NATIONAL VENTURE CAPITAL ASSOCIATION

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1 NATIONAL VENTURE CAPITAL ASSOCIATION YEARBOOK 2014 NATIONAL VENTURE CAPITAL ASSOCIATION 2014 INCLUDING STATISTICS FROM THE PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report based on data from Thomson Reuters

2 2014 National Venture Capital Association Yearbook 1 March 2014 Dear Colleague: We are delighted to present to you the 2014 Yearbook, prepared by Thomson Reuters. This is the 17 th edition in a series launched in early Since then, much has changed in the industry. One thing that has not changed, however, is our commitment to bring accurate and responsible transparency to this powerful economic force called venture capital. You will find in this publication new and updated charts that track investment activity in the United States. Reflecting our dynamic environment, for the first time we provide a chapter on Growth Equity an asset subclass that did not exist in its present form when we printed the first edition of this publication. More changes are already in the works. For example, in recognition of the strong and broad emergence of corporate venture capital groups and direct corporate investment over the past few quarters, we will soon be changing our methodology to be more inclusive of solo (i.e., without a traditional venture investor in the round) and early corporate investment into companies. Further, we will also include corporate direct investment from the corporation itself, not just from a separate or captive entity. Stay tuned. The industry s goal remains the same: to create fast-growing and sustainable companies, introduce new technologies, and improve medical care and patient well-being, while providing an attractive return to those who trust the industry with their capital. Whether by traditional venture capital, corporate venture capital, growth equity, or a number of new and energized investment vehicles, we are here to report that the beat goes on. As always, your feedback and suggestions are welcome. Please feel free to contact us at research@nvca. org or through any director or staff member. Very truly yours, Diana Frazier Bobby Franklin John S. Taylor FLAG Capital Management President and CEO Head of Research Director and Chair, Research Committee

3 National Venture Capital Association Yearbook BOARD OF DIRECTORS EXECUTIVE COMMITTEE Josh Green Mohr, Davidow Ventures Chair Anne Rockhold Accel Partners Treasurer Bruce Evans Summit Partneer Executive Committee At-Large Scott Sandell New Enterprise Associates Chair-Elect Jonathan Callaghan True Ventures Executive Committee At-Large Jonathan Leff Deerfield Management Executive Committee At-Large, Research Committee AT-LARGE Diana Frazier FLAG Capital Research Chair John Backus New Atlantic Ventures David Douglass Delphi Ventures Norm Fogelsong Institutional Venture Partners Robert Goodman Bessemer Venture Partners Jason Green Emergence Capital Partners James Healy Sofinnova Ventures Scott Kupor Andreessen Horowitz David Lincoln Element Partners Art Pappas Pappas Ventures Mark Leschly Rho Ventures Research Committee Maria Cirino.406 Ventures Claudia Fan Munce IBM Venture Capital Group Venky Ganesan Menlo Ventures Mark Gorenberg Zetta Venture Partners Adam Grosser Silver Lake Kraftwerk Ross Jaffe Versant Ventures Ray Leach Jumpstart, Inc Robert Nelsen ARCH Venture Partners Sue Siegel GE Ventures

4 2014 National Venture Capital Association Yearbook National Venture Capital Association Yearbook For the National Venture Capital Association Prepared by Thomson Reuters Copyright 2014 Thomson Reuters The information presented in this report has been gathered with the utmost care from sources believed to be reliable, but is not guaranteed. Thomson Reuters disclaims any liability including incidental or consequential damages arising from errors or omissions in this report.

5 National Venture Capital Association Yearbook National Venture Capital Association 2014 Yearbook National Venture Capital Association 1655 Fort Myer Drive, Suite 850 Arlington, Virginia Telephone: Telephone: Thomson Reuters 3 Times Square, 18th Floor New York, NY Telephone: Fax: President and CEO Bobby Franklin President Emeritus Mark G. Heesen Head of Research John S. Taylor Senior Vice President of Federal Policy and Political Advocacy Jennifer Connell Dowling Vice President of Federal Life Science Policy Kelly Slone Vice President of Federal Policy and Political Advocacy Emily Baker Vice President of Communications Ben Veghte Vice President of Membership and Member Firm Liaison Janice Mawson Vice President of Administration Roberta Catucci Director of Business Development Hannah Veith Manager of Administration and Meetings Allyson Chappell Accounting Manager Beverley Badley Global Head of Deals & Private Equity Stephen N. Case II Head of Deals and Private Equity Operations Katarzyna Namiesnik Global Business Manager Private Equity Jim Beecher Editor-in-Charge David Toll Global Private Equity Operations Manager Anna Aquino-Chavez Press Management Matthew Toole Senior Content Specialist Michael D. Smith Content Specialist Paul Pantalla Data Specialist Francis S. Tan Senior Art Director David Cooke Sales Manager Publications (Buyouts, VCJ, pehub) Greg Winterton ( ) ThomsonONE.com Sales: Research Lab Mavis Moulterd (Emeritus), Annie Black, Liberty Benjamin Lab Assistants Thea Shepherd, Lexi Oscar, Gracie Baker

