Bowen VC market June 2017


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VC Liquidity:

VC Liquidity June 2017

Bowen Advisors Facts:

15 Years of Technology M&A Leadership Bowen Advisors Facts Industry Focus Growth Technology Sector Specialization Communications Infrastructure & Services Cloud Infrastructure & Services Hardware & Systems Big Data & Enterprise Information Management Cybersecurity Internet of Things Founded 2002 Locations Boston, New York, San Francisco, San Diego Transaction History > 90 Transactions, > $2B Aggregate Value M&A Transaction Size $50M - $150M Banking Products Strategic Investments Growth Equity Investments Sellside M&A Buyside M&A

Strategic Investment:

Strategic Investment Background Bioanalytical instrumentation for protein therapeutic drugs Process summary BA engaged to raise strategic capital Contacted 50+ parties E.g., Bio-Techne, Perkin Elmer, Novartis Financing led by Waters (NYSE: WAT), a developer of laboratory instruments BA Insight Corporate Venture Capital at all-time high 17% of VC investments in 1Q17 Has received a Series C investment from $11,000,000 February 2017

Growth Equity Investment:

Growth Equity Investment April 2017 Has received a minority growth investment from $18,000,000 Background SaaS-based eCommerce software for SMBs $13M revenue, >20% growth, profitable Process Summary BA engaged to explore liquidity options for Chairman & CEO Contacted 30+ growth equity parties E.g., Accel-KKR, Battery, HIG, JMI Partnered with Bison Capital based on eCommerce experience & liquidity flexibility BA Insight PE increasingly a major player in tech liquidity

Sellside M&A:

Sellside M&A Has been acquired by $128,300,000 Pending Background Founded in 1997, Princeton is 1 of 4 fabless VCSEL providers in the industry Product cycle at forefront of massive market opportunities in 3D imaging and LIDAR Process Summary Based on industry expertise, BA approached the only 10 buyers that would have interest Transaction Complexity 3 continents 20 years of DARPA contracts… CFIUS & ITAR …and BTW, our acquirer got acquired

BroadSoft Lifecycle Advisory:

NasdaqGS: BSFT – IPO Date: 6/16/10 At IPO Price $9.00 Market Cap $223M Cash $68M Current Price $42.25 +369% Market Cap $1.3B +482% Cash $376M +453% Buyside Advisor to Leading Global UCaaS Provider BroadSoft Lifecycle Advisory Client Perspective “Bowen Advisors has been our trusted advisor since 2007. Their approach to the M&A process is highly effective, identifying the right opportunities and understanding both the strategic and operational aspects. Our relationship with Bowen Advisors continues to be a strategic asset to BroadSoft .” - Michael Tessler , BroadSoft CEO “We ask a lot of the Bowen team, from deal execution to strategic planning to financial modeling, and time and time again they deliver. They are truly a valued partner.” - Jim Tholen , BroadSoft CFO 18 Transactions Since 2007 Series D Convertible Preferred Stock June 2007 $10,000,000 VoIP Application Server August 2008 Has acquired the M6 business of VoIP Monitoring via Cloud October 2009 Has acquired VoIP Application Server December 2008 Has acquired Residential Voice Apps October 2010 Has acquired the assets of Web Collaboration Has acquired September 2011 VoIP Client Has acquired Applications October 2011 Hosted UC August 2012 Has acquired Hosted UC August 2013 Has acquired Has acquired September 2013 SaaS Videoconferencing Hosted UC December 2013 Has acquired Has acquired August 2014 Hospitality UC Has acquired January 2015 Portal Has acquired June 2015 Portal Hosted UC Has acquired November 2015 Has acquired February 2016 Cloud Contact Center Has acquired May 2016 Workstream Comm. & Collaboration (WCC) Has acquired October 2016 Wholesale UC

BroadSoft Inorganic Growth:

BroadSoft Inorganic Growth IPO Dec 2008 Aug 2008 GENBAND M6 Oct 2010 Aug 2012 Oct 2011 Sep 2011 Oct 2009 Aug 2014 Nov 2013 Sept 2013 Aug 2013 Jun 2007 $10M Investment Nov 2015 June 2015 Jan 2015 Oct 2016 May 2016 Feb 2016 Only 5% of Nasdaq companies have >20% revenue CAGR & >20% EBITDA CAGR over last 3 years


