Preqin Private Equity Spotlight March 2012

The 2
nd
Annual SuperReturn China 2012

Winning Strategies For Maximising Successful
Private Equity & Venture Capital Investment In China
26-29 March 2012, Shangri-La Beijing,

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aiming to bring even more in-depth discussion and even more local and international LPs to Beijing in 2012.

The 2012 conference will feature the most pressing issues in the industry as well as only the very best LP &
GP speakers. With the increasing focus on China as THE country for private equity and venture capital
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Private Equity Spotlight
March 2012
FEATURED PUBLICATION:

The 2012 Preqin Limited Partner
Universe
www.preqin.com/lpu
Preqin Industry News
Each month Preqins analysts speak to hundreds of investors, fund managers and
intermediaries from around the world, uncovering vital, exclusive intelligence. This
months Industry News features important updates regarding the venture capital
industry.
Page 7.
Limited Partner Universe
Shift to Late Stage Venture - are more venture capital GPs moving towards less risky late stage
strategies and larger fund sizes? Page 10.
Energy, Oil and Gas Deals - with increasing demand and techniques such as fracking providing
access to untapped resources, we take a look at energy, oil and gas buyout deal activity. Page 11.
Risk and Return - private equity managers thrive on being able to provide an edge - how does risk
and return differ between different strategies? Page 12.
Potential Secondary Sellers - with 2012 showing signs of increased secondary market activity, we
look at those frms that may be looking to sell fund interests in the near future. Page 13.
Conferences - details of upcoming private equity conferences from around the world. Page 14.
The Facts
Expert Comment
Is venture capital over-sold? What is the future for the venture industry and the
model as a whole? This months Spotlight features expert commentary by David
York of Top Tier Capital Partners.
Page 8.
The 2012
Preqin Limited Partner Universe
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New York
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Tel: +1 212 350 0100
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Tel: +44 (0)20 7645 8888
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018960
Tel: +65 6407 1011
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Email: info@preqin.com
Web: www.preqin.com
ISBN: 978-1-907012-54-9

alternative assets. intelligent data.
The 2012 Preqin Limited Partner Universe
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Welcome to the latest edition
of Private Equity Spotlight, the
monthly newsletter from Preqin
providing insights into private
equity performance, investors and
fundraising. Private Equity Spotlight
combines information from our online
products Performance Analyst,
Investor Intelligence, Fund Manager
Profles, Funds in Market, Secondary
Market Monitor and Deals Analyst.
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March 2012
Volume 8 - Issue 3
One of the key challenges for private equity fund managers in the current crowded
fundraising environment is how to identify, target and approach potential investors.
In this months feature article we discuss the make-up, trends and attitudes of the
institutional investor universe.
Page 3.
Global private equity fundraising
We are pleased to announce the successful
closing of L Capital 3.
Capstone Partners (www.csplp.com) is a leading independent placement
agent focused on raising capital for private equity frms. The Capstone team
includes 25 experienced professionals in North America, Europe and Asia.
www.csplp.com
North America
One Galleria Tower, 13355 Noel Road, Dallas, Texas 75240
+1.972.980.5800
Europe
Grand-Rue 19, 1260 Nyon Switzerland
+41.22.365.4500
Asia
Suite 1106, Metrobank Tower, 1160 Yan An Xi Lu, Shanghai 200052 China
+86.21.6124.2668
Securities placed through CSP Securities, LP
Member FINRA/SIPC
Global private equity fundraising
We are pleased to announce the successful
closing of L Capital 3.
Capstone Partners (www.csplp.com) is a leading independent placement
agent focused on raising capital for private equity frms. The Capstone team
includes 25 experienced professionals in North America, Europe and Asia.
www.csplp.com
North America
One Galleria Tower, 13355 Noel Road, Dallas, Texas 75240
+1.972.980.5800
Europe
Grand-Rue 19, 1260 Nyon Switzerland
+41.22.365.4500
Asia
Suite 1106, Metrobank Tower, 1160 Yan An Xi Lu, Shanghai 200052 China
+86.21.6124.2668
Securities placed through CSP Securities, LP
Member FINRA/SIPC
3 2012 Preqin Ltd. www.preqin.com
Download Data
Feature
Limited Partner Universe:
Know thy investor
In competitive times it is more important than ever for fund managers to be able to identify, approach
and understand potential investors. Emma Dineen examines the current make-up of the institutional private
equity investor universe and discusses their attitudes towards the asset class.
2011 was another turbulent year for private equity fundraising.
A considerable 62% of investors that Preqin spoke to back in
December 2010 planned to make new commitments to private
equity funds over the course of 2011, and an encouraging 68%
of investors that were looking to invest planned to commit more
capital in 2011 than they did in 2010. Fundraising did indeed pick
up in the frst half of the year, and we saw a quarter-on-quarter
increase in capital raised by closed funds, from $55.9bn in Q4 2010
to $87.3bn in Q2 2011 (see Fig. 1).
However, the second half of the year saw disappointing levels of
fundraising as the crisis within the eurozone impacted on wider
fnancial markets, and Q3 saw the amount of capital raised dip to
its lowest point since Q4 2004, with 137 funds closing on $53.1bn,
before there was a slight uptick again in Q4 2011.
