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F-Prime Capital: Market Perspective, 2018

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F-Prime Capital: Market Perspective, 2018

  1. 1. F-Prime Capital State of the Tech Venture Capital Market – December 2018 F-Prime Capital December 2018
  2. 2. F I N T E C H P O RT F O L I O Insurance Wealth Management Lending Payments E N T E R P R I S E P O RT F O L I O 3 H E A LT H C A R E P O RT F O L IO Healthcare IT Medical devices/tools Therapeutics Note: Not exhaustive Real Estate Capital Markets DevOps SaaS / Enterprise Security AV/Robotics Data analytics
  3. 3. Significant spike in 2018 deployment across both Tech and FinTech; trend of increasing average deal size continues 4 (1) Excludes Hardware and Biotech; Categories not mutually exclusive Source: Pitchbook; Team analysis § Total capital deployed to Tech saw a substantial spike in 2018. The trend of decreasing deal volume continues as late stage rounds absorb a significant portion of overall tech investment. § FinTech saw its own spike in 2018, both in capital invested and total deal count. Average deal size has risen along with overall tech trends, but unlike Tech, deal count increased over 2017. U.S. Venture Investments in Technology1 U.S. Venture Investments in Financial Technology CONFIDENTIAL
  4. 4. 5 (1) Latest data available. Note: Fundraising totals do not capture all corporate venture capital Source: NVCA, Pitchbook; CB Insights; Team analysis U.S. Venture Capital Raised ($B) VC fundraising is producing decade-high overhang Global Venture Capital Overhang ($B) • Venture fundraising in the U.S. remains at sustained high levels of $35-40B /year. • Global AUM overhang climbs higher still. 2017 2016 2015 2014 2013 2012 2011 2010 Vintage 1
  5. 5. Non-VC pools of capital pushing into venture rounds 6 Tech-Focused Private Equity AUM, 2000-2018 § Tech-focused PE has become a major industry player, with funds now holding over half a trillion dollars in AUM, 2x from five years ago. § PE buyout firms are on course to make more investments in the technology sector than any year prior, with 1,079 tech- focused PE-baked buyout deals globally in 2018. Ex: Apptio, Prometric, Integral Ad Science. § While PE will compete with VC in later rounds, they also offer a new exit opportunity for VCs at all stages of company growth. Positive fundraising environment for tech-focused PE Source: Preqin; Pitchbook Fund Fund Size Close date Thoma Bravo (III) Target $10.0B Active raise Insight Venture Partners (X) $6.3B Sep-18 Providence Equity Growth (III) $1.3B Jun-18 Francisco Partners (V) $4.0B Nov-17 Vista Equity Partners (VI) $11.0B May-17 Silver Lake Partners (V) $15.0B Apr-17
  6. 6. Deal sizes and multiples expanding as more money pushes in 7 US VC Deal Size by Stage Note: SW = Software Source: Pitchbook; Capital IQ; Team analysis EV / Sales multiple
  7. 7. Fortunately, exit market has also improved over the same time frame and shows a sustained increase in exit valuations 8 US VC exits skewing larger Source: Pitchbook; Team analysis § Exits have grown along with deal sizes, with now over 60% of exits coming in above $100M. § Even in a heavy deployment environment, the exit environment has kept steady pace and median deal size spiked this year. Recent spike in median VC exit valuation
  8. 8. 2018 has been a strong year for tech exits, with an estimated ~80% increase in deal value over 2017 9 Facebook: $81B market cap at IPO Software Exits by Type, 2010-2018E (1) Note: As always, exit deal value may be significantly under-reported due to companies not disclosing exit value. Analysis excludes Concur, Netsuite, Pivotal and Solarwinds. IPO gross proceeds represent Market Cap at IPO; Acquisition proceeds represent price . Source: Pitchbook; Team analysis Software IPOs Software M&A Selected High-Profile Exits, 2018 Acquirer Value SAP $8.0B Microsoft $7.5B Salesforce $6.5B SAP $2.4B AT&T $2.0B Roche $1.9B Company Date Amt raised Mkt cap @ IPO 5-Oct $252M $4.9B 26-Jul $251M $2.8B 19-Jun $1,111M $3.7B 27-Apr $629M $4.4B 20-Apr $555M $3.9B 12-Apr $154M $2.0B 3-Apr $154M $26.5B 23-Mar $756M $11.2B 16-Mar $192M $3.9B