Liquidity… Tour de Force

Lifecycle of an Investment Dollar:

Lifecycle of an Investment Dollar LP Invests in Fund Fund Invests in Company Company Exits via IPO or M&A $


LP Invests in Fund


Lesson #1 New funds ain’t growing…

First-Time VC Funds are Down From 2006:

First-Time VC Funds are Down From 2006 …Why? Source: PitchBook NVCA 1Q 2017 Venture Monitor Report


Lesson #2 VC returns ain’t that great…

US VC Index Returns:

US VC Index Returns Source: Cambridge Associates mPME = modified public market equivalent. Cambridge Associates’ mPME calculation is a private-to-public comparison that seeks to replicate private investment performance under public market conditions. “Risk-free” highly liquid returns are superior to high-risk, low-liquidity returns


Lesson #3 But total VC fundraising is steady…

VC Inflows are Consistent:

VC Inflows are Consistent Source: PitchBook NVCA 1Q 2017 Venture Monitor Report $8B raised across VC funds in 1Q tops average by 15%, and the 58 funds closed tops average by 14% …Meaning?


Lesson #4 The rich are getting richer…

Most Recent Huge Funds:

Most Recent Huge Funds VC Date Fund Size Mar 2017 Spark Capital Growth Fund II $613M Jan 2017 Mithril II $850M Oct 2016 Third Rock Ventures IV $616M Oct 2016 Sofinnova Venture Partners X $650M Oct 2016 Greylock XV $1.1B Sep 2016 Foundry Group Next $500M Aug 2016 TCV IX $2.5B Jul 2016 Thrive Capital Partners V $700M Jul 2016 Bain Capital Venture Fund 2016 $600M

And Speaking of Huge Funds…:

And Speaking of Huge Funds… Backers include Apple, Qualcomm, Foxconn and Larry Ellison at $1 billion each

Established VCs Keep Getting Bigger:

Established VCs Keep Getting Bigger 68% of 2016 funds were larger than their predecessor These funds were 34% larger than prior funds Source: PitchBook 2016 Annual PE & VC Fundraising Report


In a world awash in capital... Venture capital inflows are consistent...(the asset class is healthy) First time VCs are struggling to raise funds Established VCs are raising increasingly larger funds Implications??? Summary LP Invests in Fund


Fund Invests in Company


Lesson #5 People still want to start a business…

New Entrepreneurs Rate Has Held Steady at 0.3%:

New Entrepreneurs Rate Has Held Steady at 0.3% Percentage of adults becoming entrepreneurs in a given month Source: Kaufman Foundation


Lesson #6 But startups are dwindling…

Startup Density Down 48%:

Startups per 100,000 People Have Declined from 250 to 130 Startup Density Down 48% Number of new employer businesses normalized by population Source: Kaufman Foundation


Lesson #7 And they’re waiting longer for VC funding…

Median Age of Early-Stage VC Backed Startups on the Rise:

Median Age of Early-Stage VC Backed Startups on the Rise Source: PitchBook 2016 Annual VC Valuations Report Age (Years) Age of Series A companies is up 76% over last 10 years


Lesson #8 And VCs are willing to invest at higher valuations…

Median Pre-Money Valuations on the Rise:

Median Pre-Money Valuations on the Rise Source: PitchBook 2016 Annual VC Valuations Report $ millions Pre-money valuation of Series A companies is up 117% over last 6 years


New company formation is down Startups are getting older before getting funding VCs are investing at higher valuations Big void in institutional venture funding Implications??? Summary Fund Invests in Company


Lesson #9 New players are entering the game…

Family Offices Fill the Void:

Family Offices Fill the Void Family offices becoming more common as HNW count explodes Ultra HNW individuals grew 54% from 2008 to 2014 More than 10,000 FO globally, about half set up in the past 15 years Super rich and pursuing more direct investments FO’s hold assets of more than $4 trillion Approaching the cumulative $5.7 trillion of PE firms and hedge funds Family offices cut allocations to funds by 10% last year alone, moving more to direct investments Source: UBS & Camden Wealth, World Economic Forum, WSJ