Despite the increased volatility within fnancial markets, many
investors remain optimistic about the opportunities on offer within
the private equity asset class, and 66% of investors we spoke to
in December 2011 told us they had made new commitments to the
asset class over the course of the year. Private equity fundraising
remains muted in comparison to the years prior to the fnancial
crisis, but some encouragement can be taken from the fact that
the aggregate capital received by funds that closed in 2011 saw a
slight increase on the capital raised by funds closed in 2010, with
$278.3bn raised by funds that closed in 2011, up from $277bn by
funds that closed in 2010. Though the increase is modest, 2011
is the frst year since 2008 that there has not been a fall in the
aggregate capital raised by private equity funds.
Investor Appetite and Impact of Market Volatility
Although fnancial markets remain unpredictable, a signifcant
73% of investors we spoke to in December 2011 are planning to
make new private equity commitments over the course of 2012.
Furthermore, of those planning to invest in 2012, 27% plan to
commit more capital while 49% intend to commit at the same rate
as they did in 2011 (see Fig. 2). Another 12% of LPs making new
commitments in 2012 are returning to the asset class having held
off from making new commitments in 2011, suggesting that several
investors are becoming more confdent about the opportunities on
offer within private equity.
A signifcant 61% of investors told us that recent volatility in wider
markets, and in particular the sovereign debt crisis in Europe, has
not impacted upon their opinion of the asset class; in fact one ffth
of investors feel more positive towards private equity as a result
of the problems in the eurozone. Full analysis of the results of our
December 2011 investor interviews are available within the body of
the 2012 Preqin Limited Partner Universe.
Like many investors we spoke to, an Australian superannuation
scheme feels that: Public markets are more volatile and risky
in times like this, so private equity becomes more attractive. A
Canadian endowment told us: [There is] more value in private
equity after [the] fall in public markets. Many investors we spoke
to also feel that the current climate in Europe is opening up
opportunities in certain markets, as a Singaporean investment
Private Equity Spotlight, March 2012
Fig. 1: All Private Equity Fundraising by Quarter, Q1 2004 - Q4 2011
Source: Preqin
57.0
52.6
48.7
52.2
61.5
101.6
85.3
110.0
119.3
140.8
152.5
131.8
128.4
212.5
123.8
204.2
174.7
210.4
127.9
168.7
79.1
95.4
57.5
74.5
78.8
62.4
79.9
55.9
69.6
87.3
53.1
68.2
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Fig. 2: Amount of Capital Investors Plan to Commit to Private Equity
Funds in 2012 Compared to 2011
Source: Preqin
6%
21%
49%
10%
2%
12%
Significantly More
Capital in 2012 than
in 2011
Slightly More Capital
in 2012 than in 2011
Same Amount of
Capital in 2012 as in
2011
Slightly Less Capital in
2012 than in 2011
Significantly Less
Capital in 2012 than
in 2011
Did Not Invest in 2011
but Investing in 2012
Download Data
company acknowledged: The volatility has not negatively
infuenced our attitude towards private equity since we feel there
could be opportunities in the current situation in terms of distressed
assets in need of funding.
Nineteen percent of investors interviewed told us they view private
equity more negatively as a result of volatility in wider fnancial
markets; some voiced concerns that public market losses are
increasing the risk of the denominator effect in their private equity
portfolios, whereas others had concerns about maturing funds
within their portfolios being able to realize their investments.
Key Geographies for 2012
As the more developed private equity markets in Europe and
North America face economic instability and stricter regulations,
investors are increasingly looking to opportunities in other regions.
A signifcant 60% of investors we spoke to in December feel that
Asia is presenting attractive investment opportunities in the current
market. Forty-two percent of LPs named North America as an
attractive region to invest in at present (see Fig. 3). Despite recent
uncertainty in the eurozone, 37% of investors feel that regions
within Europe are presenting attractive investment opportunities.
Specifc regions within Europe that were named by investors as
offering appealing opportunities at present include the Nordic
region as well as countries in Central and Eastern Europe.
Importantly, 70% of investors told us that they are not avoiding
any regions where they would have previously considered gaining
exposure in light of the current fnancial climate, including one
Singapore-based investment company which commented: There
is always an opportunity in a crisis. Even in situations like the one
currently in Europe, for example, distressed assets could always
be a draw so we are keeping our options open and not ruling out
investing in any region. Eighteen percent of LPs told us they
will avoid certain regions within Europe as a result of the current
climate; within Europe investors named Southern Europe, Greece,
Italy and Spain as areas they would avoid in the current fnancial
climate. Twelve percent of investors are avoiding funds targeting
Rest of World (regions outside of North America, Europe and Asia).
Emerging markets continue to attract strong interest from
investors. Seventy-six percent of investors will consider investing
in emerging markets, an increase of six percentage points from
December 2010, when 70% of investors were open to investing
in emerging markets. Furthermore, 99% of investors that invest in
emerging markets expect to maintain (66%) or increase (33%) their
allocation to such regions over the next 12 months.
