that satisfies the self interests of each member of the Early Stage Community 3
  • 4. The Liquidity Food Chain BUY EXIT - IPO & Corporate M&A (2) SELL PRE-IPO - Private Networks (Sharespost/2ndMarket) GROWTH – Alternative Trading Systems, Series B +++, Corp Dev /Corp M&A EXPANSION - Series A/B – VC / Corp Dev THE EARLY STAGE MARKETPLACE Early Stage Funders – Angels/VCs/Work-For-Hire Sponsoring Organizations – Accelerators, Incubators, Univ. Public & Private Mentoring Organizations Sponsored Companies – startups Validation Partners (1) – Corporate Partners / Corp. Dev. NOTES (1) Validation Partners can provide either funding and or partnership (2) ―venture capitalists report selling to a public company (49.9%) as the most likely course of action for a liquidity event. Nearly 24.6% indicate their plans to sell to a private company while 16.8% are planning for an initial public offering.‖ Pepperdine – ―Private Capital Markets Project‖ – August 2009 BUY 4 SELL
  • 5. BUYING DECISIONS OF THE LIQUIDITY FOOD CHAIN Public IPO / Corp. M&A Hardcore Financial Data Corp M&A Pre-Exit PMN – 2ndMkt / Short term / Liquidity Sharespost /VCs/PE/Corp Corp M&A M&A Series B++ Strong Potential ATS – Xpert Financial/ VC Corp Development /Corp Dev Early Stage Marketplace Team / Mkt Size / Angels/VCs/Corp Dev Solution /. . “GUT” Seed/Series A ART of Investing SCIENCE of Investing 5
  • 6. The Members of the Early Stage Community (www.earlystagemarketplace.com) 6
  • 7. EARLY STAGE MEMBERS ARE CONSTANTLY BUYING AND SELLING FROM EACH OTHER ESM MEMBER BUY FROM SELL TO Validation Partner Sponsored Companies Internal Oper. Divisions, Funders Funders, Corp Spinout VCs Sponsoring Sponsored Companies Funders, Non Profit Grants, Corp. Sponsorships, Organizations Mentors/Advisors/Pro Bono Sponsored Sponsoring Sponsoring Orgs, Funders, Organizations Validation Partners, other Companies Sponsored Companies Sponsored Companies, Validation Partners, Funders Tech Transfers, Corp. Upstream Funders, Funders Spinouts, Funders to syndicate current round 7
  • 8. VCs & Validation Partners Working Together in the Early Stage Collaboration Community Pepperdine – ―Private Capital Markets Project‖ – August 2009 ―Regarding exit plans, venture capitalists report selling to a public company (49.9%) as the most likely course of action for a liquidity event. Nearly 24.6% indicate their plans to sell to a private company while 16.8% are planning for an initial public offering.‖ VCs report that 75% of their projected 8 Exit/Liquidity will be with Validation Partners
  • 9. VCs and Deal Flow Sources Pepperdine – ―Private Capital Markets Project‖ – August 2009 ―Deal flow comes from a variety of sources. The largest category is entrepreneurs themselves (26.6%) followed by members (25.9%) and word of mouth (13.5%).‖ 1) 85% of VC Deal Flow is sourced from a “Sponsor” with 12% sourced from Other and 4% from Websites 2) “Vouching” is important at all levels – From the Angellist homepage - 9 ―Who do you trust? Who do you know? -
  • 10. SIZE OF ANGEL MARKET • Angel investors are estimated to provide 90 percent of the seed and start-up capital in this country— for 30,000 to 50,000 companies per year. Angels invest $15 to $30 billion per year in U.S. start-up companies William H. Payne Entrepreneur, Angel Investor, and Kauffman Foundation Entrepreneur- in-Residence 2010 Ewing Marion Kauffman Foundation • SBA estimates that there are at least 250,000 angels active in the country, funding about 30,000 small companies a year. The total investment from angels has been estimated at anywhere from $20 billion to $50 billion as compared to the $3 to $5 billion per year that the formal venture capital community invests. http://www.smallbusinessnotes.com/ 2010 • EBAN estimates that the number of business angels in Europe is around 75,000, a small number in comparison to the US, which has an estimated 250,000. The European angel market represents circa 25% of the American angel market. EBAN (European Business Angel Network) White Paper 2010 10
  • 11. Private Market Providers COMPANY LICENSE STAGE TRANSACTION TYPE NEEDED LINEAR OR COMMUNITY MicroVest No Seed Linear - aggregates to invest in global micro for profit funds Angel List No Seed-Series A Linear - startup to Angel - good example of Vouching Angelsoft No Seed-Series A Linear - startup to Angel - application driven - deal flow tools - no Vouching Angel Pool No Seed-Series A Linear - Angel to Angel syndication Angel Bridge No Seed-Series A Linear - Angel to Angel syndication Xpert Financial Yes Mid Growth Linear - Private Offerings, Secondary Markets - Broker/Dealer to Investor Axial Market Yes Mid Growth Linear - Private Placements - Broker/Dealer to Investor Sharespost Yes Late Growth Linear - Pre IPO companies NOTE 1 Second Market Yes Late Growth Linear - Pre IPO companies ESM NO Seed-Series A Collaborate Community - (1) has its own special-purpose funds to buy up private-company shares and charge participants a 5 percent fee to manage them. Sharespost has raised three such funds — two for Facebook shares and one for shares in LinkedIn, which is in registration for IPO. 11
