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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"

• "The European Economy is a laggard" • "Europe behind the US in technology •
innovation" "Returns of European VC funds underperforming"

• "Robust Eurozone growth continues to outpace US"* • "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

* Financial Times, Nov. 15, 2006 ** The Wall Street Journal, Dec. 6, 2006 Source: Earlybird

"Europe Is Giving Global Economy A Surprise Boost Amid U.S. Lull"

"Robust Eurozone growth continues to outpace US"

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Less competition among VCs for Technology Companies…
Basic Elements for Technology-Oriented Start-ups
100%
US Germany

594

Technology*
454
x1.3

About the same (relative) technology base

but

8.8

Management**
3.1
x2.8

Less entrepreneurial teams

however

0.16

Capital***
0.014
x11.4

Only capital for every 10th technology and 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

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… Leading to Investment Opportunities at Lower Valuations
US and European Median Pre-Money Valuations
in $ M
25 20.6 18.5 16 13 9.2 7.5 5.5 10 6.5 10 7.4 5.4 5.3 4.8 15.9
US Europe

1999
Source:

2000

2001

2002

2003

2004

2005

2006

Ernst & Young, Venture One, Venture Source 2006

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More Venture-Backed IPOs in Europe than in the US for the First Time in 2005
IPOs Venture-Backed Companies
#
91
US Europe

67 60

35% of those in Germany

41 35 20 22 9 13

56

2002
Source:

2003

2004

2005

2006

Dow Jones Venture One/Ernst & Young, Earlybird Analysis

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Consequently Multiples for Investors are Higher in Europe
US Europe

Median IPO Exit Multiple*
10.1

Median M&A Exit Multiple*
3.1 2.6 2.2 2.2 2.2 1.2 0.8 3.3 1.8

5.6 4.4 3.7 3.2 3.6

5.6

1.8 1.8

2.6

2.7

2.8 0.6 0.7

2001

2002

2003

2004

2005

1. HY 2006

2001

2002

2003

2004

2005

1. HY 2006

Source:

* Multiple = IPO Pre-Money Valuation/Total VC Financing Raised Pre-IPO Dow Jones Venture One/Ernst & Young

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European Funds Distributions Leave Plenty of Room for More Venture Money
Exit Liquidity vs. New Fund Commitments
USD bn
US
49.8 8.4 36.6** 5.5 24.9 13.1 11.9 13.0 9.4
2001 2002 2003 2004 2005
Liquidity from Exits* Capital Raised

EU
9.8

24.5

4.5 13.3

4.2

4.5 4.6

21.6 18.3

1.4 11.5

1.7 1.6

2.0 0.6

* 70% of M&A volume, 70% of IPO pre-money valuation ** Google effect Source: Dow Jones Venture One/Ernst & Young

1. HY 2006

2001

2002

2003

2004

2005

1. HY 2006

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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

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