New Atlantic Ventures

Sweden-USEntrepreneurial Forum

September 2011#sweus John Backus

john@navfund.com@jcbackus

2

NAV “At A Glance”

Portfolio company

VA/DC/MD (3)New York City (6)

(CA & WA)

NAV Office

Boston (5)

Early Stage Venture Capital

Modest Fund Size:‒ $117m current fund (NAV III)

East Coast Focus

Top Decile Post-2000 Performance

Blue Chip LP Base, 50% from EU

Key Difference: Thesis-Led Investors

19 Companies:

Annual US VC fund-raisingVolatility over the past decade

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$2,737.3$4,608.1$4,899.4$6,879.2$9,427.7$14,128.9$21,808.6$53,501.6$83,458.5$44,764.5$19,361.2$8,935.2$20,673.2$27,871.9$30,492.6$37,446.2$26,573.5$14,536.5$6,423.6

4876

107 113129

186

223

353

503

289

155

91

161 173 167 172146

76

33

Amount raised (US$ B)Number of funds

► Fund-raising has declined in the United States since 2007. ► 2009 marks the fewest funds raised in 16 years. ► In dollar terms, 2009 was the low point in terms of dollars raised since 1997, with the exception of 2003. ► 2010 is on pace for another annual decline – only US$6.4 billion raised in 33 funds as of 30 June 2010.

Source: Dow Jones VentureSource; Ernst & Young Venture Insights

US VC funds raised by stage focusClear shift in dollars toward multi-stage funds as investors seek greater flexibility, growth equity opportunities

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

58% 60% 56%66%

58%65% 62%

56% 59% 58% 58%

6%9%

5%

11%

8%9%

8%9% 8% 9% 9%

37%31%

39%

23%34%

27% 30% 34% 34% 33% 33%Multi-stage

Late-stage

Early-stage

501 289 154 91 161 172 166 170 145 76 33

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

49% 50%

67%58%

51% 46%39% 36%

44%34%

17%

9%

20%

2% 16%

13%17%

8%22%

12%

11%

17%

43%30% 30% 26%

35% 37%

53%42% 44%

55%66%

Number of funds closed

$83.3 $44.8 $ 19.2 $8.9 $20.7 $27.7 $30.3 $37.1 $26.4 $14.5 $6.4

Amount of funds closed (US$b)

Source: Dow Jones VentureSource; Ernst & Young Venture Insights

Declining number of VC firms actively investing

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 1H'10

626726 724 672

591 613 597 572 614 572490

712 514398

381449 405 416 426 375

313

167

United StatesNumber of firms making 4 or more investments in year Number of firms making 1-3 investments in year

1338 1240 1122 1053 1040 1018 1013 998 989 885 657

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 1H'10

462477438404401392390395398363274

288158

130142163137156147141110

51

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 1H'10

368317

264 243 291 255 258 250 205 202139

86

60

42 5849

49 42 5244 34

11

New England

Bay Area 750 635 568 546 564 529 546 542 539 473 325

454 377 306 301 340 304 300 302 249 236 150

Source: Dow Jones VentureSource; Ernst & Young Venture Insights

US VC fundraising: median fund size

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$50$61

$45$60

$73 $75 $75

$102 $100

$81$72

$90$100

$172

$150

$200

$155

$129$140

Median amount raised (US$m)

Median fund size has grown with shift to multi-stage and growth equity funds

LP flight to quality means that fewer small firms are succeeding in raising new funds

Source: Dow Jones VentureSource; Ernst & Young Venture Insights

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Why the Decline?

• Entrepreneurs, LPs & GPs got greedy in the late 1990s– VC fund sizes ballooned– Too many VCs = too many marginal companies funded– Fund sizes drove shift to late stage– Exit market dried up in US: 9/11 & 9/08

• Returns for the decade were flat, on average

• BUT, many funds small early stage funds did quite well

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Thesis-Led ApproachFinds Winners in Emerging Fields

• 5-10 years to “big exits”Need market evolution insight

• A strong thesis targets leaders in the next wave:– Smart entrepreneurs find investors who “get it”– Faster decisions– More value as board members

• We sharpen our investment theses over time:– As we explore new markets– As markets and technologies change

“I skate to where the puck is going, not to where it has been”• Wayne Gretzky

NHL Hall of Fame Player

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Learning Sharpens Our ThinkingPrior Funds NAV III

Ad-Tech

• We learn as we go deeper

• Markets evolve

• Old markets grow stale

• New markets emerge

DigitalMedia

Mobile

e-Commerce

FinancialTech

Security

Customer-Driven

Healthcare

SocialMedia

SAAS/Software

10

• Pandora for News/Info• Benchmark + NEA• > 300,000 Users• 600 min/user/mo*

• Software that enables Android tablets

• 60m tablets in 2011• Top-5 seller on Amazon

Mobile: Info-Tainment Reinvented

“Connected Mobile Devices (tablets, smart phones) will transform & disrupt information & entertainment industries.”

NAV Companies to Watch

*After first month.