  • 12. ―The New Financial Matchmakers‖ Bob Rice Booz & Com Summer 2011 ― a new generation of private securities platforms that has begun to emerge over the past few years provides much more (than traditional platforms): opportunity discovery and recommendation engines; analytics and evaluation tools; secure virtual diligence rooms with tiered access rights; industry benchmarks and comparables; deal and deal flow management systems. These platforms also offer the reach equal to that of the Internet itself.‖ The Early Stage platform is not Linear – it is a Community where all members are both Buyers and Sellers – constant transactions between Members 12
  • 13. SEC may let startups use social networks to raise money April 9, 2011 | Dean Takahashi Federal securities regulators are weighing demands to make it easier for fast-growing companies to use social networks such as Facebook and Twitter to raise money by tapping thousands of investors for very small amounts of shares. The Securities and Exchange Commission is looking at adapting its rules to encourage Internet-age techniques for small companies raising capital. The issue is part of a wider review by the agency into whether to ease decades-old constraints on share issues by closely held companies. Crowd funding could be a cheap source of cash, competing with angel investors who specialize in giving seed rounds to start-ups. Since the amounts of money are small, the downside risk isn’t too bad for investors. But the trick will be in protecting the public from scammers who have no intention of following through on promises. REGISTERED SPONSORING ORGANIZATIONS AND FUNDERS ELIMINATE THE “SCAMMING” ELEMENT 13
  • 14. Cantor Fitzgerald Bets On An Expanding Private-Stock Market VentureWire October 10, 2011 • Cantor Fitzgerald is looking to cash in on a growing secondary market for shares in hot private companies such as Facebook and Twitter. The financial services firm is creating a private markets group to afford clients opportunities to invest in private company stock ―For us this is an opportunity to be the dominant player in a very fragmented market,‖ Shawn Matthews, the firm’s chief executive, told VentureWire. • The market has also drawn interest lately from J.P. Morgan Chase, which raised $1.2 billion for a digital growth fund, and Goldman Sachs Group, which raised $1 billion from its foreign clients to invest in Facebook. • Matthews also said his firm doesn’t plan to rely on existing secondary market players to find deals. ―We come already with a significant investment bank behind us,‖ he said. “We’ll be sourcing our own deals. I think that’s where our competitive advantage lies.” • Based in New York, Cantor Fitzgerald has more than 5,000 institutional clients and 1,400 employees in 30 offices worldwide, the firm said. 14
  • 15. ½ of US VCs will invest outside of US in 2011 15
  • 16. Number of venture firms expected to decline in traditional markets; expected to grow in emerging markets Increase Increase Remain Decrease Decrease +30% 1% - 30% the Same 1% - 30% +30% Brazil 30% 68% 3% NA NA China 48% 51% NA 1% NA India 21% 73% NA 9% 9% US NA 4% 4% 68% 24% the team (Yuri Milner and DST) is studying opportunities across Asia, including China, India, Indonesia and South Korea. Over the next five years, DST expects to devote 40 percent of its capital to the region. NYT, 9/28/2011 16 Deloitte 2010 Venture Capital Global Report
  • 17. Limited Partners inclination to invest in VC home country –Next 5 yrs More No Change Less Inclined Inclined Brazil 92% 8% NA China 91% 6% 3% India 76% 18% 6% US 15% 29% 56% Deloitte 2010 Venture Capital Global Report 17
  • 18. Venture Capitalists Chase Seed-Stage Deals DEALS INDIA OCTOBER 25, 2011 • Large investment funds in India such as Sequoia Capital India, Norwest Venture Partners India, Nexus Venture Partners and Draper Fisher Jurvetson have started focusing strongly on their India "seed" initiatives. Over the last one year, Sequoia has made at least nine such investments. • Helion Venture Partners, SAIF Partners and a few others also incubate start-ups, and back them in their next rounds of funding. • Norwest, Nexus and Draper Fisher have started their own seed capital programs. Blume Venture Advisors, which is still in the midst of raising money for its fund, has completed more than a dozen deals, including its $300,000 investment in Adepto Solutions Pvt. Ltd, a Mumbai-based developer of social commerce platform Trol.ly. • Other recent seed-stage deals include My First Cheque's investment of an undisclosed amount in MeriCAR Workshops, which runs MeriCAR.com, India's first dedicated car-servicing portal. 18