6 2014 National Venture Capital Association Yearbook 5 TABLE OF CONTENTS What is Venture Capital? Executive Summary Introduction Industry Resources Commitments Investments Exits Industry Resources Methodology Capital Commitments Methodology Investments Exits: IPOs and Acquisitions Methodology Growth Equity Investments Methodology Appendix A: Glossary Appendix B: MoneyTree Report Criteria Appendix C: MoneyTree Geographical Definitions Appendix D: Industry Codes (VEICs) Appendix E: Industry Sector VEIC Ranges Appendix F: Stage Definitions Appendix G: Data Sources and Resources Appendix H: International Convergence Appendix I: US Accounting Rulemaking and Valuation Guidelines Appendix J: Non-US Private Equity

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8 2014 National Venture Capital Association Yearbook 7 WHAT IS VENTURE CAPITAL? Venture capital has enabled the United States to support its entrepreneurial talent and appetite by turning ideas and basic science into products and services that are the envy of the world. Venture capital funds build companies from the simplest form perhaps just the entrepreneur and an idea expressed as a businessplan to freestanding, mature organizations. Risk Capital for Business Venture capital firms are professional, institutional managers of risk capital that enables and supports the most innovative and promising companies. This money funds new ideas that could not be financed with traditional bank financing, that threaten established products and services in a corporation, and that typically require five to eight years to be launched. Venture capital is quite unique as an institutional investor asset class. When an investment is made in a company, it is an equity investment in a company whose stock is essentially illiquid and worthless until a company matures five to eight years down the road. Follow-on investment provides additional funding as the company grows. These rounds, typically occurring every year or two, are also equity investment, with the shares allocated among the investors and management team based on an agreed valuation. But, unless a company is acquired or goes public, there is little actual value.venture capital is a long-term investment. More Than Money The U.S. venture industry provides the capital to create some of the most innovative and successful companies. But venture capital is more than money. Venture capital partners become actively engaged with a company, typically taking a board seat. With a startup, daily interaction with the management team is common. This limits the number of startups in which any one fund can invest. Few entrepreneurs approaching venture capital firms for money are aware that they essentially are asking for 1/6 of a person! Yet that active engagement is critical to the success of the fledgling company. Many one- and two-person companies have received funding but no one- or twoperson company has ever gone public!along the way, talent must be recruited and the company scaled up. Ask any venture capitalist who has had an ultra-successful investment and he or she will tell you that the company that broke through the gravity evolved from the original business plan concept with the careful input of an experienced hand. Deal Flows Where The Buys Are For every 100 business plans that come to a venture capital firm for funding, usually only 10 or so get a serious look, and only one ends up being funded. Theventure capital firm looks at the management team, the concept, the marketplace, fit to the fund s objectives, the value-added potential for the firm, and the capital needed to build a successful business. A busy venture capital professional s most precious asset is time. These days, a business concept needs to address world markets, have superb scalability, be made successful in a reasonable timeframe, and be truly innovative. A concept that promises a 10 or 20 percent improvement on something that already exists is not likely to get a close look. Venture Capital Backed Companies Known for Innovative Business Models Employment at IPO and Now Company As of IPO Current # Change The Home Depot , ,350 Starbucks Corporation 2, , ,479 Staples 1,693 89,019 87,326 Whole Foods Market, Inc. 2,350 69,500 67,150 ebay ,500 31,362 Venture Capital Backed Companies Known for Innovative Technology Products Employment at IPO and Now Company As of IPO Current # Change Microsoft 1,153 94,000 92,847 Intel Corporation ,100 99,640 Medtronic, Inc. 1,287 45,000 43,713 Apple Inc. 1,015 76,100 75,085 Google 3,021 53,861 50,840 JetBlue 4,011 12,070 8,059 Source: Global Insight; Updated fromthomsonone 2/2013 Many technologies currently under development by venture capital firms are truly disruptive technologies that do not lend themselves to being embraced by larger companies whose current products could be cannibalized by this. Also, with the increased emphasis on public company quarterly results, many larger organizations tend to reduce spending on research and development and product development when things get tight. Many talented teams have come to the venture capital process when their projects were turned down by their companies. Common Structure Unique Results While the legal and economic structures used to create a venture capital fund are similar to those used by other alternative investment asset classes, venture capital itself is unique. Typically, a venture capital firm will create a Limited Partnership with the investors as LPs and the firm itself as the General Partner. Each fund, or portfolio, is a separate partnership. A new fund is established when the venture capital firm obtains necessary commitments from its investors, say $100 million. The money is taken from investors as the investments are made. Typically, an initial funding of a company will cause the venture fund to reserve three or four times that first investment for follow-on financing. Over the next three to eight or so years, the venture firm works with the founding entrepreneur to grow the company. The payoff comes after the company is acquired or goes public. Although the investor has high hopes for any company getting funded, only one in six ever goes public and one in three is acquired.

