Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Is Venture Capital Dead ? Victor V Vurpillat Ph.D. Global Software II

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Thanks to Donald R. Dixon Managing Director Trident Capital

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 The US Venture Industry Has Grown Source: 2000 NVCA Yearbook

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 VC Funds Raised

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Corporate VCs in ¼ of All Deals

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Return to Normal

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 After Setting Records In 1999 and 2000, IPO Markets Are Quiet Now

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Acquisitions Are An Increasingly Important Exit Strategy

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Is There Sufficient Capital For Follow-on Financing? l Investable dollars (“overhang”) estimated at $45B as of 9/30/2001

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Where Do U.S. VCs Invest? l Information Technology –Internet Specific –Communications and Media –Computer Software & Services –Semiconductors & Other Electronics –Computer Hardware l Life Sciences –Medical Devices/Healthcare Services –Biotechnology l Other –Consumer-related –Industrial/Energy –Other Products

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 U.S. Venture Capital Investments into European Companies – By Stage

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 U.S. Venture Capital Investments into European Companies – By Industry Group

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Venture Capital Investments into European Companies By U.S. Firms

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Venture Capital Investments into European Companies By U.S. Firms

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 How VCs Make Decisions

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Company Life Cycle $ Markets Management Products/Services Revenue Profits Liquidity (IPOs, Acqs) Customers

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 How Do U.S. Venture Capitalists Decide Which Deals To Fund? l How large is the company’s market? Focus on large markets, but markets where there is the potential to dominate at least one segment. l What is the capital intensity of the proposed venture? Venture capital funds usually invest multiple millions of dollars in each deal. l What is the quality of the company’s management team? Probably single most important factor for long term success.

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 How Do U.S. Venture Capitalists Decide Which Deals To Fund? l What is proprietary or unique about the company? How does it differ from competitors? Proprietary content often effects valuation. l How large and profitable can the company get? Generally looking for large opportunities…$100+ million profitable company in 5-7 years. Looking for a compelling idea not just marginal improvement over the status quo. l Other factors include deal structure and terms, co-investors, etc.

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 What Are the Characteristics of a Typical U.S. Venture Capital Transaction? l An equity (convertible preferred stock) investment in a private earlier stage or emerging growth company typically seven figures l Long-term relationship (3 - 8 years) l Board seat l Staged financing l Syndication with other VC firms

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Valuation Gap Valuation Parameters Source: Morgan Stanley, Trident Valuation 250M 50M 25M 5M Declining Risk Product Launch Proven Consumer Acceptance Profitability Recent Cycle 1 st Round Seed Mezz IPO 1 st Round Seed IPO 2 nd Round Traditional Cycle 1 st Round Seed IPO 2 nd Round Current Cycle

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 What Type of Help and Guidance Do U.S. Venture Capitalists Typically Provide Their Portfolio Companies? l Initial and ongoing source of cash - as a direct provider and as a facilitator in raising funds from others l Give credibility to company - especially in establishing corporate partnerships and customer relationships. l Help recruit key executives, individual contributors, and board members

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Typical Issues To Resolve l Location of R&D Team l Location of Sales & Marketing Organization l Location of Headquarters l Founder to CEO transition

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Venture Capital is not Dead After All BUT!

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Less than 3 out of 100 deals get funded

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 The Golden Rule is alive and well

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002 Expect to be replaced

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002