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Technology Wealth Creation / Destruction CyclesNew Companies Often Win Big in New Cycles While Incumbents Often Falter

MainframeComputing

1960s

PersonalComputing

1980s

Desktop InternetComputing

1990s

Mobile InternetComputing

2000s

MiniComputing

1970s

NewWinners

NewWinners

NewWinners

NewWinners

Note: Winners from 1950s to 1980s based on Fortune 500 rankings (revenue-based), desktop Internet winners based on wealth created from 1995 to respective peak market capitalizations. Source: Factset, Fortune, Morgan Stanley Research.

Microsoft Cisco Intel Apple Oracle EMCDell Compaq

Google AOL eBay Yahoo! Yahoo! JapanAmazon.com Tencent Alibaba Baidu Rakuten

Digital EquipmentData GeneralHPPrimeComputervisionWang Labs

IBMNCRControl DataSperryHoneywellBurroughs

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Minicomputer

PC

Desktop Internet

Mobile Internet

Mainframe

1960 1970 1980 1990 2000 2010 2020

Dev

ices

/ U

sers

(MM

in L

og S

cale

)New Computing Cycle Characteristics

Reduce Usage Friction Via Better Processing Power + Improved User Interface + Smaller Form Factor + Lower Prices + Expanded Services = 10x More Devices

1MM+ Units

100MM+ Units

10B+ Units???

10MM+ Units

Increasing Integration

Car Electronics GPS, ABS, A/V

Mobile Video

Home Entertainment

Games

MP3

Wireless Home Appliances

Cell phone / PDA

Smartphone

Kindle

Tablet

Computing Growth Drivers Over Time, 1960 – 2020E

Note: PC installed base reached 100MM in 1993, cellphone / Internet users reached 1B in 2002 / 2005 respectively;Source: ITU, Mark Lipacis, Morgan Stanley Research.

1B+ Units / Users

1

10

100

1000

10,000

100,000

1,000,000

More than Just Phones

iPad

13

Smartphone > PC Shipments Within 2 Years, Global –Implies Very Rapid / Land Grab Evolution of Internet Access

Unit Shipments of Desktop PCs + Notebook PCs vs. Smartphones, 2005 – 2013E

2012E: Inflection PointSmartphones > Total PCs

Note: Notebook PCs include Netbooks. Source: Katy Huberty, Ehud Gelblum, Morgan Stanley Research. Data and Estimates as of 9/10

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• Mobile Lead Generation• $15M+ Revenue• RRE, Greenhill

• Brand messages in Captchas, e.g.:

• Interaction retention• $15M+ bookings

Digital Media: Ad $ Flow to Digital

“$50B in advertising will go digital when new companies deliver the measurable results brand managers expect.”

NAV Companies to Watch

Banner Blindness and Offer Fatigue

Media Time Spent vs. Ad Spend Still Out of WhackInternet / Mobile (upside…) vs. Newspaper / Magazine / TV (downside…)

Note: Time spent data per NA Technographics (2009), ad spend data per VSS, Internet advertising opportunity assumes online ad spend share matches time spent share, per Yahoo!. Source: Yahoo! Investor Day, 5/10.

% of Time Spent in Media vs. % of Advertising Spending, USA 2009

1616

~$50BGlobal

Opportunity

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• High end runway fashion• NEA B round• $10M run rate after 6

months

• Daily deals 2.0• Mobile-based• Better value for all• Strong start in 6 markets

e-Commerce 2.0: Complex Becomes Easy

“Complex products can be sold online: custom, expensive, and highly-regulated.”

NAV Companies to Watch

Golden Age ofE-commerce

More consumers buy online (over 70% of internet users)

Cheaper to build e-commerce company

New business models create new experiences (Groupon)

Better marketing tools (social media, e-mail lists, video)

Mobile smartphones

19

• Real time audits of corporate Rx bills

• Recurring Revenue• $1M bookings/mo.

• Generic Rx drugs for less than insurance co-pays

• $15M+ revenue run rate• Growing 40%/quarter

Healthcare Services: Patients Become Customers

“Unaffordable costs + healthcare reform drive customers to take control of healthcare spending, causing big change.”

NAV Companies to Watch

The Rise of Health Care Consumerism

Consumers seeking lower cost & better care

New ways of practicing medicine emerging

Profit sanctuaries being destroyed

$2.6 Trillion Industry

Primary CareRxSpecialistsHospitals

Huge waste becomes opportunity when

consumers gain control

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• Encourage Entrepreneurs– Lower tax rates: capital gains– Lower tax rates: stock options– Remove stigma of failure– Locate where partners are

• Encourage LPs– Relief from Basel 3 & AIFM– Tax advantage to offset illiquidity– Robust secondary markets– Solve the “bite size” problem

• Build the Ecosystem– Need lots of acquirors– Need lots of business partners– Need big companies to hire from

• Great training programs• Domain expertise

– Education system focused on entrepreneurs

– Entrepreneur must be seen as a successful career

– Pension, health, benefits must follow entrepreneur

Policy Conclusions