Presentation on Venture Capital April Tanya Roberts / Omar Ali

What is Venture Capital? Generally – investment in private (ie unquoted) companies. Specifically: - Growth / Acquisition Funding (inc. start ups) - MBOs / MBIs / IBOs / LBOs / SBOs …….. - Private Placement - (Turnarounds) General criteria are the same – growth and the management to deliver the growth How do VCs make their money? - Profit Growth - Leverage - Selling well

Market Trends Since Inception (European Point of View): More than €125 billion has been raised for investment in Europe's most promising growth companies since private equity emerged in Europe in the 1980s. In 1999 alone, €25.1 billion was poured into more than 11,000 investments. 1 The Last Couple of Years: The European and American VC markets have witnessed a substantial decrease in fund raising, an increase in divestments, and a dry-up of the capital markets as an exit strategy. Nonetheless, large buyouts are fuelling the investment climate and keeping the market active. Essentially, an economic downturn is not necessarily a bad thing for the private equity market. It offers the opportunity to turn around bargain companies. 1 European Venture Capital Association 2 Venture Economics – Thomson Financial Group US VC Market 2

So what’s it like? Analysis – so don’t worry about the numbers! It’s the management who matter…. Fierce Competition Marketing, Marketing, Marketing... BUT – it’s about long term relationships The Good Bits: Variety / Responsibility / Long term view The Bad Bits: Peaks and troughs / Tough decisions

The UK VC Market ( It’s tough…… LBOs: Alchemy / CVC / Cinven Mid Market Private Equity : UK Regional Specialists: 3i / LDC / Bridgepoint…. Sector Specialists: Graphite / Apax The Best of the Rest: ABN / HSBC / Permira….. Venture Capital : Small funds / specialist divisions within the main firms The European VC Market (

Types of PE/VC Funds Industries: There are numerous industry focuses within venture capital and private equity. The largest sector investments over the last year in the US, for instance, have been the following 1 : 1)software 2)telecommunications 3)medical devices 4)biotechnology 5)network and equipment Geography: Funds are often organized by having a specific geographic region constraint in regards to making investments. Size of Funds: Funds vary in size; anywhere from €50 million to €5 billion. Nonetheless, originators of funds normally seek at a minimum €100 million. 1 PWC Money Tree

Structure of PE/VC Funds General Partners (GP): Are the managers and originators of a fund. It is rare that GPs put their own capital into the fund and thus, seek management fees and carried interest within the fund structure. The industry standard for carried interest is 20%. Limited Partners (LP): Are the actual investors that commit capital to the fund. Investors tend to be mainly institutions (financial intermediaries) such as, Pension Funds, Insurance Companies, Investment Banks, etc. Since LPs actually supply the fund with money, they are usually rewarded with preferred returns and a “catch-up” clause (repayment of 100% capital before other dividends are to be distributed.) Time Periods: Investment Period – is the amount of years that the fund will utilize to make portfolio investments. The industry standard is between 3 to 5 years. Fund Life – is the amount of years that fund exists for. The industry standard is 10 years to 12 years with maximums reaching 20 years. Note: See Next Slide for Further Detail

Industry standard’s for investment periods. Fund lives are 3 and 10 years, respectively. Management Fee is applied on committed capital. Additional fees that are applied on a one-time basis. Preferred Returns to LPs and Catch Up terms and arrangements.

Useful Websites European Venture Capital Association: National Venture Capital Association: British Venture Capital Association: Italian Private Equity and Venture Capital Association: Venture Economics (Thomson): Private Equity Online: PWC Money Tree: The Journal of Private Equity: