E R I K P. M .

V E R M E U L E N

THE TRUTH ABOUT IPOS OF HIGH

T E C H C O M PA N I E S

The Importance of IPOs

Cash Flow

Investors

Exit

VC

Portfolio Companies

Commercialization

Research

Revenue to
Expense Ratio:
103.46%
Revenue to
Revenue to
Expense Ratio:
Expense Ratio:
111.83%
124.03%

Valley of Death
Years between
being founded and
going public

Time

VC-BACKED EXITS
Aquisition US

IPO US

Acquisition EU

IPO EU

NASDAQ (total listed companies)

AIM (total listed companies)

I P O A LT E R N AT I V E S
Internet Bubble

Financial Crisis

Regulatory Period

6000

4500
egul
R
ased ket
b
s
Mar
Rule

ated

3000

1500

0
1995

P
Un rincip
reg les
ula -ba
ted se
Ma d rke
t

1997

1999

2001

2003

2005

2007

2009

2011

2013

US IPO ACTIVITY INCREASES

90

25000

89
72

20000

54

65

58
43

36

48

10000

18

15000

5000

12
2009

2010

Deal Count

2011

2012

2013

Capital Invested

2014 (1H)

THE CORNERSTONE OF THE JOBS

A C T I S T H E C R E AT I O N O F A N I P O O N R A M P, W H I C H P R O V I D E S E M E R G I N G
G R O W T H C O M PA N I E S W I T H A P H A S E - I N
P E R I O D T O F U L LY C O M P LY W I T H V A R I O U S
DISCLOSURE AND ACCOUNTING
REQUIREMENTS

Emerging Growth Companies

ARE WE IN A TECH BUBBLE?

Not Profitable at IPO (ratio 0-80%)

Almost Profitable at IPO (ratio 81-100%)
Profitable at IPO (ratio >100%)

I M PA C T O F T H E J O B S - A C T ?
B2B
Financial Services
Materials & Resources

B2C
Healthcare

Energy
Information Technology

I M PA C T O F T H E J O B S - A C T ?
Deal Size $0-50M
Deal Size $101M-150M
Deal Size >$200M

Deal Size $51M-100M

Deal Size $151M-200M

A SIMILAR TREND IN EUROPE

90

25000

89
72

20000

54

58

18

12
2009

15000

48

43

36

65

22

14
2010

10000

2011

20

17
2012

26

2013

2014 (1H)

Deal Count US

Capital Invested US

Deal Count EU

Capital Invested EU

5000

THE EUROPEAN IPO LANDSCAPE

A LT E R N AT I V E M A R K E T S V E R S U S M A I N E Q U I T Y M A R K E T S
AIM
LSE

Alternext
Other Regulated Main Markets

First North
NASDAQ

EURONEXT
NYSE

US Markets

Main Markets

Ecosystem France
(all-inclusive)

A LT E R N AT I V E M A R K E T S V E R S U S M A I N E Q U I T Y M A R K E T S

Main Markets

Alternative
Markets

Visibility
liquidity
Trading Volume

A Return to Old-Fashioned Investing?

Todays stock markets have a
casino-type mentality driven by
factors like the rise of automated
trading and shorter-term average
holding periods. People dont take
the time to do research and really
get to know a company before they
invest in it

TIME TO IPO LENGTHENS

Median time from initial
equity funding to IPO (US)

Employees liquidity needs

Source: Dow Jones VentureSource

Years

IPO VERSUS MEGAROUNDS IN THE

U N I T E D S TAT E S

89

25000

102 20000

94

15000

77

48

43

12
2009

58

65

64

5000

29

21
2010

10000

2011

Deal Count US
MegaRounds US

2012

2013

2014 (1H)

Capital Invested US
Capital Raised MegaRounds US

IPO
Remain Private

WHERE? / WHAT?

Accredited Individuals
19%
Mutual Funds
19%

Buyers
Q1 2012

Hedge Funds
8%
Family Officies
8%
Asset Managers
45%

Issuers
2%

50

37,5

25

12,5

0
Jan/10

Apr/10

Jul/10

Oct/10

Jan/11

Apr/11

Jul/11

Oct/11

Jan/12

Apr/12

Jul/12

Oct/12

Private Secondary Markets

1. Checking legal
compliance
2. Providing legal assistance
2. Providing transaction
procedures and assistance,
such as standardized
contracts

Buyers

Sellers 4. Increasing transparency

and information:, e.g.,
SharesPost Venture-Backed
Index and SecondMarkets
Trusted Networks

High Tech Companies

Composition of Sellers

Ex-employees
Other

Employees

Source: SecondMarket, Private Company Report, Q2-4, 2010

Founders

Investors

Composition of Buyers

Source: SecondMarket, Private Company Report, Q-4, 2010

Composition of Buyers 2011

(by dollar value)

Source: SecondMarket, Private Company Report, 2011

Composition of Buyers 2012

Q1
(by dollar value)

Source: SecondMarket, Private Company Report, Q-1, 2012

GLOBAL TRANSACTIONS IN UNREGISTERED

E Q U I T Y- R E L AT E D S E C U R I T I E S ( $ B )
20
19,3

18
16
14
12

12,4

10
9,3

8,2

5,7

4,6
3

2
0

0,3

0,5

0,6

0,9

1,3

2002

2003

2004

2005

2006

2007

2,4

2008

2009

2010

2011

2012

2013 2014E

1
2
3

Lawrence J. Ellison: Tech moguls like Larry Page, Sergey Brin and
Mark Zuckerberg run public companies that are essentially private
fiefdoms theyve structured their corporate control so theres no
way that investors or board members can unseat them. Thank Steve
Jobs for that!

1 8 % O F T H E O U T S T A N D I N G S H A R E S /

57% OF THE VOTING RIGHTS

CEO=CHAIR

1 8 % O F T H E O U T S T A N D I N G S H A R E S /

57% OF THE VOTING RIGHTS

CEO=CHAIR

THE ANSWER: THE NEED FOR

PA R T Y A U T O N O M Y

Accommodate innovations in
shareholdings and management
structures - more flexibility

The Coordinator

The Coordinator
and Investors

Communication

Chairman

Ownership

The Coordinator
and the Group

Conversation

Investor Investor
conferences
relations /meetings

CEO

Coordinator
Brand

Management/
Tone-at-thetop

Corporate Corporate
Culture
values/
mission
statement

Coordinator

Coordinator

Group
center

Connection

Headquarters

Collaboration

Group
companies

Co-Creation

Third parties

e.p.m.vermeulen@tilburguniversity.edu