Hanan Haviv Head of Hi-Tech Department, M&A All rights are reserved to Herzog Fox and Neeman

Transcription

1 Hanan Haviv Head of Hi-Tech Department, M&A All rights are reserved to Herzog Fox and Neeman December 2015

2 It s complicated

3 General Trends - US

4 General Trends - Israel Israeli Hi-tech capital raising ($m)

5 Capital Side More funds are being raised since 2008 recession Number of seed funds grow Most capital concentrates in late stage funds Less funds and capital goes to traditional VCs ($100m-$500m) Angels / Super Angels Crowdfunding Corporate VCs Chinese investors

6 Corporate VCs Quarterly CVC Investment And Deal Volume (Q1 11-Q1 15) % of US-Based Deals with CVC Participation Source: CB Insights and Morgan Lewis new Corporate Venture Capital Term Sheet Survey

7 Company Side Growth in investment amounts and valuations Especially in late stage In Israel - % of investments above $20m increased from 0%-4% in 2012-Q2 14 to 12% in Q3`15 Amounts raised in these investments grow from $100m-$200m per quarter to $703m in Q3`15 Sources: Wilson Sonsini Financing Trends for Q3 2015; IVC Research Center

8 Company Side More seed rounds Costs decline Sources of capital increase Companies are raising larger amounts of money before IPO or M&A Sources for late-stage private investments are growing and becoming more diverse

9 Returns Are Private

10 Unicorns And we did not even start talking about Unicorns 79 Unicorns were created in the US from 2011 through August 31, of them in 2014 and 2015 Median and average age to achieve unicorn status is decreased Divergence in unicorn rounds and unicorn exits - unicorn rounds have outnumbered unicorn exits in the U.S. by a 4-to-1 margin

11 Bubble? IPO market is slow Institutional investors ( tourists ) increase their tech investments Number of seed/angel rounds decrease, but size of rounds increase Signs that high flying late stage investments are over valued Change of sentiment affects investment terms

12 Bubble? In 2000, you had 50 million people on the Internet, and the number of smartphones was zero. Today, you have three billion Internet users and two billion smartphones. Marc Andreessen (co-founder of Andreessen Horowitz)

13 Bubble?

14 Market is Actually Bifurcating

15 And What About the Agreements? There is nothing new under the sun. Or is there?

16 The Balance is Tilting Valuation Economic Rights Investment amount Liquidation and dividend preference Anti-dilution Pre-emptive rights Registration rights Control / Political Rights Board composition Veto rights / Bring Along Right of first refusal Founder s vesting Founders no-sale Bring Along

17 Early Stage Fast, Fast, Fast Convertible loans passe S.A.F.E. / K.I.S.S Preferred Seed FORMS / simplicity / timing BUT, Series A crunch

18 Late Stage Fear and Greed Scarcity and flow of capital create competition Rising valuations and limited exit opportunities drive protective mechanisms Adjustment of valuations to IPO price Multiple liquidation preferences Full ratchet

19 Trends in Convertible Loans Term is longer Median Range months 1-48 months months 1-72 months Investors not asking for security interest % secured % unsecured Source: WilmerHale 2015 Venture Capital Report

20 Trends in Convertible Loans (cont.) Discounts are common at sub 20%; valuation caps are the norm % of deals Range of discount % with 20% or less % with greater than 20% % with valuation cap % 10-50% 71% 29% 67% % 10-50% 76% 24% 74% Source: WilmerHale 2015 Venture Capital Report

21 Trends in Equity VC Financing Liquidation preference Source: Fenwick & West Silicon Valley Venture Capital Survey Second Quarter 2015

22 Trends in Equity VC Financing (cont.) Anti-dilution Source: Fenwick & West Silicon Valley Venture Capital Survey Second Quarter 2015

23 Trends in Corporate VC Financing General trends similar to general VC industry and more convenient Liquidation Preference - 30% of CVC transactions included senior preference; 70% included pari passu liquidation preference. 10% of the deals had a liquidation preference greater than 1X the original purchase price. Participation - 17% of the transactions included participation rights; 83% involved non-participating preferred stock Veto Rights - 26% of the CVC transactions included voting rights as a separate class; 73% included voting rights together as a single class with other preferred

24 Unicorns Until recently - market forces led to terms that are similar to early stage investments M&A protection - non-participating preferred (88%) IPO protection only 27% require a higher price-per-share threshold Only 10% adjustment to conversion ratio to guarantee target returns M&A protection only 12% separate series vote on M&A More recently, focus on downside protections with relatively moderate upside benefits Source: Wilson Sonsini Unicorns and Other High-Valuation Deals

25 Questions THANK YOU!

26 Back Up

27 Success is Determined by Many Factors Female founders outperform their male peers Startup fortune favors the young Where you go to school (army?) matters Halo effect of former employer Investors pay more for repeat founders Solo founders do worse than teams Technical co-founders are critical to enterprise but not so much for consumer Source: FirstRound 10 year Project