9 National Venture Capital Association Yearbook Economic Alignment of all Stakeholders An American Success Story Venture capital is rare among asset classes in that success is truly shared. It is not driven by quick returns or transaction fees. Economic success occurs when the stock price increases above the purchase price. When a company is successful and has a strong public stock offering, or is acquired, the stock price of the company reflects its success. The entrepreneur benefits from appreciated stock and stock options. The rank and file employees throughout the organization historically also do well with their stock options. The venture capital fund and its investors split the capital gains per a pre-agreed formula. Many college endowments, pension funds, charities, individuals, and corporations have benefited far beyond the risk-adjusted returns of the public markets. What s Ahead Much of venture capital s success has come from the entrepreneurial spirit pervasive in theamerican culture, financial recognition of success, access to good science, and fair and open capital markets. It is dependent upon a good flow of science, motivated entrepreneurs, protection of intellectual property, and a skilled workforce. The nascent deployment of venture capital in other countries is gated by a country s or region s cultural fit, tolerance for failure, services infrastructure that supports developing companies, intellectual property protection, efficient capital markets, and the willingness of big business to purchase from small companies.

10 2014 National Venture Capital Association Yearbook 9 EXECUTIVE SUMMARY During 2013, many of the metrics describing the venture capital industry in the United States were similar to those of the prior three years, with the exception of a pickup in the breadth of the IPO markets. The decline in capital managed continued as expected, but not as much as some were anticipating. A record proportion of venture deals focused on companies in the seed and early stages, while a number of companies long in the portfolios finally went public, led by Biotechnology companies in the first half of Investment in early-stage life science companies continued to fall during the year, although a fourth-quarter increase in first fundings of Biotechnology companies was encouraging. Fundraising remained very challenging for the majority of venture firms. This is largely because of a dearth of healthy exits through 2012 that would have distributed yet-unrealized returns to current fund investors. Aside from the Facebook IPO in 2012 ($16.0B of the $21.5B raised in 2012), 2013 was a much-improved year with 81 venture-backed IPOs. Remarkably, over half of them were Biotechnology companies. Early signs for 2014 suggest that IPO momentum carried forward into at least the first part of the year. A healthy venture capital ecosystem requires its metrics to be in balance. And while the quality of new business opportunities, known as deal flow, remains very high and the best opportunities are getting funded, stresses remain. Introduction The National Venture Capital Association 2014 Yearbook provides a summary of venture capital activity in the United States. This ranges from investments into portfolio companies to capital managed by general partners to fundraising from limited partners to valuations of companies receiving venture capital investments to exits of the investments by either IPOs or mergers and acquisitions. The statistics for this publication were assembled primarily from the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters and analyzed through the Thomson ONE. Figure 1.0 Venture Capital Under Management Summary Statistics No. of VC Firms in Existence No. of VC Funds in Existence 613 1,788 1,331 No. of Professionals 5,217 14,777 5,891 No. of First Time VC Funds Raised No. of VC Funds Raising Money This Year VC Capital Raised This Year ($B) VC Capital Under Management ($B) Avg VC Capital Under Mgt per Firm ($M) Avg VC Fund Size to Date ($M) Avg VC Fund Size Raised This Year ($M) Largest VC Fund Raised to Date ($M) 1, , ,300.0 com (formerly VentureXpert) database of Thomson Reuters, which has been endorsed by the as the official industry activity database. Subscribers to Thomson ONE can recreate most of the charts in this publication and report individual deal detail and more granular statistics than those provided herein. Industry Resources The activity level of the US venture capital industry is roughly half of what it was at the 2000-era peak. For example, in 2000, 1,050 firms each invested $5 million or more during the year. In 2013, the count was roughly half that at 548. Venture capital under management in the United States by the end of 2013 decreased to $192.9 billion. However, looking behind the numbers, we know that the industry continues to contract from the circa 2004 high of $288.9 billion. The peak capital under management that year was a statistical anomaly caused when funds raised at the height of the 2000 tech bubble were joined by new capital raised post bubble. The slight downtick in firms and capital managed (Fig. 1.04) in 2013 understates a consolidating industry. The average venture capital firm shrunk to 6.7 principals per firm from 8.7 just six years earlier. The corresponding drop in headcount to under 6,000 principals is almost one-third lower than 2007 levels. This meant that there was a general increase in the average amount of capital managed by each principal. It is possible going forward that the number of principals per firm will increase as the number of firms decreases. This is because the bulk of the capital being committed today is being raised by larger, specialty, and boutique firms. For our purposes here, we define a principal to be someone who goes to portfolio company board meetings. That is, deal partners would be included and firm CFOs would not be included. Contrary to some popular misconceptions, only 43 firms managed more than $1 billion. By comparison, 277 firms managed less than $25 million. Commitments The year 2013 continued to be a very challenging fundraising year for most venture capital firms in the United States. This was due to a lack of recent distributions caused by the tight exit markets, lackluster returns by many venture funds