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Jobs for Massachusetts Venture Capital Update 2008

Jobs for Massachusetts Venture Capital Update 2008. A. Dana Callow Jr. May 2008. Partners. Millennia. BMP Overview. Boston Millennia Partners – a venture capital firm that evolved from Boston Capital Ventures in 1997 10 investment professionals 100 years of venture capital experience

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Jobs for Massachusetts Venture Capital Update 2008

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  1. Jobs for MassachusettsVenture Capital Update 2008 A. Dana Callow Jr. May2008

  2. Partners Millennia BMP Overview • Boston Millennia Partners – a venture capital firm that evolved from Boston Capital Ventures in 1997 • 10 investment professionals • 100 years of venture capital experience • $700M+ in assets under management • 100 direct investments and 150 acquisitions completed • Managed 7 separate venture partnerships • New fund is focused on healthcare and life sciences • Investors and Partners from 14 countries worldwide • Strategic and investor relationships with IBM Corp. (Healthcare) and PAREXEL International Corp. (NASDAQ: PRXL) • Located in downtown Boston

  3. Millennia Partners’ (IPO: 5/98) (PowerFone) Telecommunications (IPO: 1/97) (IPO: 2/00; Sold to SPSS) Internet Technology Massachusetts Portfolio Healthcare/Life Sciences Information Technology (IPO, 11/05) Drug Development Sold to Incyte Genomics, 12/00 Orthopedic Devices Protein Platform (Sold to TSAI, 9/06) Optical Communications Financial Software Services (IPO: 1996) Contract Research Organization (Sold to Oxford Health Plans, 3/02) HMO Pharmaceuticals Telecommunications (Sold to Merck, 6/06) (Sold to Carrier Corp., 6/06) Protein Platform (IPO: 1997) Sensor Technology Health Care Information Technology (Sold to Cedara Software, 10/04) Healthcare Internet Services Retail Drug Development (Sold to Blackboard, 2/06) Educational Software Wi Fi Communication (Nasdaq: EPIX) Drug Development Clinical Trial Solutions

  4. 1985-1997 2003-2010 1997-2003 Historical “Take-off Periods” For Value Creation After initial investment in early stage venture investing 10x Company “Value” to Invested Capital 5x 1x 1 2 3 4 5 6 7 8 9 10 11 12 Years

  5. Commitments to U.S. Private Equity/VC Funds Commitments to U.S. Venture Capital & Buyout Funds, 1992-2007 1 Year 3 Year* Overall US Buyout Fund Growth 40% 41% Overall US Venture Fund Growth 11% 17% US Venture Fund Commitments US Buyout Fund Commitments *Compound Annual Growth Rate Commitments to Funds ($ Billions) Years Source: VentureSource/Venture One

  6. Private Equity Performance Index • Private equity funds continue to outperform the public markets over the long term • In recent 5 year period, Buyouts have outperformed • Increasing capital base and interest rates will likely decrease future returns in the buyout asset class • Over the longer term, Venture Capital has outperformed • Early stage VC is the most attractive investment over the 10 and 20 year periods • The “bubble cycle” has reduced recent venture returns dramatically Source: Thomson NVCA (12/31/07) Source: Thompson Financial/NVCA

  7. Challenges in the VC Investment Environment

  8. Partners Millennia Massachusetts is a Challenging Environment • A Basic VC Rule: “Discover and innovate close to home,” but – “Scale up where costs are lowest” • High cost of living - expensive to relocate to Massachusetts • High housing and healthcare costs • Labor force outsourcing is increasing in VC as well • IDC Research expects outsourcing to increase at an annual rate of 20% through 2008 It is not possible, in specific skill sets, to compete on the same basis as other low cost international geographies

  9. Issues Facing the Venture Capital Industry • Available supply of qualified entrepreneurs • Limited capital available for start-up companies • Inefficient business models requiring large amounts of capital • Incentive programs for entrepreneurs given option expensing • Capital gains tax discussions • Governance issues, Sarbanes-Oxley • Valuation guidelines and consistency • Capital flow to shorter term investment vehicles • Reduced liquidity through IPOs and lower values from M&A

  10. IPO Companies Older in 2003 Mature Companies Going Public Time from Initial Equity Funding to IPO for Venture-backed Companies • Increases in time to IPO • Illiquidity in the current markets have set the bar higher • Sarbanes Oxley has made the IPO process more challenging for younger companies • VCs have attempted to rebuild portfolios in post bubble years • VCs are becoming more risk averse and looking for later stage deals I Years Held To Exit Source: VentureOne

  11. Years to M&A Exits Increases Mean Time From Initial Funding to M&A Exit for Venture-backed Companies • Increases in time to M&A • Current financial markets have slowed the M&A process at large corporations • VCs have attempted to rebuild portfolios in post bubble years • VCs are becoming more risk averse and looking for later stage deals Years Held To Exit Source: VentureSource/VentureOne

