EARLYBIRD

Raising LP Confidence Levels

in Venture Capital

Super Return 2007, Dr. Hendrik Brandis

Frankfurt – February 26, 2007

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Perception and Reality of European VC –

An Untapped Opportunity

"The Ugly Duckling" "The Emerging Swan"

• "Robust Eurozone growth continues to outpace US"*

• "The European Economy is a laggard"
• "Europe behind the US in technology
innovation"
• "Returns of European VC funds
underperforming"
• "Europe Is Giving Global Economy A Surprise
Boost Amid U.S. Lull"**
• Europe is on par with US in terms of technology
innovation and deal flow
• While the established VCs enjoy attractive terms at
almost no competition

"Europe Is Giving Global "Robust Eurozone growth

Economy A Surprise continues to outpace US"
Boost Amid U.S. Lull"
* Financial Times, Nov. 15, 2006
** The Wall Street Journal, Dec. 6, 2006
Source: Earlybird EARLYBIRD
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Less competition among VCs for Technology Companies…

Basic Elements for Technology-Oriented Start-ups US

100% Germany

594
About the same (relative)
Technology* technology base
454 x1.3

but
8.8
Management** Less entrepreneurial teams
3.1 x2.8
however

0.16 Only capital for

Capital*** every 10th technology and
0.014 x11.4 every 4th entrepreneur

* exemplified by number of scientific publications per million population, 2000

** number of people thinking about starting a business per 100 persons, 2005
*** EVCA Early Stage Investments (Seed + Startup), shown as percentage of GDP 2003

Source: OECD, Global Entrepreneurship Monitor Report 2005,

EVCA EARLYBIRD
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… Leading to Investment Opportunities at Lower Valuations

US and European Median Pre-Money Valuations US

in $ M Europe

25

20.6
18.5
16 15.9
13
10 10
9.2
7.5 7.4
6.5
5.5 5.4 5.3 4.8

1999 2000 2001 2002 2003 2004 2005 2006

Source: Ernst & Young, Venture One, Venture Source 2006 EARLYBIRD
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More Venture-Backed IPOs in Europe than in the US for the

First Time in 2005
IPOs Venture-Backed Companies US

# Europe

91
35% of those
in Germany
67
60

41 56
35

20 22

13

2002 2003 2004 2005 2006

Source: Dow Jones Venture One/Ernst & Young,

Earlybird Analysis
EARLYBIRD
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Consequently Multiples for Investors are Higher in Europe

US
Europe

Median IPO Exit Multiple* Median M&A Exit Multiple*

10.1
3.1

2.6

2.2 2.2

5.6 5.6 1.8

2.2
4.4
3.7 1.8 1.2 1.8
3.6
3.2
0.8
3.3
2.6 2.7 2.8
0.7
0.6

2001 2002 2003 2004 2005 1. HY 2001 2002 2003 2004 2005 1. HY
2006 2006
* Multiple = IPO Pre-Money Valuation/Total VC Financing Raised Pre-IPO
Source: Dow Jones Venture One/Ernst & Young EARLYBIRD
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European Funds Distributions Leave Plenty of Room for More

Venture Money
Exit Liquidity vs. New Fund Commitments Liquidity from Exits*
Capital Raised
USD bn
US EU
49.8 9.8

8.4

36.6**

5.5
24.9 24.5 4.5 4.5
4.2

13.1 4.6
11.9 21.6 13.3
18.3 2.0
1.4 1.7
13.0 0.6
11.5
9.4 1.6

2001 2002 2003 2004 2005 1. HY 2001 2002 2003 2004 2005 1. HY
2006 2006
* 70% of M&A volume, 70% of IPO pre-money valuation
** Google effect
Source: Dow Jones Venture One/Ernst & Young EARLYBIRD
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Access to Top Tear Venture Funds in Europe Will Be Even More

Scarce than in the US Today
VC-Principals** (2005)
per million population

22.3

11.4
8.8

Germany EU US

** DE: BVK-Members (Section Early Stage)

US: Venture Economics / NVCA-Members
EU: EVCA-Members

Source: BVK, EVCA, NVCA, OECD EARLYBIRD