over the past decade compared with the prior decade, and a challenge for the largest alternative asset investors to place money in many of the smaller funds in this asset class because of scale. Only $16.8 billion was raised by 187 funds. This was considerably less than the $19.6 billion raised in 2012 or the $19.0 billion raised in The amount of new commitments each year by venture capital funds continued to be less than the amount they invested in companies. Investments Measuring industry activity by the total dollars invested in a given year shows that the industry has remained generally in the $20 billion to $30 billion range since In 2013, $29.5 billion was invested in 3,382 companies through 4,041 deals. The number of deals was 4% higher than 2012 counts, but was essentially the same as The number of firsttime fundings increased in 2013 to 1,334 companies from the previous 1,275, but it remains near the top of the healthy range of 1,000 to 1,400

11 National Venture Capital Association Yearbook first-time fundings in a year. Further parsing the data shows 50% of the investment dollars going to California companies, down from 53% in 2012 but consistent with the previous three years. The year 2013 saw a record 56% of the financing rounds going to seed and early stage companies, compared with a more typical one-third of deals. A carefully watched statistic is the investment in the life sciences. It is possible that the downward plummet in first-time life sciences investment is starting to reverse, led by Biotechnology, but it is still too early to be sure. Corporate Venture investment continues to gain considerable strength and presence in the overall industry. Software was the leading sector in 2013, receiving 37.3% of the total dollars. The second largest sector was Biotechnology, which was less than half that amount at 15.4% of total investment. Among first fundings, Software led the way with 591 companies getting their initial venture capital rounds. This is more than 46% of the first fundings. Again in 2013, the second most active first-funding sector is Media and Entertainment at 170 first fundings. California-domiciled venture capital firms made investments in 38 states in Approximately 48% of all the money invested in California came from California-domiciled firms. Conversely, California-based firms concentrated 68% of their investment dollars within the state. The number and reach of corporate venture capital groups increased in 2013, along with the visibility of this group. These groups provided an estimated 10.5% of the venture capital invested by all venture groups. They were involved in 16.9% of the deals the highest level in five years. Going forward, all signs suggest that these groups are becoming more involved alongside traditional venture firms in deals, as well as initiating corporate venture group syndicates to do deals in lieu of, or in advance of, investment rounds by traditional venture firms. Exits Once successful portfolio companies mature, venture funds generally exit their positions in those companies by taking them public through an initial public offering (IPO) or by selling them to presumably larger organizations (acquisition, M&A, or trade sale). This then lets the venture fund distribute the proceeds to investors, raise a new fund for future investment, and invest in the next generation of companies. We consider each type of exit separately. During 2013, 81 venture-backed companies went public in the United States, marking the strongest full-year total for the number of new venture-backed listings since Remarkably, more than half of them were Biotechnology IPOs, many of those being modestly sized. While the total dollars raised in 2012 was higher at $21.5 billion, it is important to remember that $16.0 billion of that came from the Facebook IPO alone. The remaining $5.5 billion was raised by the remaining 48 IPOs in It was a very different story in $11.1 billion was raised by 81 companies. The increase in mean and median time to exit reflects the fact that many of these IPOs were mature companies, and many of them were in the life sciences space, which had been awaiting an IPO opportunity for months, and in some cases, years. is encouraged by the increase in smaller IPOs and biotech IPOs in light of its 2012 legislative successes with the JOBS Act and creating a pathway for FDA Reform. The M&A space continued to soften in 2013, with the total number of deals falling from 473 in the prior year to 376. Total proceeds fell by 27%. Note that only 94 of the 376 acquisitions had reported deal values. Historically, deals with unreported sales prices are fairly diminutive, and in many cases, fire sales. However, an increasing number of deal term sheets specify a non-disclosure restriction on all parties. So going forward, all but the largest and most visible acquisitions may be hard to measure. Observers have wondered why, given the huge amounts of cash on the balance sheets of technology and Biotechnology giants, more acquisitions are not occurring. We did see a flurry of acquisitions in early 2014, perhaps signaling an increase in that kind of activity. Growth Equity This edition of the Yearbook, prepared by Thomson Reuters, for the first time profiles US growth equity investment in its own chapter. The believes growth equity investing is an important segment of the overall venture capital industry. Venture capitalists help create and grow companies; growth equity investors are strongly focused on the growth component of that mission and help companies scale through fat part of their hiring curves. The also believes that growth equity investing is a critical component of the emerging growth company financing continuum and has become, in many respects, the private alternative to the public markets for both emerging growth companies and their earlier stage venture capital backers. Growth equity really emerged as an asset class in 2000 and continues strong today. In 2013, we identified 342 growth equity deals in the United States. This compares with 406 in 2012, but is very much in line with the past several years. A disclosed $12.3 billion in equity investment was reported for This does not count the approximately 105 deals for which no dollar equity amounts were disclosed.

