The Evolving Capital and Liquidity Environment for Private Growth Companies - Workshop by Greg Brogger, Founder & CEO of Nasdaq Private Market at the NOAH 2013 Conference in London, Old Billingsgate on the 14th of November 2013.

1. November 2013
The Evolving Capital and Liquidity Environment for
Private Growth Companies
NOAH 2013 Presentation
CONFIDENTIAL
CONFIDENTIAL

2. Important Disclosures
The information contained herein is provided for informational and educational
purposes only, and nothing contained herein should be construed as legal or tax advice
regarding any specific situation. You should consult with your own experts.
Securities related services will be offered through a registered broker-dealer and
alternative trading system affiliated with NPM called NPM Securities, LLC (NPMS).
However, NPMS is currently undergoing the registration and membership applications
with the U.S. Securities & Exchange Commission and the Financial Industry Regulatory
Authority. Until such time as NPMS receives certain regulatory approvals and is
operational, all broker-dealer functions will be provided by its affiliate, SharesPost
Financial Corporation (“SPFC”). Additional services and functions will also be provided
by NPM affiliates and partners, including SPFC, U.S. Bank, and Accretive Solutions.
2
CONFIDENTIAL

3. The IPO Market Has Changed
Fewer IPOs,
higher valuations
$ in millions
1991-00
Longer time
to liquidity
Years to IPO
2001-10
9.4
Avg annual # of IPOs
330
119
-64%
5.7
$208
Median market cap
Median proceeds raised
$398
$60
$124
+91%
3.1
+106%
2000 2005 2010
Source: Dealogic
Source: Thomson Reuters
3
CONFIDENTIAL

4. Rise of the Founders
Many entrepreneurs don’t want to be public and the
most successful companies are founder driven
4
CONFIDENTIAL

5. Growth Company Lifecycle - 1999
$1B
PRIVATE MARKETS
Angels
VC Firms
$200M
PUBLIC MARKETS
SEC/EDGAR
H&Q Research
NASDAQ/NYSE
Bulge Bracket Bankers
DTC Clearing
YEAR 4
550 IPO’s < THAN $50M (1996)
5
CONFIDENTIAL

6. New York Times (January 2013)
 “an
unprecedented number of high technology startups, easily 25 and possibly exceeding 40, are valued at $1
billion or more”
 “A
year from now that might be 100,” said Jim Goetz, a
partner at Sequoia Capital . . . Sequoia counts a dozen
such companies in its portfolio. It is part of what he calls
“a permanent change” in the way people are building
their companies . . .”
6
CONFIDENTIAL

7. Private Growth Companies Unsupported
$1B
PRIVATE MARKETS
PUBLIC MARKETS
Angels
VC Firms
$200M
CAPITAL MARKETS
NO MAN’S LAND
SEC/EDGAR
H&Q Research
NASDAQ/NYSE
Bulge Bracket Bankers
DTC Clearing
YEAR 4
550 IPO’s < THAN $50M (1996)
7
CONFIDENTIAL

8. Why Is That Important?
Angels can’t recycle cash into next startups
 Employees can’t diversify and discount value of options
 VC’s push for premature exits to justify new funds
 Non-VC Investors can’t access growth companies
 Private Companies can’t raise capital efficiently

. . . and so companies end up selling too early
8
CONFIDENTIAL

9. What does “too early” mean?
Exit chosen over achievable opportunity
 Opportunity to deliver new product, conquer new market, attain
market leadership, etc.
 Opportunity to create some significant positive change for
customers
 Opportunity to increase valuation from achieving the next
milestone
12/6/201
3
9
CONFIDENTIAL

10. What do private growth companies need?

Low cost capital to grow
–
–
–
–

Access to investors to global investor community
Platform to raise awareness
Scalable way to tell the story
Efficient financing process
Liquidity for stakeholders
–
–
–
–
–
Control over financial disclosure
Control over pricing
Control over timing
Control over number of shares sold
Ability to turn it all off, when its time for IPO or sale
12/6/201
3
10
CONFIDENTIAL

11. NASDAQ Private Market (NPM)
NPM provides an integrated, total equity management solution that
connects private companies with a global private investor network
12/6/201
3
11
CONFIDENTIAL

12. NASDAQ Private Market Total Equity Solution

Take complete control of your
equity program with an integrated
end-to-end solution

Reduce costs, administrative
burdens, and complexity
associated with managing equity
ownership

Leverage industry-leading
standards for private transactions
on a fully compliant platform

Connect with a broad range of
institutional investors for capital
market activities
12
CONFIDENTIAL

13. NASDAQ Private Investor Network

Multi broker dealer network
provides access to premier
institutional investors

Companies retain control over
which investors view information
or transact

Build institutional relationships
efficiently over time – not on the
eve of the IPO
13
CONFIDENTIAL

