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New Tiburon Research Report - Venture Capital & Private Equity

Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, is pleased to announce the release of its newly updated research report on the Venture Capital & Private Equity Industry. This report provides a comprehensive overview for industry executives seeking a historical top-down perspective of venture capital & private equity funds, their markets & distribution channels, and future predictions.

Venture Capital & Private Equity

Please click the image above to view the table of contents for Tiburon's newly updated Venture Capital & Private Equity Research Report

Throughout the late 1980s, the private equity funds industry boomed. Who can forget RJR Nabisco and other well-known LBO deals? The funds invested in these LBOs came from what are known as private equity funds. More recently, in the late 1990s, the industry saw a boom in the venture capital market. Start-up companies with limited revenues, and often no products, raised significant funds. These monies came from venture capital funds. In the late 1990s, increasingly both private equity funds and venture capital funds became available to high net worth investors but then the venture capital market fell apart and fund raising slowed significantly. It is now coming back! Who are the leading private equity and venture capital fund firms? What is the role of funds-of-funds? How does a firm build an appropriate product offering for its clientele?

There are four core sections in this second draft of Tiburon's Venture Capital & Private Equity research report. The first section aims to explain the evolution of the venture capital & private equity industry; the second section clarifies the three related markets; the third section outlines markets & distribution channels; and the last section addresses Tiburon's predictions for the venture capital & private equity industry.

Key Highlights
This report has a long list of interesting facts to share:

The Evolution of the Venture Capital & Private Equity Businesses

This section describes the evolution of the venture capital, private equity, & mezzanine finance businesses:

  • The number of venture capital & private equity firms rose from 1,900 in 2005 to 2,100 in 2007
  • Venture capital & private equity fund flows reached $306 billion in 2007
  • Venture capital & private equity funds have $1.7 trillion assets under management, up 30% in the past two years
  • Venture capital & private equity lead other assets in pre-tax returns with a 17% rate of return
  • Almost all private equity distributions are long-term capital gains which have comparative tax advantages, reaching a 95% rate of return
  • Venture capital & private equity also lead other asset classes in their after tax returns with a 13% rate of return
  • Some private equity firms began exiting the venture capital market in 2007
  • Private equity firms sold shares to foreign institutions, including China and Nomura Holdings, starting in 2007
  • Some private equity firms went public or plan to go public in 2007, including The Blackstone Group, Fortress Investment Group, and Apollo Advisors

Clarifying Distinctions in Three Related Markets
This section describes the three related markets – venture capital, private equity, & mezzanine finance – and clarifies the growth and issues in each:

  • Venture capital & private equity funds’ relative market shares of funds remained constant from 2005 to 2007, with private equity accounting for about 65%
  • Venture capital & private equity fund flows remained constant from 2005 to 2007, with private equity capturing 75%
  • Venture capital & private equity fund commitments remained relatively steady over the past two years, with venture capital capturing 60%
  • Venture capital & private equity investing are now almost equal in size
  • The number of venture capital firms reached almost 1,450, up almost 50 in one year
  • Venture capital businesses raised $41 billion in 2007
  • Online venture capital firms allow individuals to become involved with private equity deals for as little as $5,000
  • Angel investors commit about $20 billion annually while venture capital firms commit about $10 billion annually
  • Venture capital flows in continental Europe recovered by 2006, raising $4.6 billion and exceeding the 10-year average
  • Venture capital funds’ internal rates of return decreased from 26% in 1991 to 2% in 2004
  • More than $4 billion in new pension and institutional money now flows to more than 800 of the fastest-growing US companies each quarter
  • Venture capital firms invest primarily in information technology firms, reaching about 75% of commitments
  • Venture capital fund commitments to software & Internet technology and biotechnology reach over 50%
  • The number of private equity firms reached almost 620, up by almost 20 in one year
  • Private equity fund flows have increased since their drop-off after the dot-com bust in 2000, reaching $221 billion
  • Private equity fund commitments have grown quickly from $11 billion in 1993 to over $150 billion in 2007
  • Private equity funds’ internal rates of return decreased from 26% in 1991 to 21% in 2004
  • The worldwide opportunity in private equity funds has a value of $400 billion
  • There were an increasing number of Latin American private equity firms, increasing by 100% over two years
  • Latin American private equity funds raised increased from $1.5 billion in 1996 to $3.6 billion in 1998
  • While the average return for US private equity is now around 17% to 18%, many fund managers specializing in Latin American private equity can promise returns of 30% to 40% or more
  • The number of mezzanine finance firms reached over 310, up more than ten in one year
  • Mezzanine finance fund flows reached almost $45 billion in 2007
  • The number of mezzanine finance commitments is 1,210 in 2007
  • Mezzanine finance funds had unsecured debt earnings interest rates as high as 20% in 2001

Evolving Markets & Distribution Channels

This section describes the markets & distribution channels, first highlighting the traditional institutional markets and then addressing the emerging markets:

  • Venture capital & private equity flows will increasingly come from high net worth investors, but pension plans and endowments & foundations will continue to dominate
  • The employee retirement income security act (ERISA) of 1974 allowed pension funds to make venture capital investments
  • Pension funds provide over half of the total investments in venture capital funds
  • Private equity in the average pension fund comprises 2.5% of pension fund investments.
  • Venture capital & private equity’s high net worth individuals have increased their fund flows to $65 billion
  • Family offices are boosting their allocations to alternative investments; 95% of family offices have some allocation to alternative investments
  • About one-fifth of fee-only financial advisors are considering using private equity & venture capital, hedge funds, folios, and separately managed accounts in the future, while less than 10% are considering exchange traded funds
  • Ultra-high net worth households have an even higher tolerance for hedge funds and other alternative investments; some say that over one-third of their assets should be placed in these products
  • Some mutual fund companies, including Vista Research & Management, began structuring private equity mutual funds in 2007