GP Relationships
Although the majority of LPs have capital available and are ready
to make new fund commitments, fund managers on the road are
likely to face tough challenges in the coming months; with a record
number of funds in the market investors remain highly selective
about the managers they choose to work with.
Managers should be aware that while a considerable 84% of
investors are likely to add some new GPs to their portfolios, several
are also likely to terminate some existing relationships if managers
do not meet their high expectations or increasingly stringent
investment criteria. Therefore managers planning to launch follow-
on funds in the coming months should closely monitor their existing
LP base in order to assess which LPs they expect will re-up with
them, and thus ascertain how much capital they will need to attract
from new investors when beginning the fundraising process. More
than a quarter (26%) of funds that closed in 2010 and 2011 have
an investor base consisting of a majority of investors that they had
not previously worked with.
Investors continue to be reluctant to commit to funds raised by new
teams: 55% of investors told us they will not consider investing in a
frst-time fund over the next 12 months. Just 18% of LPs told us they
would readily invest in a frst-time fund over the next 12 months,
and an additional 17% would consider committing to a frst-time
fund should they see an appealing opportunity. One US pension
fund told us: We typically prefer GPs to have a track record, but if
we saw a great opportunity and other investors were involved then
we might commit. Ten percent of investors will commit to a frst-
time fund only if managed by a spin-off team.
In competitive fundraising conditions, intelligence and preparation
are vital. Managers need to have a clear idea of which investors
are likely to be attracted to their strategy and how their opportunity
and track record stands out from those of their competitors. In order
to stand out to prospective investors and stand the best chance of
securing commitments for their funds, GPs need to articulate a well
thought out, cohesive and clear plan, be considerate of each LPs
requirements and approach prospective investors in the best way
possible.
Over the course of 2011, we asked 500 investors their preferred
method of being contacted by GPs in the frst instance, and the
results can be seen in Fig. 4. The highest proportion of investors
(31%) prefer to receive an email with fund documentation from
a potential fund manager, with no follow-up call. Twenty-seven
percent of LPs prefer prospective managers to contact them
via their consultant; the same proportion like to be contacted by
Feature
Fig. 3: Regions Investors View as Presenting Attractive Opportunities
and Regions Investors Are Avoiding in the Current Financial Climate
Source: Preqin
37%
42%
60%
26%
6%
18%
2%
8%
12%
70%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Europe North
America
Asia Rest of World None
Regions Investors View
as Presenting Attractive
Opportunities in the
Current Financial
Climate
Regions Investors Are
Avoiding Due to the
Current Financial
Climate, Where They
Would Have Considered
Investing Before
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email in the frst instance and then receive a follow up call from
the GP. J ust 5% of investors prefer to receive an introductory call
from a manager without any prior contact, while 9% of investors
named other ways in which they would like to be approached,
including receiving fund documentation in hard copy through the
post, contacting a specifc person within their investment team, or
preferring not to be approached at all by GPs and instead sourcing
their own investments.
Outlook for Private Equity in 2012 and the Longer Term
Competition within the private equity market remains intense, and
2012 looks set to be another challenging year for fundraising.
However, GPs can be encouraged that investor confdence is
steadily returning and the proportion of investors looking to make
new commitments in 2012 (73%) has increased by 11 percentage
points compared to the 62% of investors that planned to make new
commitments over 2011.
Although some LPs are streamlining their portfolios and terminating
some of their existing manager relationships, many investors
are looking to forge new relationships with fund managers and
would like to maintain those relationships over the longer term.
Furthermore, 38% of investors expect to increase the number of
fund managers in their portfolios over the longer term, and another
47% expect to maintain the number of GPs they work with.
As the market evolves, new investors continue to enter the asset
class, and private equity remains a key strategy within many
existing investors portfolios. As Fig. 5 shows, 25% of investors
intend to increase their exposure to the asset class over the next
12 months, compared to just 5% that plan to reduce their exposure,
and 27% plan to increase their allocation to the asset class over
the longer term.
This months feature article draws upon research and analysis
completed for the 2012 Preqin Limited Partner Universe.
Painstakingly assembled by our large, multilingual team of
analysts, the sixth edition of the Limited Partner Universe has
been completely updated to provide you with the ultimate
resource on institutional investors.
With information on more than 2,800 investors worldwide, plus
over 100 pages of vital analysis, the 2012 Preqin Limited Partner
Universe is the most complete printed guide to institutional
investors in private equity ever produced.
