First-Stage Technology Venture Capital

ALTOS | Ventures

The View from the Valley

CalPERS/CalSTRS Diversity ConferenceApril 2006San Jose CA

© 2006 Altos Ventures Management

3 Themes

California continues to enjoy a venture capital boom

But the demographics and funding profile of Silicon Valley companies have changed

This creates new opportunities for smaller, diverse private equity firms

© 2006 Altos Ventures Management

VCs are Spending Again

$21.7 billion of venture capital invested in 2005

March 20, 2006

“… how desperate some venture capitalists have become to find homes for the huge amounts of cash they have raised, and how few companies there are that really deserve their money.”

© 2006 Altos Ventures Management

California is Still the Venture “Capital”

Silicon Valley, and the rest of California, continue to garner a disproportionate share of U.S. VC investment

Silicon Valley35%

Other CA11%

New England14%

Texas6%

Other 34%

Source: 2005 Q4 PWC MoneyTree Survey

© 2006 Altos Ventures Management

Valley Demographics Have Changed

2003

37%37%

36%36%

23%23%

4%4%

61%61%

1993

19%19%

15%15%

5%5%

White

Asian

Hispanic

Black/Other

Start more than 50% of all new tech companies

Source: JointVenture Silicon Valley 2005 index

© 2006 Altos Ventures Management

Venture Investment Has Changed Too

0%

5%

10%

15%

20%

25%

30%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

% VC DollarsInvested in seed/startup companies

Source: PWC MoneyTree Quarterly Survey

VCs are investing less at the earliest stages of company development

Funds are simply too big to focus on smaller deals

© 2006 Altos Ventures Management

Diversity Drives Innovation

Source: Stanford University A/PARC March 2002, survey of 10,000 Chinese and Indian engineers

Some examples of diverse leadership:

Highly entrepreneurial Asian engineers:

46% involved in founding/running startup company

53% of those not currently involved intend to start one

65% cite “access to investors” as #1 obstacle

© 2006 Altos Ventures Management

The Opportunity For Venture Firms

Deal characteristics• Outside of the venture mainstream• First-time CEOs (often first generation immigrants)• Often outside the Valley• Bootstrapped• Capital-efficient

© 2006 Altos Ventures Management

The Opportunity For Limited Partners

Manager characteristics:• Small funds – as measured by capital per partner• Culturally connected – formally and informally• Experienced as institutional leads• Established co-investor relationships

© 2006 Altos Ventures Management

Or More Simply…

Then

Now