Lou Kerner June, 2015

The Presentation inside:

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Are We In A Tech Bubble? Lou Kerner June, 2015

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DISLCAIMER The views and opinions expressed in this presentation are those of the author and do not necessarily reflect the official policy or position of his affiliates . Assumptions made within the analysis are not reflective of the position of his affiliates.

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Lou Kerner Background FORMER

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What is A Stock Market Bubble? A bubble is when investors drive prices beyond any rational reflection of value, as determined by the performance of the companies. Like soap bubbles, investing bubbles look like they’ll rise forever, but they always pop, and the money invested in them dissipates into the wind Source: Investopedia

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Why The Bubble of ‘96-’00 Happened

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What Happened (IMHO) To Pop The Bubble In March of 2000 "For the first time in a decade, our model portfolio is no longer recommending an overweighted position in tech” - Abby Joseph Cohen Goldman Sachs Guru March 28, 2000

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Investors Think The Stock & Bond Markets Are Overvalued Source: Survey of 145 investors by BofA Merrill Lynch, April 2015

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“Tech Bubble” Searches Recently Surged Source: Google Trends, May, 2015

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What Caused the Recent Surge In “Tech Bubble” Searches on Google?

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Just Because Mark Cuban Says It’s A Bubble Doesn’t Mean It’s A Bubble Just Because Mark Cuban Says It’s A Bubble Doesn’t Mean It’s Not A Bubble Lot’s Of Smart People Are Saying We’re In A Bubble

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Jet Raises at $600 Million Pre-Launch Source: Twitter, February 11, 2015

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Smart People Have Been Saying We’re We’re In A Bubble For Awhile George Zachary (4/3/14)– Charles River Ventures “There is desperation to not miss out on what will be the next big thing.” David Einhorn (4/22/14) – Greenlight Capital “Now there is a clear consensus that we are witnessing our second tech bubble in 15 years… Indications include… huge first day IPO pops Peter Nieh (4/22/14) – Lightspeed Venture Partners “I must admit when I first saw the WhatsApp valuation I thought I needed to get bifocals. I thought I must have missed a decimal point.” Source: CB Insights, April, 2014

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Even 24 Year Olds Think We’re In A Bubble “…. years of near-zero interest rates have created an asset bubble that has led people to make riskier investments than they otherwise would.” - Evan Spiegel CEO of Snapchat May 26, 2015

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What’s Going On?

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Multiple New Technologies Are Enabling The Disruption of EVERY Industry

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Convergence Of Disruptive Technologies Is Enabling New Business Modes Borrowers get better rates, Investors get better returns Passengers get better, cheaper rides, Drivers make more money Better way to communicate, share text, images, audio, location …. Founded 2007, Valuation = $7B Founded 2009, Valuation = $40B Founded 2009, Valuation = $19B

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Causing Unicorn Production To Soar Source: CB Insights, May, 2015

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Unicorn Production Is Growing Even Faster Outside The U.S. Source: CB Insights, May, 2015

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Next Wave of Emerging Technologies Are Poised To Accelerate The Disruption Wearables Virtual Reality

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Are We In A Bubble?

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Classic Way To Spot A Bubble Before It Bursts

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Spotting A Bubble Is Easy… After It Bursts Source: Yahoo Finance NASDAQ Composite

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Internet User Growth Driving The 2000 Bubble Source: ITU, a16Z

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User Growth Driving Valuations Today

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Usage Growth Driving Valuations Today

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What’s Going On In The Public Markets?

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Sustained Outsized Market Gains = Bubble Source: Google Finance

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Source: Google Finance Current 10 year CAGR in line with the 40 year historical NASDAQ CAGR of 10.8%

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S&P Composite Is Above Long-Term Trend

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The Buffet Indicator Is Above Long-Term Trend

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2015 Tech Co Market Value A % of S&P 500 Is In Line W/ Long Term Trend Source: KPCB, Morgan Stanley, Bloomberg, CapIQ, LK Estimate

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Massive Day 1 IPO Pops = Bubble Source: Renaissance Capital

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Eventually ….Bubble’s Burst Source: Renaissance Capital

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IPO Pops Today Are Incomparable To 2000 Source: Renaissance Capital, Yahoo Finance Largest IPO Pops Now Are Less Then 1/5 of Circa ‘99-’00

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Peak Growth Stock Valuations Then & Now Source: Renaissance Capital, Yahoo Finance

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What’s Going On In The Private Markets?

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# of Deals Is Down But $’s Is Up

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Source: Pando Daily, January, 2015 Because # Of Large Deals Is Soaring

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The Growth of Large Deals Is Continuing in ’15 Large ($100 Million+) U.S. Private Financings Source: CB Insights, May 2015

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As Participation From Non-VCs In VC Deals Is Ramping Dramatically Source: CB Insights, April 2015, Includes Corporations, Hedge Funds, Mutual Funds, Sovereign Wealth Funds, and PE Funds

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China’s BATs (Baidu, Alibaba, & Tencent) Are Ramping Their Investments In Unicorns (See Slide on Next Page)

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Dollars In (Raised) Is Going Up…. But Dollars Out (M&A, IPOs)….. Not So Much

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Source: Pando Daily, January, 2015 While IPO Volume Was Trending Up

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Q1 2015 IPO Volume Was Abysmal Source: CB Insights, April2015

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# 0f VC Backed M&As Is Falling Source: NVCA, May 2015

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$1B+ M&A Is Plummeting

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Companies Are Taking Longer to IPO More Mature Companies At IPO Is Sign of A Healthy Market Source: NVCA Stats for Software Companies, 2015

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Companies Are Taking Longer to IPO Because….? Being public is increasingly painful Oppressive Compliance (Sarbanes Oxley since 2002) “The 90 Day Shot Clock” (Term coined by Michael Dell) Minimal sell side coverage if not a multi-billion co Electronic trading has dramatically decreased trading spreads More Difficult For Public Co’s to Attract Talent Options in a private company can be given at a significant discount to a preferred financing

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Companies Are Taking Longer to IPO Because….? Companies that are IPO candidates can get ALL the capital they want n the private markets

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Years To $1B Valuation Is Decreasing

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Many Billion Dollar Companies Continue to Appreciate In Value Rapidly

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While Public and Private Market Valuations Inform Each Other…..

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All Else Equal… Public Companies Should Trade At A Premium to Private Companies Due To Liquidity & Other Factors

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Est. Revenue Multiples For Many Unicorns Are Higher Than Multiples For Rapidly Growing Public Companies Source: CB Insights, April 2015, Yahoo May 2015

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Companies Going Public Below the Last Private Round Is A Sign of A Bubble But actual private market “valuation” can be more complex than the price reported in the press. Take Box, for example. Box’s last round had a ratchet provision, enabling the investors the right to additional shares, bringing their price paid to 10% less than the IPO price. Source: Bloomberg Business Week, Yahoo Finance

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My Conclusions From The Data Broad stock market valuation metrics indicate valuations are stretched Public market tech valuations appear reasonable within the context of the broader public market We are clearly NOT in a tech bubble comparable to ‘99-’00 Private market financings are far outpacing liquidity events, a trend that can’t last ad infinitum, raising the risk of an investing crunch if liquidity events don’t pick up The increase in private market investors other than VCs is happening concurrently with a dramatic growth in unicorn creation and high revenue multiples relative to public markets, raising the risk that valuations are getting stretched The current opportunities for value creation from disruptive tech companies remains at all time highs