AI, Autonomous Cars, Drones and More - How tech innovation is transforming the world and generating investment returns Presented by: Brijesh ...
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AI, Autonomous Cars, Drones and More
How tech innovation is transforming the world
and generating investment returns
Presented by: Brijesh Jeevarathnam / Adams Street Partners
Confidentiality Statement and Other Important Considerations
This presentation (the “Presentation”) has been provided to the recipient on a confidential and limited basis and for educational purposes
only. The recipient agrees not to copy, reproduce or distribute the Presentation, in whole or in part, to any person or party without the prior
written consent of Adams Street Partners.
This Presentation is not investment advice or an offer or sale of any security or investment product or investment advice. Offerings are
made only pursuant to a private offering memorandum containing important information. Statements in this Presentation are made as of
the date of this Presentation unless stated otherwise, and there is no implication that the information contained herein is correct as of any
time subsequent to such date. Projections or forward looking statements contained in the Presentation are only estimates of future results
or events that are based upon assumptions made at the time such projections or statements were developed or made. There can be no
assurance that the results set forth in such forward looking statements will be attained. General economic factors, which are not
predictable, can have a material impact on the reliability of projections or forward looking statements.
2
Introduction
3
Today’s Discussion
1. Technology advances are accelerating, rapidly transforming the world
2. Investors can access this transformation to generate strong financial returns
3. Venture Capital represents an excellent way to invest in emerging Tech innovation
4
1. Tech Advances Are Accelerating, Transforming the World
5
Early Technology Eras Lasted Millennia
Stone Age Iron Age
2,000,000 BCE 3300 BCE 1200 BCE
Bronze Age
6
Until James Watt’s Steam Engine Changed the World,…
Late Eighteenth Century
Source: 2017 PBS & WGBH Educational Foundation 7
…Catalyzed A Revolution That Lasted Centuries,…
8
….And, Bent the Curve of Human Development Source: The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. 9
Subsequent Technological Progress Keeps Accelerating – Eras
Last Decades, Not Centuries
Electrification/ Information
Mass Production Age
1775 1870 1969 1990s
Industrial
Revolution
Electronics
Age
10We are now in the
Information
Technology Age
11Information Technology (IT) Advances Have Built on a Long
History of Innovation
Punch Electric Computer Portable Touch-Based
Cards (ENIAC) Computer Computing
1832 1872 1943 1948 1975 1996 2007 2014
QWERTY Mainframe Mobile Voice-Based
Keyboard Computer Computing Computing
12And Exceeded the Expectations of Some of the World’s
Brightest Minds
"I think there is a world market for maybe five computers.”
Thomas Watson, president of IBM, 1943
"There is no reason anyone would want a computer in their home."
Ken Olsen, founder of Digital Equipment Corporation, 1977
"No one will need more than 637KB of memory for a
personal computer."
Bill Gates,1981
"I predict the Internet will soon go spectacularly supernova and in 1996
catastrophically collapse.”
Robert Metcalfe, 3Com founder and inventor of Ethernet, 1995
13Today, Information Technology Seems Pervasive in the Headlines…
Ford just invested $1 billion in self-driving cars
14…And in Our Everyday Lives
Made a phone call
Ordered
Purchased out/ate out
something
Hailed a Taxi Accessed email
Made a Navigated using
reservation GPS
Circa 2007
15Moore’s Law Predicted Exponential Gains in Compute Power
Over Time
In 1960 Gordon
Moore, a founder
of Intel, accurately
predicted that
processing power
for computers
will double every
two years
16Moore’s Law Predicted Exponential Gains in Compute Power
Over Time