Future Predictions for the Venture Capital & Private Equity Business

This section addresses the future of the venture capital & private equity business as it emerges as a potent force in a growing segment of the investments market. The industry has grown remarkably over the last ten years and, despite some fear and skepticism, will continue to experience an impressive growth rate:

  • The number of venture capital & private equity firms will continue to grow, reaching about 2,400 by 2012, up from 2,100 today
  • Venture capital & private equity fund flows will continue to grow, reaching over $300 billion by 2012, a growth rate of nearly 32% over six years, up from $262 billion today
  • The number of venture capital funds will continue to grow, reaching about 240 by 2012, up from 206 today
  • Venture capital fund flows will continue to grow, almost reaching $50 billion by 2012, a growth rate of nearly 88% over six years, up from $41 billion today
  • The number of private equity funds will continue to grow, reaching about 1,600 by 2012, up from 1,260 today
  • Private equity fund flows will continue to grow, reaching about $280 billion by 2012, up from over $220 billion today
  • The number of mezzanine finance funds will continue to grow, reaching about 50 by 2012, up from 35 today
  • Mezzanine finance fund flows will continue to grow, reaching $70 billion by 2012, up from $44 billion today

To better understand the developments in the venture capital & private equity industry, executives can purchase Tiburon's Venture Capital & Private Equity research report where the key learnings highlighted above are covered in greater detail. Please contact Sarah Sage at SSage@TiburonAdvisors.Com.

More Information

The following links will open specific pages on Tiburon's web site:

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Tiburon Strategic Advisors

Tiburon Strategic Advisors, based in Tiburon, CA, was formed in 1998 to offer market research & strategy consulting services to all types of financial institutions and investment managers:

  • The firm has served almost 300 corporate clients and completed almost 1,000 projects since its founding, and today, its knowledge base includes mutual fund distribution, separately managed account programs, alternative investments, wealth management, insurance products, banking services, the fee-only financial advisor market, the CPA firm market, the family office market, and various international markets.
  • Tiburon holds a series of CEO Summits semi-annually for its executive-level clients. The next CEO Summit is scheduled for October 9-10, 2007 at the Ritz Carlton Hotel in San Francisco, CA. 2008-2009 dates are April 10-11, 2008 (New York, NY), October 14-15, 2008 (San Francisco, CA), April 9-10, 2009 (New York, NY), and October 7-8, 2009 (San Francisco, CA). Attendance is by invitation only and attendance at each Summit is limited to 100 senior industry executives. Visit the CEO Summits section of Tiburon's web site for details on current and past CEO Summits, including attendee lists, meeting agendas, and highlights. Please contact Tiburon's Managing Principal Chip Roame at CRoame@TiburonAdvisors.Com or (415) 789-2541 if you are a Tiburon client and have an interest in attending a future Tiburon CEO Summit.
  • Tiburon offers thirteen online business benchmarking tools that are available to all types of financial advisors in an effort to help them benchmark their business practices and build more successful businesses. The sites include www.BrokerBestPractice.Com for wirehouse & regional brokers, www.FABestPractices.Com for fee-only financial advisors, www.IndependentRepBestPractices.Com for independent reps, and www.PrivateBankerBestPractices.Com for private bankers. Almost 5,000 advisors have used these tools. By completing one of the online surveys, financial advisors can access a FREE copy of the relevant comprehensive Tiburon research report, which summarizes and analyzes the collective results.
  • Tiburon has published twenty-six ~300-400+ page research reports, which offer detailed analyses of growing business segments; each is available for $5,000; these reports can be ordered by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2546.
  • Tiburon offer an annual research report retainer, whereby dozens of clients receive all Tiburon reports with in a year for $25,000; clients can subscribe to the 2007 or 2008 Tiburon Research Report Retainer by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540
  • Tiburon has developed a database access program, whereby it shares its 250,000+ person industry executives contacts database with dozens of clients for $10,000 per year; clients can subscribe to Tiburon Database Access Program by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540
  • Tiburon's weekly research releases, like this one, are emailed for free to interested industry executives, media representatives, conference planners, and individual financial advisors. Over 48,000 industry executives now receive these releases. Feel free to sign up to receive future research releases at Tiburon's web site (www.TiburonAdvisors.Com) if this release was passed to you by a colleague and you would like to receive them directly in the future.
  • Tiburon plans to expand its workforce in 2007 and 2008. New research managers will develop proprietary research content for Tiburon research reports and client projects, and new marketing managers will enhance the firm's web site, weekly research releases program, and the firm's relationships with media representatives, conference planners, and its clients & executive program members. The firm is also seeking to add a director of research, principal candidates, and possibly a chief consulting officer in 2007 or 2008.
  • Tiburon has built three executive programs (CEOs-in-Residence, Financial Advisor Roundtable, and Consulting Fellows) in an effort to bring the experiences of additional senior level industry executives to Tiburon clients. Feel free to contact any of the members of Tiburon's executive programs directly or ask that they be included in any ongoing Tiburon project.

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