U.S. VENTURE INVESTMENT STRUGGLES IN THIRD QUARTER

Dow Jones VentureSource: Business and consumer services, healthcare, and energy decline; IT remains steady

U.S.-based companies raised $6.9 billion from 820 venture capital deals during the third quarter of 2012, a 32% drop in capital and a 9% decline in the number of deals compared to the same quarter last year, according to Dow Jones VentureSource.

During the first three quarters of 2012, venture capital investment totaled $22.8 billion for 2,525 deals, a 15% and 3% decline in capital and deals, respectively, compared to the same time frame a year ago.

“Past trends have proven the resilience of the venture capital industry,” said Maryam Haque, senior research analyst for Dow Jones VentureSource. “While the industry had a shaky third quarter and the year is off pace from 2011, investors continuing to put their faith into early stage rounds show signs of encouragement.”

The median amount invested in a financing round was $3.7 million in the third quarter of 2012, much less than the $5.7 million median from the same quarter last year and the lowest since 1997.

Google Ventures led the pack for investments in U.S.-based companies. The venture arm participated in 21 deals during the third quarter, including eight for software companies and five in the business support services sector.

Late-stage deals comprise majority of invested capital; first rounds account for most deals

Though later-stage deals accounted for 61% of the capital invested in the third quarter, first rounds accounted for the largest proportion of deals, 39%, or 309. However, this corresponded to a 33% decline from the third quarter of 2011, when the same number of first round deals raised $1.9 billion in capital.

Business and financial services decline overall, but bright spot within financial services segment

Investments in business and financial services raised $1.2 billion for 126 deals in the third quarter, a 35% drop in capital and a 25% decline in the number of deals compared to the same quarter last year.

Within the industry, investment in financial institutions and services segment suffered an 11% drop in the number of deals, but saw a 43% increase in capital, largely attributed to Square Inc., a provider of mobile phone payment solutions, which had the largest investment of the quarter. The company garnered $175 million in a later stage round with institutional investors, as well as a $25 million corporate investment from Starbucks Corp.

Consumer services regresses

After a strong second quarter, investment in consumer services regressed and is off pace for the year. Capital raised fell to $1.2 billion for 158 deals, a 38% drop in capital and an 8% decline in deals compared to the same quarter last year.

“Investors have been stingier with their capital than they were last year, partly due to Web start-ups needing less cash to get off the ground,” said Zoran Basich, editor of Dow Jones VentureWire. “Especially in an area like consumer services, investors are able to place much smaller bets in the early stages.”

IT investments remain strong, particularly in software

Information Technology (IT) continues to attract the largest bulk of investors, accounting for 33% of the investment and 35% of the transactions during the third quarter of this year.

IT companies raised $2.3 billion for 290 deals in the third quarter of 2012, a 2% drop in capital but a 3% increase in deal flow as compared with the same quarter last year. Software continued to comprise the majority of the deals, garnering $1.6 billion in capital from 230 deals, which corresponded to 14% and 10% increases, respectively, from the same time frame last year.

Healthcare struggles, biopharmaceuticals showing signs of relief

Healthcare companies raised $1.6 billion for 171 deals in the third quarter, a 26% decline in capital and a 15% decline in deals compared with the same quarter last year.

Biopharmaceutical companies showed signs of relief after a poor start to the year and was one of the only industries to have a positive quarter. Within the healthcare sector, which also includes healthcare services, medical devices and equipment, and medical software and information services, only biopharmaceuticals saw an increase in investment. Biopharmaceutical companies

raised $788 million in 70 deals, an 8% increase in capital from the third quarter last year despite a 9% drop in the number of deals.

Energy continues to slump

Investment in energy and utilities saw the most significant drop among all segments. The segment, which had the worst quarter since the first quarter of 2006, raised $169 million for 19 deals in the third quarter, an 86% decline in capital and a 54% decrease in the number of deals compared to third quarter last year.

Investment in renewable energy continued to account for the greatest number of deals within the energy group, raising $162 million through 12 deals.

Australian Private Equity Outperformed S&P/ASX 300 Index by 10% for the 12 Months to Q2 2012

The Cambridge Associates LLC Australia Private Equity and Venture Capital Index (C|A Australia Index) rose by 2.95% (net of fees) in the twelve months leading to 30 June 2012, according to the latest quarterly report released by The Australian Private Equity and Venture Capital Association Ltd (AVCAL) today.

The C|A Australia Index outperformed the S&P/ASX 300 Accumulation Index (ASX 300) by 10% over the same period.

For the quarter ending 30 June 2012, the C|A Australia Index dipped by 0.28%, breaking five consecutive quarters of positive returns. Nevertheless, this was still 4.74% in excess of the ASX 300 Index's return of -5.02%.