  9. 9. FinTech exits also picked up in 2018, with several notable public exits and multiple acquisitions over $100M 10(1) VC-backed exits only; (2) IPO on the Euronext Amsterdam Stock Exchange; Note: As always, exit deal value may be significantly under-reported due to companies not disclosing exit value. IPO gross proceeds represent Market Cap at IPO Source: Pitchbook; Team analysis U.S. FinTech Exits1 by Type, 2010-2018E Selected High-Profile Exits, 2018 FinTech Exits Target Acquirer Value Public Markets (IPO)2 $8,300M Public Markets (IPO) $4,400M Public Markets (IPO) $2,930M Public Markets (IPO) $2,960M Workday $1,600M S&P Global $550M GrubHub $390M Mirae Asset $220M RealPage $219M United Community Banks $130M Coinbase $120M SS&C Technologies $5,400M CME Group $5,500M Silver Lake / P2 Capital $3,500M Public Markets (IPO) $1,540M VCBackedNon-VCbacked LendingClub ($5.4B) and OnDeck ($1.3B) Square ($2.9B) Expands significantly if non VC-backed exits included
  10. 10. Financial Services giants have been slow to acquire, but are participating more meaningfully in investments 11 Key Incumbents have made few acquisitions However, investment has picked up in recent years Source: CBInsights; Pitchbook; Team Analysis § FinTech investment by banks picked up again in 2018, with banks leading rounds in Tradeshift ($250M), Poynt ($100M), Flexiti ($50M), CommonBond ($50M), Axoni ($32M), Veem ($25M), Even Financial ($19M) § Key areas of investment this year included process automation (BillTrust, ScaleFactor, C2FO, Bill.com, Canopy Tax), and real estate tech (Unison) BBVA Compass Goldman Sachs BNP Paribas Capital One JPMorgan Ally Credit Suisse First Data Vantiv TD Bank Only 20% of the top 50 banks operating in the US have acquired a fintech startup (2013-2018)
  11. 11. While valuations demand caution, we see a long-term shift unfolding as software-driven VC investments penetrate new industries 12 The pool of companies fit for VC funding grows as software expands to new verticals Surface area for tech VC grows as “software eats the world” (1) Verticals as classified by Pitchbook; (2) Industries as defined by BEA / FRED; Note: Categories aligned as closely as possible, should be considered illustrative vs. precise. Source: Pitchbook; Bureau of Economic Analysis; FRED; Team analysis And there is much room to grow Industry2 Contribution to GDP 2018 VC investment VC investment as % of GDP Information $1.2T $14.5B 1.21% Finance and Insurance $1.1T $21.6B 1.92% Transportation / Mobility $542B $11.7B 2.15% Manufacturing $2.1T $3.1B 0.15% Agriculture $217B $130M 0.06% Real Estate and Rentals $2.3T $1.4B 0.06% 1
  12. 12. Network economics, cloud infrastructure and mobile app distribution are helping companies scale faster than ever 13 …And applicationsRapid scaling of technology infrastructure… 1st iPhone Netflix moves to cloud with AWS 1st Android phone Facebook mobile launch AWS launched AWS revenue Active smartphones FB Mobile monthly active users (1) Active users not necessarily paying customers Source: Statista; GigeOm Research; Company websites; Broker Research Reports; Oliver Wyman ~$10 - $20 CAC ~$500 - $1,000 CAC Months after launch 1
  13. 13. Global geographic expansion is happening earlier and tapping into larger addressable markets 14 Top companies going fully global • Capital-light software companies are well-positioned for rapid geographic expansion • Bigger ambitions, better capital access and reduced global scaling friction is leading to bigger TAMs • Rapid global expansion by leaders reinforces competitive advantage, and contributes further to a winner-take-all dynamics in specific verticals Source: Public announcements and press
  14. 14. These market dynamics have resulted exceptional growth for businesses with attractive business models 15 Liquidity window remains openSignificant value has been created this cycle (1) Estimates based on company presentations, public announcements and team analysis; Note: US only Source: Pitchbook Up next Sum of last-round valuations: ~$150BYears after launch 1 F-PRIME PORTCO (A) F-PRIME PORTCO (B) F-PRIME PORTCO (C)
  15. 15. 1) Rise of the API economy 2) Devops and security are the new engines of IT spend 3) Data is the new fuel 4) Financial services will unbundle, creating new front doors and new models 5) Invisible and embedded payments 6) Software transforms industries previously untouched by VC Our core beliefs about these market forces frame attractive investment themes in which we have high conviction 16 Our beliefs Selected themes and investments No joy left in core IT infrastructure. AWS, MSFT and Google have all the fun. Software keeps eating the world On verge of a shift to a new 10-15 year era of machine-to-machine computing defined by API-execution and AI-model development Horizontal platforms give rise to new front doors and foundational data businesses Startups have an unprecedented ability to sell direct-to-customer at attractive unit economics PAPAYA PAYMENTS

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