In 1960 Gordon Moore, a founder of Intel, accurately predicted that
processing power for computers will double every two years
Source: http://pointsandfigures.com/2015/04/18/moores-law/ 17The Cost of Compute and Storage Has Collapsed
Storage (Average Cost Per GB) Processor Speed ($ per MSOPS*)
$1,000,000.00
$1,000,000.00000000
$100,000.00 $100,000.00000000
$10,000.00000000
$10,000.00 $1,000.00000000
$100.00000000
$1,000.00 $10.00000000
$1.00000000
$100.00 $0.10000000
$0.01000000
$10.00
$0.00100000
$0.00010000
$1.00
$0.00001000
$0.00000100
$0.10
$0.00000010
$0.00000001
$0.01
*Million standardized operations per second
Source: GP Presentation. Nordhaus, William, The Progress of Computing, Version 4.4, Appendix Table 2, 2001. 18Household Electronics Today Generally Have as Much Compute
Power as the Computers that Landed Apollo 11 on the Moon
1969 2017
Source: ZME Science. 19The Compute Power of An iPhone7 Overwhelmingly Exceeds
That of Apollo 11 Computers
Launched in 1969 Launched in 2016
>80 Million Times Faster
Source: ZME Science. 20Major Tech Trends Are Converging
■ Increase in compute power and availability fueling mega trends in technology
1. Internet everywhere
2. Mobile everything
3. Cheaper, more efficient storage
4. Massive amounts of data
5. Machine learning
6. Cloud computing
■ Technology is becoming more ingrained in everyday life, and leading companies / figures in the
technology industry have become household names
21Consumers Are Adopting Technologies Faster Than Ever
Years to 50% US Market Penetration
60
40
20
10
Telephone Washing Machine Cellphone Internet
Time Period ~1870’s ~1925 ~1980s ~1990s
Introduced:
Source: NY Times 22Smartphones Everywhere, Internet Access Ubiquitous
Smartphone Penetration of Mobile Phone Market
90%
81%
79%
80% 75%
70% 65%
60%
54%
50%
42%
40%
30% 27%
20% 17%
11%
10% 6%
2% 3%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: comScore MobiLens, U.S., Age 13+, 3 Mo. Avg. Ending Dec 2005 – 3 Mo. Avg. Ending Dec 2016 23Providing Affordable Access to Technology for the World
4.0
50%
3.5
of World
Population
Internet Users Worldwide (Billions)
3.0
2.5
2.0
1.5
1.0The World is More Connected Than Ever, a Development Which
Looks Set to Continue
Share of world population connected to the internet from 2016 to 2021
+3.7 p.a.
+5.7 p.a.
63.9%
61.8%
59.7%
57.5%
55.4%
53.2%
48.8% 50.5%
46.9%
41.6% 44.5%
38.2%
2016 2017 2018 2019 2020 2021
Internet penetration Mobile penetration
Source: Statista Digital Market Outlook
Note: Figures account for total world population using the internet / a smartphone within the last 12 months 25“Information Technology Is Eating the World”
Disrupting every piece of the consumer pie
Distribution of Consumer Wallet by Category (1)
Other
Education
Apparel
Entertainment
Housing
Healthcare
Pensions and
Social Security
Food Transportation
Source: U.S. Bureau of Labor Statistics. 26AirBnB vs Traditional Hospitality Companies
Valuation (USD Bn) # of Rooms # of Countries
AirBnB AirBnB
31 AirBnB
1,000,000 190
Hilton 29 Hilton 721,000 Hilton 94
Mariott 22 Mariott 710,000 Mariott 79
Starwood 14 Starwood 348,000 Starwood 100
Source: Public Sources. 27Transforming the Enterprise
Only 6% of the
$4 Trillion in
IT spend today
is spent on
cloud software
Source: GP Presentation. 28Providing Affordable Access to Technology for the World
4.0 Billions of Internet Users Worldwide
Delivering More Apps and Services Over the Internet
3.5
3.0
Scalable Public Cloud Infrastructure
2.5
2.0
1.5 Private Cloud Infrastructure
1.0
0.5
0.0
Source: Internet World Stats. 29Technology is Transforming Every Major Industry
Lets Take a Closer Look at Technology’s Impact on Three Big Industries:
1 Automotive
2 Healthcare
3
Manufacturing
& Logistics
301 Automotive: Three Major Forces Transforming This
Massive Industry
Private Car Ride-Sharing
Ownership Network
Human
Autonomous
Driving
Combustion Electric
Engine Vehicles
31Private Car Ownership Giving Way to Shared / On Demand
On Demand Transportation
162,600,000 2,000,000,000 1,000,000,000
Rides in 2016 Total Rides Rides in 2015