Crowdsourcing Platforms Fill the Void:

2013: Crowdsourcing syndicates putting pressure on second tier VCs AngelList predicts leading syndicates on its platform will quickly crowd out a whole bunch of second tier VCs 2015: AngelList raised $163 million online on behalf of 441 companies 56% increase from 2014 2016: Leading VCs state indifference between having a second tier VC, not taking board seats or an online syndicate as a co-investor Crowdsourcing was preferred in some cases for their speed, specialization, and publicity given to portfolio companies E.g., Kickstarter, Indiegogo Crowdsourcing Platforms Fill the Void Source: AngelList , Medium


Lesson #10 Wait, where’s all the VC money going…

VC Dry Powder Piling Up:

VC Dry Powder Piling Up Source: PitchBook 2016 Annual PE & VC Fundraising Report $ billions VC dry powder at 10-year high Increase during last few years coincides with the rise of…

Global Unicorn Rounds:

Global Unicorn Rounds Source: KPMG Venture Pulse Q1 2017 In 2Q16, $22.5B of funding went into 20 Unicorns Unicorn funding and creation is down but the damage is done

Select Unicorns:

Company Financing Date Amount Raised Total Raised Post-Money Valuation Dec 2015 $880M $2.0B $20B May 2016 $1.8B $2.4B $23B Mar 2017 $1.0B $3.5B $31B Jun 2016 $3.5B $9.2B $63B Select Unicorns $17B aggregate private funding of these 4 Unicorns


Company Exits via IPO

It Takes Longer for Companies to Go Public:

years years It Takes Longer for Companies to Go Public Source: PitchBook 2016 PE & VC IPO Review Report Time from first VC funding to IPO is up 73% over 10 years

It Takes a LOT More Invested Capital to Go Public:

It Takes a LOT More Invested Capital to Go Public Source: PitchBook 2016 PE & VC IPO Review Report Average invested capital before IPO is up 95% over 10 years

So It’s No Surprise Tech IPOs Have Been Fading:

So It’s No Surprise Tech IPOs Have Been Fading ~40 Tech IPOs Per Year ~20 Tech IPOs Per Year “Unicorn” term coined in 2013: 39 Unicorns Today: 223 Unicorns

11 Tech IPOs 2017 YTD:

11 Tech IPOs 2017 YTD Average IPO size up 10x over 20 years Average IPO market cap up 11x over 20 years $23B private valuation $4.1B private valuation


Company Exits via M&A

Median Time from First VC Financing to M&A:

Median Time from First VC Financing to M&A Source: PitchBook 2016 Annual VC Liquidity Deck Time to M&A has stayed flat for last 10 years

Median Invested Capital to M&A:

Median Invested Capital to M&A Source: WilmerHale Pre M&A invested capital decreases over 10 years $ millions

Tech M&A Deal Volume Growing Healthily:

Tech M&A Deal Volume Growing Healthily Source: PitchBook 1Q 2017 M&A Report Tech M&A exhibits strong growth for a decade For more and more tech companies, M&A is the only way out...


Or they can wander the desert forever, searching for that IPOasis …


People sometimes ask, “What did you learn from the Dot-Com Bubble?” My answer: Nothing (Just kidding) We created a handful of GREAT brands


Benjamin is being treated like a mushroom… …much longer to see the light of liquidity


Private financing over the last 20 years has experienced tectonic changes... Bigger funds, bigger checks, bigger valuations... Big void in the early stages Entrepreneurs forced to seek alternative funding sources When we look back in 20 years what will be the Lessons of the Unicorn Era? Higher likelihood of companies seeking exit below their last round of private financing

20 Years in the Business…:

20 Years in the Business… 1997 – 2001: Dot-Com Bubble Reversion to the mean coming? 2008 – 2009: The Great Recession (aka Housing Bubble) 2013 – Present: Unicorn Era (aka Uber Bubble)

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