Interested in finding out more? To see how this comprehensive
publication can help you, please visit:
www.preqin.com/lpu
Data Source:
Feature
Fig. 4: Investors Preferred Method of Contact from Fund Managers
Proportion of Respondents
Source: Preqin
9%
5%
27%
28%
31%
Other
Introductory Telephone Call from Fund
Manager
Receive Email with Fund Documentation
and Follow-up Call from the Fund
Manager
Contact via Investment Consultant
Receive Email with Fund Documentation
and No Follow-up Call from the Fund
Manager
0% 5% 10% 15% 20% 25% 30% 35%
Fig. 5: Investors Intentions for Their Private Equity Allocations
Source: Preqin
25%
27%
70%
61%
5%
12%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Next 12 Months Longer Term
Decrease
Allocation
Maintain Allocation
Increase Allocation
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2012 Preqin Limited Partner Universe
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With information on more than 2,800 investors worldwide, plus over 100 pages of vital analysis, the 2012 Preqin Limited Partner
Universe is the most comprehensive printed guide to institutional investors in private equity ever produced. The sixth edition of the
Limited Partner Universe has been completely updated to provide you with the ultimate resource on institutional investors. Over
2,800 institutional investors in private equity from 85 countries worldwide are profled, including public and private sector pension
plans, fund of funds managers, insurance companies, asset managers, foundations, endowments, sovereign wealth funds and more.
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Key investors to watch in 2012/13.
The 2012
Preqin Limited Partner Universe
New York:
60 E 42nd Street
Suite 2544
New York
NY 10165
Tel: +1 212 350 0100
Fax: +1 440 445 9595
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Equitable House
London
EC4R 9AF
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Fax: +44 (0)87 0330 5892
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Asia Square Tower 1
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018960
Tel: +65 6407 1011
Fax: +65 6407 1001
Email: info@preqin.com
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ISBN: 978-1-907012-54-9


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Venture Capital Round-Up
Venture capital funds account for 19% of all funds currently in
market. There are 372 venture funds raising capital at present,
seeking a combined $53.4bn in commitments, as shown in the
chart of the month. With this in mind, this month we take a look at
the latest news in this important sector of the private equity market.
Investors keen to commit to venture funds in the near future include
Kotak Life Insurance, an INR 86bn insurance company that is
planning to make its frst private equity investment within the next
18 months. It is looking to invest in India-focused venture capital
funds, and has no particular industry preference.
Spanish government agency Institut Catala de Finances is also
expecting to invest in venture funds over the coming 12 months. It
has a strategic aim to promote economic development in Catalonia
and will therefore look to commit to funds focused on investment
in the region. The agency will invest opportunistically, and has no
specifc targets when it comes to the number of funds it will invest
in, or the amount of capital it will commit to each fund.
Hoping to attract investments from keen venture capital investors,
Aqua Capital Partners recently launched its frst fund, Aqua Capital
Partners I, which is targeting $150mn. The fund will focus on
investments within agribusiness, food and related services sectors
and will specialize in mid- to late-stage venture capital investments
within Argentina, Brazil, Chile and Uruguay.
Also making investments in Brazil is newly launched venture frm
Redpoint eVentures. A joint venture between Redpoint Ventures
and BV Capital eVentures, the fund manager has made three early
stage investments in the country, and focuses on the consumer
internet, e-commerce and other technology and media-related
industries.
Some investors are keen to access the venture sector via the
secondary market. Rallye, a French investment company, has
revealed that it is considering selling its venture capital fund interests
on the secondary market. Rallye is no stranger to the secondary
market, having sold 233mn worth of private equity assets back in
2008. The investment company, which has a portfolio of Europe-
focused venture capital and buyout funds, has already had some
interest in its assets.
At the other end of the spectrum, two venture funds have closed
this month and both did so above target. Emergence Capital
Partners III closed $50mn above its $200mn target, while Charles
River XV closed on $375mn, $75mn over target. Both funds focus
investments in the North American technology sector.
In addition, there has been some venture-related activity in the
deals market over the past month. Yammer, Inc. raised $85mn
in new venture funding in February. The round was co-led by
Draper Fisher J urvetson and Social+Capital Partnership, and
both new and existing investors joined the round. Drillinginfo, Inc.,
meanwhile, raised $165mn in venture funding in March 2012.
Insight Partners led the round.
1527
741.0
169
28.9
103
9.1
62
11.3
14 18
2.5
6
0.7
0
200
400
600
800
1000
1200
1400
1600
1800
2000
No. Funds in Market Aggregate Target Size ($bn)
Venture Debt
Early Stage: Start-up
Early Stage: Seed
Expansion / Late Stage
Early Stage
Venture (All Stages)
Other Fund Types
Chart of the Month: Breakdown of Venture Funds Currently in Market
(As at 13th March 2012)
Source: Preqin
Do you have any news you would like to share with the readers
of Spotlight? Perhaps youre about to launch a new fund, have
implemented a new investment strategy, or are considering
investments beyond your usual geographic focus?
Send your updates to cwilson@preqin.com and we will
endeavour to publish them in the next issue.
Data Source:
Claire Wilson delivers a round-up of the latest private equity news, featuring exclusive intelligence uncovered by
Preqins analysts. Preqin Online subscribers can click on the investor/firm names to view the full profiles.
News
Download Data
Expert Comment
Is Venture Over-Sold?
The Outlook for Venture Capital
The days of the dot-com boom are now a distant memory to venture capitalists and the industry has been
forced to evolve in the face of reduced performance. David York, CEO and Managing Director of Top Tier
Capital Partners, looks at the current state of the industry.
The years 2000 to 2009 were a rough decade for venture capital.