14. Benefits of association with NPM
Control Your Cap Table



Consolidate all transaction activity in one place
Restrict transactions with systematic rules
Consolidate shares in hands of selected longer-term institutional investors
Provide Liquidity to Key Stakeholders



Recruit and retain best employees
Strengthen equity incentives
Support culture of employee ownership
Optimize Transition to Public Market



Optimize IPO timing by relieving early investor liquidity pressure
Secure premier public market investors prior to IPO
Reduce potential for selling pressure at lock up expiration
Implement Safeguards



Employ secondary transaction compliance best practices
Reduce potential for errors/omissions with standardized documents
Enable only pre-vetted, approved investors to become shareholders
Save Time and Money



Standardize digital processes and integrate execution, settlement, and record keeping functions
Minimize management distraction
Reduce legal and other expense
14
CONFIDENTIAL

15. Client Benefits
NPM’s Total Equity Solution addresses your firm’s unique needs and
capital markets objectives throughout the firm’s lifecycle
OBJECTIVES
Recruit / Retain Employees
GROWTH
2-5 years pre-IPO
IPO RAMP
0-2 years pre-IPO
PERMANENTLY PRIVATE
IPO Independent
✓
✓
Equity Compensation
Exit Early Investors
Goals
Control Trading
✓
✓
Goals
✓
Guide Price Discovery
✓
Goals
✓
✓
Investor Connections
✓
✓
✓
Save Time and Money
✓
✓
✓
15
CONFIDENTIAL

16. APPENDICES
CONFIDENTIAL
CONFIDENTIAL

17. Growth Company Pain Points

Competitive market for employees –
undifferentiated incentives not helpful

Early employees need liquidity

Vested employees leaving to reduce risk

Early investors pushing for suboptimal exit

Suboptimal investors becoming shareholders

Difficult to efficiently connect with non-VC investors

Legal expense to manage secondary transactions

CFO and GC divert time to secondary transactions
GROWTH
COMPANIES use the
NPM to create powerful
employee incentive and
control the market for their
shares
17
CONFIDENTIAL

18. Pre-IPO Company Pain Points

Difficult to connect with public market investors

Increasing shareholder count

Secondary transaction pricing may create
unwanted price point

CFO and GC divert time to secondary trading

Legal expense to manage secondary trading

use the NPM as an
on-ramp to their IPO –
optimizing the transition to
public markets
Selling shareholders may depress price on
expiration of lock up

PRE-IPO COMPANIES
Stock plan administration and other systems need
greater sophistication
18
CONFIDENTIAL

19. Permanently Private Company Pain Points

Employee stock options worthless without liquidity

Recruiting without stock options difficult

Acquisitions for stock not feasible without liquidity

Early investors pushing for suboptimal exit

Secondary transactions cumbersome to manage

Legal expense to manage secondary transactions

CFO and GC divert time to secondary transactions
PERMANENTLY
PRIVATE COMPANIES
use NPM to gain compliant,
efficient liquidity
19
CONFIDENTIAL

20. Benefits of listing on NASDAQ OMX
20
CONFIDENTIAL

21. NASDAQ is home to INNOVATORS & VISIONARIES
Home to people and companies like yours, who revolutionize industries and reshape our lives.
21
CONFIDENTIAL

22. Current IPO Trends
2013 Top 10 Tech IPOs
Symbol
Company Name
Exchange
Gross Proceeds
Market Cap
NASDAQ
$303,500,000
$4,420,288,925
NYSE
$254,200,000
$4,268,151,639
CDW
NASDAQ
$395,250,000
$3,841,109,798
WSTC
NASDAQ
$425,500,000
$1,926,222,616
FUEL
NASDAQ
$116,000,000
$1,813,152,757
SALE
NASDAQ
$190,909,068
$1,673,900,513
GOGO
NASDAQ
$187,000,000
$1,581,188,391
NYSE
$117,600,000
$1,521,552,903
HAWK
NASDAQ
$230,000,000
$1,259,451,274
BNFT
NASDAQ
$130,777,500
$1,221,194,221
FEYE
DATA
CVT
Tableau Software, Inc.
Cvent Inc.
Source: Factset Research, NASDAQ. US based Technology companies defined by US companies in the GICS Information Technology Sector, Internet Retail Sub Industry and Health Care Technology Sub-Industry. NASDAQ has also classified West Corp. (NASDAQ: WSTC) as a
tech IPO although GICS classifies the company under the Industrials sector. For all intents and purposes WSTC is a tech company. IPO Market cap based on data as of 9/20/2013.
22
CONFIDENTIAL