My predictions for the private technology market funding market & venture capital for 2016

1. Venture Capital Outlook 2016
1
Mark Suster & Kevin Zhang
@msuster & @kevinyzhang

2. Some of our industry’s smartest thinkers have a
different world view.
So who’s right?
2

3. One thing I’m certain of - we’re in a bubble
Trade in an asset
at a price that
strongly
deviates from
asset's intrinsic
value
A surge in prices,
more than warranted
by fundamentals &
usually in a particular
sector. Followed by a
drastic drop in prices
as a selloff occurs

4. Widescreen Template - Aug. 2015
So will 2016
be the year
the craziness
finally ends?

5. Who the
fuck knows.
I’ve been
calling the
peak for 2
years

6. While many great companies are being created, I call BS on 50 new billion-
dollar US companies in just 18 months
6
Number of startups valued at $1B+ in the US
0
25
50
75
100
Jan 2014 Jan 2015 Sep 2015
80
51
30
Source: WSJ and DowJones VentureSource

7. Late stage valuations (D round non-VC) are frothy, driven by demand from outsiders (vs. C round
led by VCs). We see similar trends now happening in Seed & A rounds driven by crowdfunding.
7
Late stage private company median
valuations ($M)
Public markets are more reasonable
(iShares US Tech ETF, 7/1/12 to 6/30/15
40
80
120
160
200
2012 2013 2014 1H 2015
88
100
136
184
50
57
70
83
Series C Series D+
Source: Pitchbook 2H 2015 VC Valuations & Trends Report, iShares US Tech ETF
CAGR
CAGR: 15%
18%
28%

8. And valuations for the ‘most funded’ club continue to grow while the rest of
the market has started to show discipline.
8
Global unicorn valuation ($B)
0
1.5
3
4.5
Jan 2014 Jul 2014 Jan 2015 Jun 2015
4.1
3.8
3.1
2.8
1.9
1.61.7
1.5
Median
Average
Source: Goldman Sachs - Views from the Valley – Volume 2 – 100 unicorns and counting, Jul 2015

9. Median revenue multiples very high relative to history
9 Source: CBInsights, April 2015, based on press report estimates and SEC filings of private company valuations and sales
Median
11x+

10. While public multiples reverting to historical mean (i.e. SaaS now at 4-6x)
10 Source: Scale Venture Partners SaaS Index - EV divided by most recent quarterly revenue multiplied by 4, Jul 8 2015
Public SaaS EV/revenue median multiples

11. Late-stage private eCommerce multiples more than double that of public
comps
11
Source: GCA Savvian Internet Commerce multiples, CBInsights, press report estimates and SEC filings of private eCommerce company valuations and sales
These companies are real companies but we masked them to avoid the company-by-company debate.
Public eCommerce EV/CY revenue median
multiples
0
1
2
3
4
Dec '13 Mar '14 Jun '14 Sep '14 Dec '14 Mar '15 Jun '15 Sep '15
2.3 2.2
3.1
2.8
2.1 2.1
2.7
2.4
Late-stage private eCommerce EV/CY
revenue median multiples
0
2
4
6
8
10
12
14
0 5 10 15 20 25
Company 6
2.5
Company 5
12.9
Company 4
12.0
Company 3
4.4
Company 3
5.3
Company 2
6.8Company 1
5.7
Median: 5.6x
Dec ‘13 Jun ‘14 Dec ‘14 Jun ‘15 Dec ‘15
Median: 2.4x

12. Companies are increasingly exiting at or below last private valuation
12 Source: Goldman Sachs - Views from the Valley – Volume 2 – 100 unicorns and counting, Jul 2015
Dec 2014 Jun 2015Jan 2014
3 <= last private
valuation
5 <= last private
valuation
12 total billion+ exits in 2014 7 total billion+ exits in 1H 2015

13. Are we
smarter
than the
public
markets?

14. Meanwhile, at the other end of our market - crowdfunding exploded the last
2 years, growing at 153% CAGR
14
Global equity crowdfunding amount ($B)
0
1
2
3
2013 2014 2015E
2.6
1.1
0.4
Source: 2015CF - The Crowdfunding Industry Report by Massolution

15. 15
Many syndicates have
deal-level carry. This has
led some to become
super promoters.
Some behavior in the
less reputable
crowdfunding platforms
bordering on criminal.
P.T. Barnum

16. 16
Ambitious technologies Superior monetization
Despite hype, valuations and froth - amazing companies are being created.
Perhaps more than we’ve ever seen

17. What is driving some of the craziness?
17

18. 18
Everyone
wants in on the
action

19. Non-VC investors doubled participation in mid & late stage investments, now
in nearly 2/3rd of deals
19 Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences
Non-VC participation in mid & late stage startups
0%
15%
30%
45%
60%
2009 2010 2011 2012 2013 2014 Apr 2015
59%
48%46%
39%37%
33%31%
CAGR
’09-’14
9%

20. 20
Corporates make up the largest source of Non-VC investors and are less
valuation sensitive
CAGR
’09-’14
0%
13%
25%
38%
50%
2009 2010 2011 2012 2013 2014 2015
44%
35%35%
31%
28%28%
25%
27%
20%
17%
11%
13%
8%9%
Asset Mgmt
Family Office
Hedge Fund
Mutual Fund
Corporate
Asst Mgmt
Family Office
Hedge Fund
Mutual Fund
Corporate /
Corporate VC
18%
7%
Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences
Non-VC participation in mid & late stage startups

21. 21
Other growing sources of Non-VC money include LP co-investments, hedge
funds & mutual funds
0
25
50
75
100
2009 2010 2011 2012 2013 2014 2015P
Asset Mgmt
Family Office
Hedge Fund
Mutual Fund
CAGR
’09-’14
44%
73%
66%
45%
74
38
46
32
42
26
40
10
34
14
8
31
15
19
8
14
7
9
2
12
3
5
100
57
90
47
Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences. 2015P based on YTD data
Number of mid & late stage startups by investor type

22. 22
Round sizes have exploded and are highly correlated with lack of price
discipline
0
30
60
90
120
2012 2013 2014
Asset mgmt Corporate /
Corporate VC
Family office Hedge fund Mutual fund PE VC
103
35
60
48
35
20
71
20-25
Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences
Median round size for mid & late stage startup rounds by investor type

23. 78% of billion+ financings are led by non-VCs so far in 2015, up from 60% last
year
23
0
25
50
75
100
Jan 2014 Jan 2015 Sep 2015
80
51
30
Source: WSJ and DowJones VentureSource, Fenwick & West
60% led by
non-VCs
78% led by
non-VCs
Number of startups valued at $1B+ in the US

24. Conclusion
24
• Let there be no doubt: private tech markets are over-valued
• Driver is influx of new capital sources with less discipline
• Fund markups for some might be filled with Quirky surprises
• Many VCs walking portfolio through private RIP Good Times speeches
• Yet tech innovation will continue to grow as proportion of economy,
leading to continued returns for best VCs in industry