After a tremendous run from 1985 to 2000 during which the US
venture-capital industry produced IRRs as much as 100% higher
than major public-market indices the sector fell on hard times. First
the Internet bubble popped, then the telecom industry collapsed,
and fnally, like everyone else, the industry suffered through the
global fnancial crisis. As a result returns plummeted; the Preqin
median IRR for venture, which sat at 25.9% for the 1997 vintage,
fell to -1.0% by the 2000 vintage. Chastened VCs burrowed back
into their Sand Hill Road offces like bears going into hibernation,
waiting for the market to thaw.
That thaw has clearly come. Early-stage deal making has
rebounded so much, in fact, that some pundits are warning
of a second, unsustainable tech bubble, driven by hype over
innovations like mobile apps and social networking. We agree
there is some selective hype hanging over the market today. But
were also heartened by several larger, macro trends that we think
make this venture market different than the heady one that crashed
12 years ago and a more positive place for investors.
The frst trend relates to capital specifcally, the amount of capital
being raised by venture capitalists right now. Whats positive is that
investment is down compared to the bubble years. In 2011, US
VCs raised an aggregate $16.6 billion from 69 funds. In 2000, the
industry raised an astounding 249 funds worth $63.2 billion. This
decline in fundraising is a good thing because historical data shows
an inverse relationship between venture-capital performance
and the amount of venture capital deployed as a percentage of
US gross domestic product (GDP). And while VC investment has
been slowly rising for the last three years, that capital is being
deployed more selectively by fewer frms, since the tech-stock bust
winnowed the feld of VC players. Whats more, for early-stage
investments, valuations are below where they were before the
global fnancial crisis, as VCs set more realistic expectations for
how fast companies can grow. Later-stage investments are at a
decade high, but this is largely due to high company valuations in
later rounds of fnancings in hot sectors such as consumer services.
The second positive trend bolstering venture capital today, in my
view, is robust innovation. Venture capital historically has backed
many of the US economys most game-changing companies,
including Microsoft, Apple, Genentech, Netscape, Amgen, Cisco,
Amazon.com and many others. Today we fnd ourselves on the
cusp of several new, profoundly important trends in IT, healthcare
and clean technology that could produce a new crop of similar
corporate giants and create substantial market value for investors
around the globe.
In IT, many VC-backed companies are leveraging exciting new
developments in cloud computing, mobile technology and social
networking, for example, and making real money from those
trends. (No Pets.com redux here.) Facebook has over 700 million
members and boasted revenue of $3.7 billion last year. It earned
$1 billion in profts. Start-ups like Dropbox and Box.net are also
racking up sales as they change the face of computer storage and
content-sharing by allowing people to store ever-expanding reams
of data on offsite Internet servers, instead of on their own PCs.
On the mobile front, scores of start-ups are developing businesses
for todays increasingly complex smartphones, which are rapidly
replacing PCs as the computing device of choice for most people
around the globe, particularly in emerging markets. The number
of mobile Internet users is expected to exceed desktop PC users
by 2014; Apple recently sold 37 million iPhones in one quarter.
Furthermore, the rapid adoption of technology is accelerating, as
demonstrated by Fig. 1.
In healthcare, astute VCs are backing companies capitalizing
on the US governments new support for healthcare-IT services,
such as electronic medical records, and its focus on containing
healthcare costs. There are also groundbreaking efforts underway
in areas such as personalized medicine, molecular diagnostics and
the development of drugs for rare, orphan diseases.
Is Venture Capital Over-Sold?
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Fig. 1: Adoption of Various Technologies over Time, 2004 - 2011
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Finally, there is signifcant innovation today in clean, or green,
technology, with many VC-backed companies fnding new ways
to help consumers and businesses conserve energy, track energy
use and upgrade the aging electric grid. This is a pivot away
from the frst wave of green innovation, which focused heavily on
more capital-intensive projects such as solar, biofuels and wind
companies, and suffered its share of investment duds. More-
promising, high-profle, cleantech companies backed by VCs today
include Serious Energy, Silver Spring Networks and Sun Run.
VC-funded startups arent the only ones innovating. Since the tech
bust, the venture industry has re-invented itself in many ways,
becoming more global and stage-agnostic with its investing. This
is yet another force that is lifting the industrys prospects and
differentiating it from the way it operated a decade ago.
Today, venture capitalists are doing more seed-stage deals as
well as larger growth-stage investments, allowing them to better
balance their portfolios and cash fows sometimes by investing
less money in risky companies and thus enhance their returns.
Weve seen a marked increase in seed-stage investing, such as in
deals worth less than $500,000, among the managers we back. In
our 2007 vintage year fund of funds, for example, which includes
funds launched from 2007 to 2010, fully 20% of the investments
were made at the seed stage. Thats up from 12% in our 2002
vintage year fund of funds.
VCs are also going global today like never before. With projected
economic growth rates in countries like China and India still two to
three times higher than GDP growth in the US, VCs are exploring
those markets for potential opportunities. High-profle VC frms
including Accel Partners, Bessemer Venture Partners, Kleiner
Perkins Caufeld & Byers, Sequoia Capital and NEA have all
opened offces or expanded operations overseas, often in multiple
locations, taking advantage of the high growth potential of those
markets. Again, this helps diversify venture frms risk profles and
gives them a better shot at above-average returns.