  12. IPO vs. M&A Exits Venture-backed IPOs vs. M&A Transactions = Venture-backed M&A = Venture-backed IPOs Shift in Exit Strategy % IPO 1990-2000: 55% % IPO 2001-2007: 14% Number of Transactions Source: NVCA

  13. NVCA Perspective on Trends in Massachusetts VC Observations from Mark Heesen, President, National Venture Capital Association – 4/9/2008 • MA has a stable venture industry that has been actively investing in regional innovation since the early days of venture investing in the US (late 1970’s) • In 2006, Massachusetts ranked 4th overall in revenues generated by venture-backed companies headquartered in the state from 2003-2006 with $131 billion and a 13% increase compared to a national average of 12% • In 2006, Massachusetts ranked 4th overall in employment at venture-backed companies headquartered in the state between 2003-06 with 674,000 people and a 3% increase compared to a national average increase of 4% • Last year, Massachusetts venture invested $3.5 billion into 356 Massachusetts companies. $1.3B went into Massachusetts Internet related companies • New England based venture funds committed most of their capital to life sciences companies

  14. Partners Millennia Venture Capital Investment - By Geography: 2007 Massachusetts $3.5B Washington $1.3B Pennsylvania $0.8B New York $1.2B Maryland $0.6B New Jersey $0.6B Colorado $0.5B $1B+ S.C. Virginia $0.4B California $14.6B Georgia $0.5B Texas $1.5B = $1.4 Billion = Faster VC Investment Growth than MA (2004-2007) = Slower VC Investment Growth than MA (2004-2007) Source: PWC MoneyTree

  15. Allocation of US Venture Investments by State Partners Millennia 2004 2007 % of Total US Capital Invested State Source: PWC MoneyTree

  16. Stage: Massachusetts VC Market Environment Lack of Capital for Early Stage Companies 31% Start-up and Early • In last 5 years, Later Stage investments have become roughly half of all Massachusetts venture investing Capital ($ Billions) 20% Start-up and Early 39% Start-up and Early Source: VentureSource

  17. Partners Millennia Venture Capital Investments in Massachusetts: 2005 – 2007 2007 Funding Sizes Biotech 86 Deals $10M/Deal Software 118 Deals $6M/Deal Medical Devices 41 Deals $8M/Deal $868M: • Highlights • Biotech overtook software in 2006 • Software are telecomm have suffered from foreign competition for VC money • Robust growth in the industrial/energy sector $708M: $328M: $ Millions Source: PWC MoneyTree Survey

  18. Partners Millennia 2004-2007 International GDP Annualized Growth Rate 12% Individual Country/Region China - $2.28 Trillion 10% US Healthcare India Argentina 8% US Healthcare - $2.26 Trillion Russia Middle East Compound Annual GDP Growth Rate South Korea 6% United States Taiwan Mexico Global GDP Growth – 4.2% Canada 4% Japan Brazil United Kingdom Australia Spain Netherlands 2% France Europe Italy Germany 0% 10x 1x 0.1x 0.01x Relative Market Share = $2 Trillion in 2007 GDP Source: US Department of Health & Human Services/ US Department of Commerce

  19. Mass Biotech 25 - 2007 56% of the companies on the Mass Biotech 25 Index are venture-backed and currently employ 68,451 people Indicates a venture-backed company Source: Yahoo Finance (# of employees is approximate)

  20. Mass High Tech 25 - 2007 Nearly 52% of the companies on the Mass High Tech 25 Index are venture-backed and currently employ 62,088 people Indicates a venture-backed company Source: Yahoo Finance

  21. Influence of Massachusetts Leaders on the Future of VC

  22. NVCA Perspective on Challenges facing Massachusetts VC Observations from Mark Heesen, President, National Venture Capital Association – 4/9/2008 • Southern California (San Diego, Los Angeles, Orange County) is quietly becoming the second largest geographic region receiving venture dollars eclipsing the New England region which has held this position since venture capital statistics were kept. • An informal survey of the region’s top venture firms indicates that the Massachusetts venture industry is increasingly focused on deals outside New England because of high operating costs & the perceived superiority of opportunities elsewhere • The educated youth brain drain combined with a more conservative risk profile of region can discourage young entrepreneurs. Coupled with the high cost of living and infrastructure issues, we continue to export many of our most educated citizens to other states.

  23. Millennia Partners Massachusetts Technology Development Triangle Long Term Massachusetts Development Internal Funding External Funding • Government Initiatives • $1B Biotech Proposal • Venture Funding • Angel Investments • Biotech IPO’s Massachusetts Government Massachusetts Universities Job Creation Talent Preservation Long Term Economic Development Massachusetts Technology/Biotech Companies Increasing cooperation among Massachusetts Government, Universities & Tech/Biotech Companies is essential to future job growth, preservation of talent, and economic development

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