New Ways of Renting Cars
Source (# of rides, left to right): Business Insider; The Verge (as of June 2016); The Verge. 32Autonomous Driving
MONITORED DRIVING NON-MONITORED DRIVING
DRIVER ASSISTED PARTIAL
ONLY AUTOMATION
CONDITIONAL HIGH FULL
AUTOMATION AUTOMATION AUTOMATION
Source: GP Presentation. 33Autonomous Driving Source: Uber; Google. 34
Autonomous Driving
35Market Valuation of New Entrants to Auto Industry Rival Those
of Incumbents
Market cap/valuation of selected companies in 2017 (in US$ billion)
Automobile Manufacturers New Entrants
Toyota Motor Corp. 147.3
Daimler AG 75.3
Volkswagen AG 74.3
Uber Technologies Inc. 68.0
General Motors Co. 51.0
Tesla Motors Inc. 49.8
Didi Chuxing 33.8
Lyft Inc. 6.9
ANI Technologies Pte Ltd. (Ola) 3.0
Grab Taxi Holdings Pte Ltd. 3.0
Source: Yahoo! Finance, CB Insights, livemint Note: Market cap as of 04-20-2017 36The Automobile and Tech Industries Are Colliding Auto makers have come to Silicon Valley Source: WSJ. 37
Ripple Effects from Auto Transformation
Auto
Retail
Insurance
Delivery
Autonomous,
Electric,
Shared Automobiles
Rental Car Urban
Industry Planning
38Technology is Transforming Every Major Industry
Lets Take a Closer Look at Technology’s Impact on Three Big Industries:
2 Healthcare
392 Healthcare: Moore’s Law is Transforming Life Sciences
Cost of Gene Sequencing
$100,000,000.00
$10,000,000.00
$1,000,000.00
$100,000.00
$10,000.00
$1,000.00
$100.00
$10.00
$1.00
$0.10
$0.01
Oct-03
Dec-02
Apr-06
Oct-08
Apr-11
Oct-13
Nov-05
Dec-07
Nov-10
Dec-12
Sep-01
May-03
Aug-04
Sep-06
May-08
Aug-09
Sep-11
May-13
Aug-14
Feb-02
Jan-05
Jun-05
Feb-07
Jan-10
Jun-10
Feb-12
Jan-15
Jun-15
Jul-02
Jul-07
Jul-12
Mar-04
Mar-09
Mar-14
Cost per Mb* Cost per Genome Sequenced
* The cost of determining one megabase (Mb; a million bases) of raw, unassembled DNA sequence data.
Source: https://www.genome.gov/sequencingcostsdata/ 40Convergence of Advances in IT and Life Sciences Are
Transforming Healthcare
IT Advances Life Science Advances
■ Data Science ■ Gene Sequencing
■ Machine Learning ■ Prevention ■ Gene Editing
■ Diagnosis
■ Computer Vision ■ Targeted Therapeutics
■ Treatment
■ Consumerization of ■ Behavioral Medicine
Healthcare
41Disease Prevention: Using Data and Behavioral Medicine
42Diagnosis: Deep Learning Algorithms and Computer Vision
Leading to Better Anomaly Detection
43Diagnosis: Deep Learning Algorithms and Computer Vision
Leading to Better Anomaly Detection
44Using Big Data and Machine Learning to Diagnose Earlier and
Treat Better
45Treatment: Gene Editing Has Potential to Eliminate Certain
Diseases
46Technology is Transforming Every Major Industry
Lets Take a Closer Look at Technology’s Impact on Three Big Industries:
3
Manufacturing
& Logistics
473 Manufacturing & Logistics: Multiple Vectors of Change
■ Advanced Materials
■ Drones
■ 3-D Printing
48Logistics: Drones
49Logistics: Drones
50Logistics: Delivery Robots
Robots to deliver Yelp Eat24
dinners in two SF neighborhoods
51Manufacturing & Logistics: 3-D Printing
522. Investors Can Access this Transformation to Generate Strong Financial Returns
53New Technology Trends are Creating New Markets
Companies organized by year of founding
Search
Communications
and Social Media
1991 1993 1995 1997 1999
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
eCommerce
Sharing Economy
Source: Pitchbook 54Tech is Becoming a Larger Portion of the Economy
12/31/2005 12/31/2010 12/31/2016
Tech Companies
% of S&P 500
Market Cap
15.1% 18.6% 20.8%
Tech Companies
% of S&P 500
Revenues
15.9% 17.4% 19.4%
Source: CapitalIQ, as of March 2017. 55Tech has Performed Well in the Public Markets
S&P 500 Russell 2000 IT
300%
250%
200%
150%
100%
50%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
CapitalIQ as of May 1, 2017 56Tech has Performed Well in the Public Markets
160%
147%
140%
120%
100% 92%
80% 72%
70% 69%
57% 59%
60%
40% 34%
24% 27% 25%
20% 16%
0%
1 Year Return 3 Year Return 5 Year Return 10 Year Return
S&P 500 Russell 2000 IT
Chart reflects total return over respective periods.