12 2014 National Venture Capital Association Yearbook Figure 2.0 Capital Under Management U.S. Venture Funds ($ Billions) 1985 to ($ Billions) Year 120 Figure 3.0 Capital Commitments To U.S. Venture Funds ($ Billions) 1985 to ($ Billions) Year

13 National Venture Capital Association Yearbook 120 Figure 4.0 Venture Capital Investments ($ Billions) 1985 to ($ Billions) Year Figure 5.0 Venture Capital Investments in 2013 By Industry Group All Investments Initial Investments Industry Group # Companies # Deals Investment Amt ($Bil) # Companies # Deals Investment Amt ($Bil) Information Technology 2,360 2, Medical/Health/Life Science Non-High Technology Total 3,382 4, ,334 1,

14 2014 National Venture Capital Association Yearbook 13 Figure 6.0 Venture Capital Investments in 2013 By Stage Seed 3% Later Stage 30% Early Stage 34% Expansion 33% Figure 7.0 Venture Capital Investments in 2013 By Industry Sector Telecommunications 2% Other 0.2% Biotechnology 15% Business Products and Services 0.4% Computers and Peripherals 2% Software 37% Consumer Products and Services 4% Electronics/Instrumentation 1% Financial Services 2% Healthcare Services 1% Semiconductors 2% Retailing/Distribution 1% Networking and Equipment 2% Medical Devices and Equipment 7% IT Services 7% Media and Entertainment 10% Industrial/Energy 5%

15 National Venture Capital Association Yearbook State Figure Investments By State Number of Companies Pct of Total Investment ($ Millions) Pct of Total California 1,280 40% 14, % Massachusetts % 3, % New York 287 9% 2, % Texas 101 3% 1, % Washington 134 4% % Maryland 76 2% % Virginia 85 3% % Pennsylvania 154 5% % Illinois 49 2% % Colorado 62 2% % All Others % 4, % Total 3,230 29,545.2 Year Num of IPOs Offer Amount ($Mil) Med Offer Amt ($Mil) Figure 9.0 Venture-Backed IPOs Mean Offer Amt ($Mil) Post Offer Value ($Mil) Med Post Value ($Mil) Mean Post Value ($Mil) Median Age At IPO (Years) Mean Age At IPO (Years) , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , *Age at IPO is defined as time elapsed from first funding round until IPO date.