One of the biggest factors making me optimistic about venture today
is the exit environment in the US. After a long freeze, large venture-
backed companies are fnally going public. (IPOs, as opposed to
M&A exits, traditionally supply VCs with their highest returns.)
Facebooks IPO, which could value the company at between $75
billion and $100 billion, is anticipated this spring. Tech companies
including Groupon, LinkedIn, Pandora, J ive Software and Yelp
have successfully gone public recently, and a diversifed list of
companies including Splunk, Brightsource Energy, ExactTarget,
Envivio, LaShou (China), Palo Alto Networks, ServiceNow, Silver
Spring Networks and TRIA Beauty could go public soon. Overall, in
2011, 52 US venture-backed companies went public in deals worth
a total of $9.9 billion, up 41% in dollar value from 2010, according
to the National Venture Capital Association. The aggregate value of
venture-backed M&A deals last year was $23 billion, up 23% from
the year before and the highest level since 2007.
Clearly, the venture industry is not performing at the same level
it was in the late 1990s. But most people now acknowledge
that period to be somewhat of an anomaly, driven by the initial
explosion of Internet companies. Now, weve settled back into a
more normal cycle of investment and exits but one driven by
many new exciting innovations.
Is Venture Capital Over-Sold?
Expert Comment
David York is CEO and Managing Director of venture-focused
fund of funds Top Tier Capital Partners.
For more information please visit:
www.toptiercp.com
Since 2005, over 1,850 venture funds have completed fundraising,
raising an aggregate $280bn in capital commitments. Fig. 1 shows
the average fund size and number of venture capital funds raised
since 2005. Across the period, the average size of venture funds
has increased, while the number of funds closed has fallen,
indicating that on average venture GPs have raised larger funds in
recent years. The 2011 average fund size of $228mn is a record for
the fund type. One explanation for this is GPs shifting their strategy
away from early-stage investments towards late-stage investments
in light of the volatile economic conditions in the US and Europe.
This shift necessitates a larger fund size to facilitate investments in
revenue-producing companies that require larger capital injections.
Fig. 1 shows that while the number of venture funds closing
annually has more than halved over the last four years, from
351 funds in 2007 to 160 last year, the number of late-stage
fund closures has been more resilient over the same period,
due to increased LP demand for the strategy. During 2009 to
2011, venture capital funds that closed in the period had an
average commitment size 16% higher than those closed between
2007 and 2008, while LPs average commitment size to early-
stage funds declined by 14% and average commitment sizes
to later-stage expansion funds increased by 40%. In 2011, late-
stage funds had the highest average committed capital across
all investment stages, suggesting that many LPs are reducing
exposure to higher-risk venture investments.
Average Fund Size
Fig. 2 shows that late-stage fund sizes have increased at a greater
rate than other venture funds since 2005. The strategy of placing
greater emphasis on late-stage investments has been utilized
by numerous frms, including GVFL. The India-based frm has
increased its fund size to compensate for the change, moving from
vehicles raising around INR 250mn to its latest vehicle, Golden
Gujarat Growth Fund-1, which is targeting INR 10bn. Elsewhere,
many GPs that invest across the venture spectrum have begun
aligning their funds exposure towards late-stage opportunities.
It is important to note that although there is evidence of GPs shifting
towards late-stage investments, early-stage offerings still account
for a signifcant proportion of venture fund closures. Many frms
have resisted the trend towards later-stage investment, instead
continuing to invest in early-stage investments to take advantage
of the opportunities that are still available. Despite this, the trend
of a shift in strategy towards the late-stage end of the spectrum is
another example of how GPs can adapt in the current economic
climate and evolve to meet LPs changing expectations.
Download Data The Facts
Shift Late-Stage Venture
Shift to Late-Stage Venture
Cindy Smith examines the trends of venture capital GPs moving towards late-stage investments and larger fund
sizes.
125 129
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Early Stage Late Stage All Venture Stages
Fig. 2: Annual Average Venture Capital Fund Size Split by
Investment Stage, 2005 - 2011
Source: Preqin
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Preqins Funds in Market is the leading tool in helping fund managers research the current fundraising environment, compare historical fundraising fgures
and place their fund in its context. Subscribers can click here to view the full details of over 2,200 venture funds that have closed since 2003.
Not yet a subscriber? To fnd out how Funds in Market can help you and to register for a demo, please visit:
www.preqin.com/fm
Subscriber Quicklink:
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2005 2006 2007 2008 2009 2010 2011
No. Early Stage Funds No. Late Stage Funds
No. General Venture Funds Average Fund Size ($mn)
Fig. 1: Venture Capital Fundraising Breakdown by Average Fund Size
and Investment Stage, 2005 - 2011
Source: Preqin
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Energy, Oil and Gas Deals
Energy, Oil and Gas Deals
Kevin Smith looks at the key stats regarding the increasing private equity-backed buyout deal activity in the
energy, oil and gas sectors.