Source: CapitalIQ as of May 1, 2017 57Tech Companies Now Among Largest by Market Capitalization
Top 5 Publicly
Intellectual & Human Capital Physical Capital
2001 Traded Companies
(by Market Cap)
$406B $356B $272B $261B $260B Tech Other
2006
$446B $383B $327B $293B $273B
2011
$406B $376B $277B $237B $228B
2017
$803B $653B $533B $455B $436B
Market capitalizations as of December 31st for each respective year; 2017 market capitalization as of May 9, 2017. 583. Venture Capital Represents an Excellent Way to Access
Emerging Tech Innovation
59What is Venture Capital?
Venture Capital Growth Equity LBO or IPO
Revenue
Time
60Some Famous Venture Backed Companies Source: Pitchbook as of 4Q 2016. 61
US Venture Fundraising
2017 Run Rate $ Raised in Billions Fund Count
45.00 300
40.00
250
35.00
30.00 200
25.00
150
20.00
15.00 100
10.00
50
5.00
0.00 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Source: Pitchbook
* 2017 represents annualized data as of May 1, 2017 62Private Investors Have Benefitted from Pre-IPO Value Creation
Market capitalization at IPO vs. today
Today Today
$170 $453 $536 $19 $26 $442
Billion Billion Billion Billion Billion* Billion
$82 Billion
$8.9 Billion
$8.3 Billion
$560 Million $690 Million
$225 Million
Cisco Amazon Microsoft Workday LinkedIn Facebook
1980’s – 1990’s 2010 – Present
*Reflects Microsoft’s purchase price in June 2016.
Source: Capital IQ as of 5/1/2017. 63Median Time from Initial Venture Capital Equity Funding to Exit
As of December 31, 2016
11
10 9.9
9.6 9.6
10 9.5 9.4
9 8.8
Number of Years
8.5 8.6
9 8.3
8.1
8
7.7 7.9 8.0
8 7.6 7.6 7.7
7.3 7.6 7.5
7.4
7 7.3
7 6.8
6
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
IPO M&A
Companies are staying private longer
Source: Pitchbook as of 4Q 2016. 64Venture Industry Has Attractive Returns, With Wide Dispersion
Between Quartiles
95th Percentile
As of December 31, 2016 75th Percentile
Median
Dispersion of Burgiss Returns – Net IRR 25th Percentile
5th Percentile
50.0%
42.5%
40.0% 38.9%
30.0% 31.3%
28.5%
20.0%
17.4% 15.9% 15.9%
14.8%
10.0% 8.7% 8.8% 10.1%
5.2% 7.1%
3.3%
0.0% (1.1%) (3.0%)
(10.0%) (10.1%)
(15.3%)
(20.0%) (20.3%)
(30.0%) (31.5%)
(40.0%)
Small LBO (Venture Industry Has an Attractive Dispersion of Returns
30.0%
25.0%
20.0%
Dispersion of Returns
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
U.S. Fixed Income U.S. Large U.S. Small U.S. Leveraged U.S. Venture Capital
Capitalization Equity Capitalization Equity Buyouts
25th Percentile Median 75th Percentile
Active manager returns by quartile for period ending June 30, 2012. Fixed income and marketable equity performance based on annualized ten-year returns of BNY Mellon manager universes, adjusted for fees. Venture capital and LBO
based on annualized since-inception IRRs of Cambridge Associates manager universes.
Source: Yale Endowment, 2012 Report. 66Access to Top Performers is Important
Persistence of returns in venture capital
Top 5% 42.5%
49%
1st Quartile 15.9% Of 1st Quartile Funds Generate
A Subsequent 1st Quartile
Performing Fund
2nd Quartile
65%
7.1%
3rd Quartile
(3.0)%
Of 1st Quartile Funds Generate
A Subsequent 1st Quartile or
2nd Quartile Performing Fund
Bottom 5% (20.3)%
Source: Burgiss; “Has Persistence Persisted in Private Equity? Evidence From Buyout and Venture Capital Funds” 67Keys to Building a High Performing Venture Capital Portfolio
■ Manager selection, access, and portfolio construction are paramount
■ Build a high-quality, concentrated portfolio of Venture managers
■ Keep a long-term investment horizon
■ Manage consistent exposure across time (and cycles)
68Summary
■ Technology advances are accelerating, rapidly transforming the world
■ Investors can access this transformation to generate strong financial returns
■ Venture Capital represents an excellent way to invest in emerging Tech innovation
69Additional Questions?
Brijesh Jeevarathnam
Partner & Co-Head of Global Venture Fund Investments
650 331 4869 / brijesh@adamsstreetpartners.com
Steven Wilde, CFA
Partner, Client Service
312 553 7867 / swilde@adamsstreetpartners.com
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