16 2014 National Venture Capital Association Yearbook 15 Figure 10.0 Venture-Backed Mergers & Acquisitions by Year ($ Millions) Year Number Total Number Known Price Average

17 National Venture Capital Association Yearbook Figure 11.0 Growth Equity Investments ($ Billions) 2000 to 2013* ($ Billions) Year Totals include only disclosed amounts. Many growth equity deal amounts are not reported.

18 2014 National Venture Capital Association Yearbook 17 INDUSTRY RESOURCES The activity level of the US venture capital industry is roughly half of what it was at the 2000-era peak. For example, in 2000, 1,050 firms each invested $5 million or more during the year. In 2013, the count was roughly half that at 548. Venture capital under management in the United States by the end of 2013 decreased to $192.9 billion as calculated using the methodology described below. However, looking behind the numbers, we know that the industry continues to contract from the circa 2006 high of $288.9 billion. The peak capital under management that year was a statistical anomaly caused by funds raised at the height of the 2000 tech bubble were joined by new capital raised post bubble. The slight downtick in firms and capital managed (Fig. 1.04) in 2013 perhaps understates a consolidating industry. The average venture capital firm shrunk to 6.7 principals per firm from 8.7 just six years earlier. The corresponding drop in headcount to under 6,000 principals is almost one-third lower than 2007 levels. This meant that there was a general increase in the average amount of capital managed by each principal. It is possible going forward that the number of principals per firm will increase as the number of firms decreases. This is because the bulk of the capital being committed today is being raised by larger, specialty, and boutique firms. For our purposes here, we define a principal to be someone who goes to portfolio company board meetings. That is, deal partners would be included and firm CFOs would not be included. Geographic location of the largest venture firms is quite concentrated. 49% of the industry s California-domiciled firms manage capital, although these firms may be actively investing in other states and countries. This concentration has been consistent for several years and may increase going forward, given the movement of some East Coast funds westward. Taken together, the top five states (California, Massachusetts, New York, Connecticut, and Illinois) hold 81.1% of total venture capital in this country, essentially the same as a year ago. Contrary to some popular misconceptions, only 43 firms managed more than $1 billion. By comparison, 277 firms managed less than $25 million. Methodology Historically, we have calculated industry size using a rolling eight years of fundraising proxy for capital managed, number of funds, number of firms, etc. The number of firms in existence will vary on a rolling eight-year basis as firms raise new funds or do not raise funds for more than eight years. Currently, we know the industry is consolidating, but the eight-year model now includes fund vintage years Under this methodology, we estimate that there are currently 874 firms with limited partnerships in existence. To clarify, this is actually stating that there are 874 firms that have raised a venture capital fund in the last eight years. In reality, only 548 of them invested at least $5 million in companies in 2013, and 136 of them invested more than $5 million in first rounds for a company. For this publication, we are primarily counting the number of firms with limited partnerships and are excluding other types of investment vehicles. From that description, it may appear that the statistics for total industry resources may be underestimated. However, this must be balanced with the fact that capital under management by captive and evergreen funds is difficult to compare equitably to typical limited partnerships with fixed lives. For this analysis only, the firms counted for capital under management include firms with fixed-life partnerships and venture capital funds they raised. If a firm raised both buyout and venture capital funds, only the venture funds would be counted in the calculation of venture capital under management. Venture capital under management can be a complex statistic to estimate. Indeed, capital under management reported by firms can differ from firm to firm as there s not one singular definition. For example, some firms include only cumulative committed capital, others may include committed capital plus capital gains, and still other firms define it as committed capital after subtracting liquidations. To complicate matters, it is difficult to compare these totals to European private equity firms, which include capital gains as part of their capital under management measurements. For purposes of the analysis in this publication, we have tried to clarify the industry definition of capital under management as the cumulative total of committed capital less liquidated funds or those funds that have completed their life cycle. Typically, venture capital firms have a stated 10-year fixed life span, except for life science funds, which are often established as 12-year funds. Figure 1.09 shows the reality of fund life. Thomson Reuters calculates capital under management as the cumulative amount committed to funds on a rolling eight-year basis. Current capital under management is calculated by taking the capital under management calculation from the previous year, adding in the current year s funds commitments, and subtracting the capital raised eight years prior. For this analysis, Thomson Reuters classifies venture capital firms using four distinct types: private independent firms, financial institutions, corporations, and other entities. Private independent firms are made up of independent private and public firms including both institutionally and non-institutionally funded firms and family groups. Financial institutions refers to firms that are affiliates and/or subsidiaries of investment banks and non-investment bank financial entities, including commercial banks and insurance companies. The corporations classification includes venture capital subsidiaries and affiliates of industrial corporations. In 2013, we will modify the methodology to reflect virtually all direct corporate investment because many of the corporate venture investors do not operate out of a separate fund or group. The capital under management statistics reported in this section consist primarily of venture capital firms investing through limited partnerships with fixed commitment levels and fixed lives and do not include non-vintage evergreen funds or true captive corporate industrial investment groups without fixed commitment levels. The term evergreen funds refers to funds that have a continuous infusion of capital from a parent organization, as opposed to the fixed life and commitment level of a closed-end venture capital fund.