The C|A Australia Index's medium to long term results remained steady, with annualised returns of 9.08%, 1.76% and 6.60% over the 3-, 5- and 10-year horizons respectively. In contrast, the ASX 300's returns fluctuated between 5.56%, -4.15% and 6.94% over the corresponding horizons.

In the twelve months leading to 30 June 2012, a total of AU$2.3B was distributed back to LPs while $1.6B was drawn down. Over this period, distributions peaked in Q4 2011, followed by a deceleration in Q1 2012, before picking up again in Q2 2012.

Australian Private Equity & Venture Capital Association (AVCAL) CEO Dr Katherine Woodthorpe said, "We are really pleased to see how the numbers demonstrate the stable, long term value generated by private equity in their investors' portfolios."

"And, contrary to the idea that private equity performance numbers were artificially stabilised during the global financial crisis by 'stale' prices carried forward in private equity portfolios, we now have several years' worth of post-crisis exits data, and it can be seen that private equity returns as a whole have consistently done well over the years compared to listed markets on a net cash-on-cash basis."

Eugene Snyman, Managing Director at Cambridge Associates' office in Sydney, Australia, said: "Following the slight decrease in distributions to LPs in the first quarter of 2012, the increase in Q2 will likely come as good news to investors. That said, this minor volatility in distributions is not a concern as Australian private equity continues to deliver steady long-term value."

The report is published on the AVCAL website www.avcal.com.au.

Cambridge Associates LLC Australia/AVCAL Index Returns for the period ending 30 June 2012
Index (A$)	1-Quarter		YTD		1-Year		3-Year		5-Year		10-Year
Cambridge Associates LLC Australia Private Equity & Venture Capital Index (A$)1	(0.28)		1.23		2.95		9.08		1.76		6.60
Cambridge Associates LLC Australia Private Equity & Venture Capital Index (US$)1	(1.32)		1.12		(1.91)		17.71		6.29		12.31
S&P/ASX 300 Index	(5.02)		3.13		(7.01)		5.56		(4.15)		6.94
S&P/ASX Small Ordinaries Index	(15.30)		(2.61)		(14.61)		3.39		(8.89)		6.67
UBS Australia Bank Bill Index	1.05		2.18		4.69		4.52		5.27		5.44
UBS Australian Composite Bond Index	4.57		5.39		12.41		8.57		8.17		6.79

The Cambridge Associates LLC indices are an end-to-end calculation based on data compiled from 57 Australia private equity and 22 Australia venture capital funds, including fully liquidated partnerships, formed between 1997 and 2012.

¹ Pooled end-to-end return, net of fees, expenses, and carried interest.

Sources: Cambridge Associates LLC, Bloomberg L.P., Standard & Poor's, Thomson Reuters Datastream, UBS AG and UBS Global Asset Management.

About Cambridge Associates

Founded in 1973, Cambridge Associates is a provider of independent investment advice and research to institutional investors and private clients worldwide. Today the firm serves over 900 global investors and delivers a range of services, including investment consulting, outsourced portfolio solutions, research services and tools (Research Navigator^sm and Benchmark Calculator), and performance monitoring, across all asset classes. The firm compiles the performance results for over 5,000 private partnerships and their more than 65,000 portfolio company investments to publish its proprietary private investments benchmarks, of which the Cambridge Associates LLC U.S. Venture Capital Index^® and Cambridge Associates LLC U.S. Private Equity Index^® are widely considered to be among the standard benchmark statistics for these asset classes. Cambridge Associates has more than 1,000 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; Singapore; Sydney; and Beijing. Cambridge Associates consists of five global investment consulting affiliates that are all under common ownership and control. For more information about Cambridge Associates, please visit www.cambridgeassociates.com.

About AVCAL

AVCAL is the voice of venture capital (VC) and private equity (PE) in Australia. Our membership includes 54 domestic and international VC and PE managers active in Australia as well as pension/super funds, service providers and other stakeholders. AVCAL is active in communicating, researching and advocating the significant contribution that VC and PE makes to the broader Australian economy. Australian VC and PE firms manage over $29bn in funds under management. They provide capital and expertise to companies in a range of business life-cycles: start-ups, SMEs and large organisations. AVCAL VC and PE members focus on enhancing innovation, productivity, entrepreneurial activity and sustainability in the companies they invest in. Australian VC and PE firms back more than 500 companies which employ over 100,000 full-time equivalent jobs. Since records began in the late 1990s, the industry has distributed around A$16 billion to its limited partner investors which include pension/super funds, institutions and governments.

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