6%
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24%
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2006 2007 2008 2009 2010 2011 2012 YTD
Small (Less than $249mn) Mid ($250-$999mn) Large ($1bn+)
Fig. 2: Breakdown of Private Equity-Backed Energy, Oil and Gas
Buyout Deals by Size, 2006 - 2012 YTD (At at 9th March 2012)
Source: Preqin
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YTD
No. of Deals Aggregate Deal Value ($bn)
Fig. 1: Semi-Annual Number and Aggregate Value of Private Equity-
Backed Energy, Oil and Gas Buyout Deals, 2006 - 2012 YTD (As at 9th
March 2012)
Source: Preqin
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2006 2007 2008 2009 2010 2011 2012 YTD
Buyout Growth Capital Add-on Public to Private
Fig. 3: Breakdown of Private Equity-Backed Energy, Oil and Gas
Buyout Deals by Type, 2006 - 2012 YTD (As at 9th March 2012)
Source: Preqin
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Included as part of Preqins integrated 360 online private equity
database, or available as a separate module, Deals Analyst
provides detailed and extensive information on private equity
backed buyout deals globally. The product has in-depth data for
over 24,000 buyout deals across the globe, including information
on deal value, buyers, sellers, debt financing providers, financial
and legal advisors, exit details and more. Subscribers can click
here to see the full details for over 580 energy, oil and gas deals
from 2006 to present, representing aggregate value of over
$170bn.
Not yet a subscriber? To find out more information on how Deals
Analyst can help you, please visit:
www.preqin.com/deals
Fig. 4: Five Largest Private Equity-Backed Energy, Oil and Gas Buyout Deals, 2011 - 2012 YTD (As at 9th March 2012)
Firm Investment Type Deal Date Deal Size Investors Location Industry
Samson Investment Company Buyout Nov-11 $7.2bn
Crestview Partners, ITOCHU Corporation, Kohlberg
Kravis Roberts, NGP Energy Capital Management
US Oil & Gas
El Paso Corporation Oil And
Natural Gas Exploration And
Production Assets
Buyout Feb-12 $7.15bn
Access Industries, Apollo Global Management,
Riverstone Holdings
US Oil & Gas
Frac Tech Holdings Buyout Apr-11 $3.5bn
Chesapeake Energy Corporation, CPP Investment Board,
RRJ Management, Temasek Holdings
US Oil & Gas
Alinta Energy Restructuring Mar-11 AUD 2.1bn TPG Australia Energy
Cheniere Energy, Inc. Growth Capital Feb-12 $2bn Blackstone Group US Oil & Gas
Source: Preqin
Risk and Return
Risk and Return
Hayley Wong examines the risk and return of different private equity investment strategies.
-10%
0%
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Buyout
Natural Resources
Balanced
Distressed Private Equity
Early Stage
Fund of Funds
Growth
Infrastructure
Mezzanine
Real Estate
Secondaries
Venture
Return - Median Net IRRs
Fig. 1: Risk and Return by Fund Strategy (Vintages 2000 to 2009)*
Source: Preqin
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Buyout
Distressed Private Equity
Early Stage
Fund of Funds
Growth
Mezzanine
Real Estate
Venture (Excluding Early Stage)
IRR Percentage Point Diference from Respective Median
Benchmark
Fig. 2: Net IRR Deviation from Median Benchmark
Source: Preqin
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Preqins Performance Analyst ofers fund-level performance data and information regarding portfolio net IRRs for over 5,800 private equity funds and is the
worlds most extensive and transparent database of private equity and venture capital fund performance. Subscribers can access and download returns
data for over 5,800 funds.
Interested in fnding out how Performance Analyst can help you? Please visit:
www.preqin.com/pa
Data Source:
-5%
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Large
Mega
Mid
Small
Fig. 3: Risk and Return by Buyout Fund Sizes (Vintages 2005 to 2009)*
Source: Preqin
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*Size ranges:
Vintage 2005-2010: Small Buyout $500mn, Mid Buyout $500mn-$1,500mn,
Large Buyout $1,500mn-$4.5bn, Mega Buyout > $4.5bn
Size of sphere represents level of aggregate commitments to fund strategy.
-5%
0%
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Expansion / Late Stage
Early Stage
All Stages
Fig. 4: Risk and Return by Venture Stage Focus (Vintages 2005 to 2009)*
Source: Preqin
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*Size of sphere represents level of aggregate commitments to fund strategy
*Size of sphere represents level of aggregate commitments to fund strategy
Antonia Lee explores how Preqins Secondary Market Monitor can help to identify more than 1,700 potential
secondary market sellers
Potential Secondary Market Sellers
In addition to providing details of the 286 investors known to be
actively seeking to sell interests on the secondary market, Preqins
Secondary Market Monitor enables users to flter from the 4,913
investors profled on Preqins Investor Intelligence database the
1,700 investors that Preqin identifes as having an increased
likelihood of selling fund stakes on the secondary market. These
LPs are either no longer investing, over-allocated to the asset
class, or have otherwise put their private equity investments on
hold. Fig. 1 illustrates that institutions no longer investing in private
equity account for 59% of the investors that fall within this category.
These institutions represent the best source of potential leads, as
it is possible that many of them will seek to liquidate their existing
investments in private equity in order to exit the asset class.