19 National Venture Capital Association Yearbook Figure 1.01 Capital Under Management U.S. Venture Funds ($ Billions) 1985 to ($ Billions) Year

20 2014 National Venture Capital Association Yearbook 19 Figure 1.02 Total Capital Under Management By Firm Type 1985 to Private Independent 11,766 14,721 17,459 18,850 22,369 22,722 21,893 22,643 25,162 28,490 33,308 40,201 51,940 76, ,121 Financial Institutions 3,388 3,520 3,447 3,190 2,719 2,793 2,384 2,214 2,431 2,873 3,688 5,070 7,061 10,238 15,291 Corporations 1,582 1,545 1,895 1,989 1,931 1,963 1,907 2,032 1,517 1,564 1,526 2,219 2,531 3,425 8,169 Other ,119 Total 17,600 20,700 23,700 24,900 27,800 28,200 26,800 27,200 29,300 33,200 38,900 47,900 62,200 91, ,700 Figure 1.02 (Continued) Total Capital Under Management By Firm Type 1985 to Private Independent 187, , , , , , , , , , , , , ,202 Financial Institutions 22,980 24,459 23,945 23,015 21,659 21,110 18,325 13,914 6,034 4,708 5,620 7,734 7,970 6,615 Corporations 12,995 14,153 14,126 13,886 13,627 13,467 13,297 8,990 4,294 3,125 3,688 4,860 4,892 6,401 Other 1,469 2,061 2,201 2,170 2,219 1,986 1,963 1,754 1, Total 224, , , , , , , , , , , , , ,900 Figure 1.03 Distribution of Firms By Capital Managed This chart shows capital committed to US venture firms in active funds. While much of the capital is managed by larger firms, of the 808 firms included in this calculation at the end of 2013, roughly 62% of them (498) managed $100 million or less. By comparison, just 43 firms managed active funds totaling more than $1 billion

21 National Venture Capital Association Yearbook Fund Vintage Year Total Cumulative Funds Total Cumulative Firms Figure 1.04 Fund and Firm Analysis 2013 Total Cumulative Capital ($B) Existing Funds Firms That Raised Funds in the Last 8 Vintage Years Capital Managed ($B) Avg Fund Size ($M) Avg Firm Size ($M) The correct interpretation of this chart is that since the beginning of the industry to the end of 2013, 1,938 firms had been founded and 4,957 funds had been raised. Those funds totaled $569.2 billion. At the end of 2013, 874 firms as calculated using our eight-year methodology managed 1,331 individual funds, with each fund typically being a separate limited partnership. Capital under management, again calculated using a rolling eight years of fundraising, by those firms at the end of 2013 was $192.9 billion.

22 2014 National Venture Capital Association Yearbook 21 Year Figure 1.05 Number of Active Investors 1985 to 2013 # of Active Investors # of Active First Round Investors # of Active Life Science Investors , Year Figure 1.06 Principals Information No. Principals Per Firm Estimated Industry Principals Avg Mgt Per Principal ($M) The correct interpretation of this chart is that since the beginning of the industry to the end of 2013, 1,938 firms had been founded and 4,957 funds had been raised. Those funds totaled $569.2 billion. At the end of 2013, 874 firms as calculated using our eight-year methodology managed 1,331 individual funds, with each fund typically being a separate limited partnership. Capital under management, again calculated using a rolling eight years of fundraising, by those firms at the end of 2013 was $192.9 billion. State Figure 1.07 Top 5 States By Capital Under Management 2013 ($ Millions) CA 94,076.6 MA 32,636.6 NY 19,480.4 CT 5,815.1 IL 4,517.3 Total* 156,526.1 *Total includes above 5 states only Firms included in each count must have invested $5 million in that year in that category. Life Sciences investor count includes investment in companies in the two MoneyTree Categories: Biotechnology/Pharma and Medical Devices/ Equipment.

23 National Venture Capital Association Yearbook Figure 1.08 Capital Under Management By State State CA 5,024 5,974 6,815 7,051 8,318 8,192 8,257 8,258 9,062 9,978 12,015 15,379 20,289 27,452 51,226 MA 2,252 2,580 3,409 3,775 4,179 4,057 3,761 4,636 4,830 5,179 6,553 6,980 9,859 15,397 22,905 NY 3,382 4,428 4,370 4,160 5,598 5,805 5,455 5,308 5,904 6,968 8,246 9,995 10,311 19,676 26,659 CT 1,297 1,444 1,807 1,876 1,714 1,713 1,570 1,665 1,927 2,088 2,064 2,194 3,323 4,492 6,787 IL ,202 1,275 1,419 1,263 1,939 2,191 3,693 TX ,143 1,145 1,233 1,688 3,001 4,797 PA ,332 1,750 2,105 3,090 NJ ,489 1,563 2,177 2,715 DC ,698 2,382 2,504 2,661 WA ,081 1,796 MD ,523 2,012 2,649 3,513 CO ,165 3,337 VA ,238 NC ,009 MN ,093 UT MI GA ,077 1,164 TN ,059 DE MO OH ,247 FL ,072 IN WI AL AZ LA KY ME ID ND OK OR NM SD HI KS IA VT

24 2014 National Venture Capital Association Yearbook 23 Figure 1.08 (Continued) Capital Under Management By State State NH NE MT MS PR WY SC RI NV WV AR UNK AK Total 17,600 20,700 23,700 24,900 27,800 28,200 26,800 27,200 29,300 33,200 38,900 47,900 62,200 91, ,700 Figure 1.08b Capital Under Management By State State CA 85, , , , , , , , ,374 87,469 90,424 96,923 99,386 94,077 MA 37,341 45,970 47,440 47,019 47,553 48,784 53,712 50,417 37,146 30,861 30,528 30,209 32,914 32,637 NY 38,938 39,981 38,421 37,176 36,710 36,242 29,115 25,441 13,205 12,198 13,599 18,628 17,653 19,480 CT 8,260 10,623 10,462 10,431 12,066 11,984 13,336 11,699 10,426 7,428 8,201 8,940 6,928 5,815 IL 4,308 4,747 5,202 5,559 5,685 5,163 5,286 4,239 3,620 3,282 3,065 4,595 4,451 4,517 TX 6,881 8,001 7,932 7,806 8,259 8,486 8,242 6,589 5,467 4,193 4,057 4,735 4,455 4,215 PA 6,241 6,344 6,241 6,532 6,439 6,509 7,037 7,143 4,642 4,482 4,495 4,250 4,220 3,623 NJ 3,633 4,315 4,231 4,444 4,083 4,074 5,160 5,022 4,135 3,917 3,965 3,691 3,503 3,447 DC 3,899 4,172 4,739 4,616 3,401 3,582 4,641 5,047 4,833 4,632 4,049 4,527 4,193 3,369 WA 2,803 3,687 3,691 3,568 4,629 4,590 4,597 5,174 4,625 3,721 3,691 3,708 2,943 3,303 MD 5,119 5,383 5,165 5,047 4,811 4,762 4,744 4,433 2,934 3,005 2,927 3,134 3,282 2,854 CO 4,781 5,293 5,438 5,416 5,229 4,882 4,664 3,011 1, ,139 1,148 1,187 1,635 VA 2,524 2,638 2,652 2,822 2,868 3,338 3,367 3,014 1,801 2,226 2,271 2,081 2,056 1,583 NC 1,367 1,448 1,599 1,803 1,644 1,468 1,678 1,564 1,211 1,238 1,730 1,631 1,726 1,558 MN 2,238 2,189 2,366 2,359 2,361 2,441 2,593 2,473 1,639 1,657 1,319 1,323 1,426 1,531 UT ,259 1,335 1,144 1,209 1,245 1,422 1,429 MI ,065 1,263 1,045 1,203 GA 2,311 2,160 2,154 2,077 2,109 1,835 1,940 1, ,122 TN 1,237 1,281 1,162 1,174 1,043 1, DE MO ,232 1,293 1,385 1,317 1,182 1,189 1,192 1, OH 1,850 1,874 1,876 1,855 1,986 1,806 1,722 1, FL 1,785 1,751 1,684 1,592 1,577 1,802 1,525 1,