The types of institution to have stopped investing in private equity,
put investments on hold, or have become over-allocated to the
private equity asset class are shown in Fig. 2. Private sector pension
funds make up the largest proportion at 12% of investors within the
additional source of sellers identifed by Preqin, followed closely
behind by corporate investors at 11%. Banks and investment banks,
and public pension funds also make up a signifcant proportion, as
both account for 10%.
Fig. 3 shows the location of the 1,700 investors identifed by
Preqin as having an increased likelihood of selling fund stakes.
North America-based institutions represent 41% of these investors.
European LPs also make up a considerable proportion at 39%,
while investors located in Asia and Rest of World form the smallest
portion, with 20% located in this region.
Download Data The Facts Potential Secondary Market Sellers
15%
3%
23%
59%
Over-Allocated to Private Equity
Not Investing for up to 12 Months
Not Investing for One to Two Years
No Longer Investing in Private
Equity
Fig. 1: Breakdown of Investors Identified as Additional Potential
Secondary Market Sellers by Investment Status
Source: Preqin
12%
11%
10%
10%
8%
8%
8%
7%
26%
Private Sector Pension Funds
Corporate Investors
Banks & Investment Banks
Public Pension Funds
Insurance Companies
Private Equity Firms
Foundations
Endowment Plans
Other
Fig. 2: Investors No Longer Investing, Investments On Hold, or
Over-Allocated to Private Equity by Firm Type
Source: Preqin
41%
39%
20%
North America
Europe
Asia & Rest of World
Fig. 3: Investors No Longer Investing, Investments On Hold, or
Over-Allocated to Private Equity by Location
Source: Preqin
Preqin Secondary Market Monitor is the industrys leading
source of intelligence on the private equity and private real
estate secondary fund markets. Interested in purchasing or
selling fund interests? This powerful tool is for you.
Subscribers to the Secondary Market Monitor can click here to
access the full details of the 1,700 potential secondary market
sellers filtered from the 4,885 investors from Preqins Investor
Intelligence database, an addition to the 286 investors known
to be selling on the secondary market.
Not yet a subscriber? For an online demonstration of the
Secondary Market Monitor please visit:
www.preqin.com/smm
Conferences Spotlight
Conference Dates Location Organizer
2nd Annual European Secondary Private Equity 21 - 22 March 2012 London C5
10th Annual Alternative Investments Summit 26 - 27 March 2012 San Diego IMN
7th Annual Foundations & Endowments Summit 26 - 27 March 2012 San Diego IMN
17th Annual Public Funds Summit 26 - 27 March 2012 San Diego IMN
SuperReturn China 26 - 29 March 2012 Beijing ICBI
Latin American Investors Forum 27 - 28 March 2012 Rio de J aneiro Latin Markets Brazil
Best Practices For Overseeing Private Equity Portfolio
Companies
29 March 2012 New York Capital Roundtable
PartnerConnect 2012 3 - 5 April 2012 New York Thomson Reuters
Solar Infrastructure Investment 17 - 18 April 2012 Rome Green Power Conferences
Peruvian Investor Forum 20 April 2012 Lima Latin Markets Brazil
Fund Forum Asia 2012 23 - 27 April 2012 Hong Kong ICBI
AIFM Directive Level 2 Implementation Measures 24 April 2012 London Infoline
Guernsey Funds Forum 2012 02 May 2012 London Guernsey Finance
Thunderbird Global PE Investing Conference
Date: 4th-5th April 2012 Information: www.thnderbird.edu/tpec-conference
Location: Arizona, USA
Organiser: Thunderbird School of Global Management
Thunderbirds Global Private Equity Investing Conference is the event for private equity professionals to examine the prospects
and pitfalls in todays developed and developing economies and the complexities and opportunities in different industry sectors
in a variety of markets.
Guernsey Funds Forum 2012
Date: 2nd May 2012 Information: www.guernseyfinance.com/events_diary/guernsey-funds-forum-2012
Location: Grange St Pauls Hotel, London
Organiser: Guernsey Finance
The financial crisis began over three years ago but we continue to experience the aftershocks. Join institutional investors and
fund managers as they discuss strategies to cope with the torrent of regulatory demands and difficult market conditions.
This half day event culminates in an informative debate featuring Norman Lamont, former Chancellor of the Exchequer and
Stephanie Flanders, Economics Editor and Broadcaster, moderated by Alastair Stewart, Senior ITV News Anchor.
Conferences
SuperReturn China
Date: 26th-29th March 2012 Information: http://www.informaglobalevents.com/FKR2325PRQNWB
Location: Shangri- La Beijing
Organiser: ICBI
After the phenomenal success of the 2011 event, with over 400 delegates including 100 LPs, we will bring even more in-depth
discussion and event more local and international LPs to Beijing in 2012.The 2012 conference will feature the most pressing issues
in the industry as well as only the very best LP & GP speakers. With the increasing focus on China as THE country for private equity
and venture capital opportunities, there has never been a more important time to attend.
Conferences
Conferences

Preqin Private Equity Spotlight March 2012

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