Finding the Next Facebook

Michael Moe, CFAFounder, GSV Asset Management

@michaelmoe

Finding the Next Facebook

Every day in America 1,100

new businesses are formed.

Source: Gallup, U.S. Census Bureau

Every day in America 1,300 businesses fail.

Source: Gallup, U.S. Census Bureau

In 2014, Venture Capitalists invested in

4,356 companies.

Source: NVCA, PwC

In 2014, just 115 venture-backed companies went

public.

Source: Thomson Reuters, NVCA

and that was the best year since 2000.

Source: Dow Jones Venture Source, Fenwick & West

20% Chance Company Survives First 3 Years

What kind of nut would start a

business?

Name that Nut

Lost job in 32

Defeated in race for State Legislature in 32

Failed in business 33

He had a nervous breakdown in 41

Defeated in races for:

Congress in 43 Senate in 55

Vice President in 56 Senate in 58

And the answer is

Teachers told him he was too stupid to learn anything

Fired from his first two jobs for lack of productivity

Thomas Edison

$272 Billion Market Cap

He was fired by a newspaper editor because he "lacked imagination

and had no good ideas"

Launched film studios in 1920 and 1921 both went bankrupt

$233 BillionMarket Cap

In order to earn better than a C, the idea must be feasible.

-Yale professor response to a paper he submitted in 1965

Whatever it Takes

Wilson turned FedExs last $5,000 into $27,000 at the Black Jack table

Howard SchultzCEO, Starbucks

Dyslexic

Turned down by 53 banks for a business loan

Founded 8 Billion Dollar Businesses

The Power of Growth

Top 25 Stocks2005 - 2015

1 2 3 4

5 6 7 8

9 10 11 12

13 14 15 16

17 18 19 20

21 22 23 24

25

Median Stock CAGR31%

Source: Capital IQ, Yahoo Finance

Median EPS CAGR39%


Median P/E, 200536x


Median Market Cap, 2005$361 million


Conclusion 1) Focus on Companies

with the Highest Growth, not the Bargain Basement

Conclusion 2 2) Focus on Small

Companies SIZE FORGES AN ANCHOR

People may bet on hourly wiggles of the market but its the earnings that waggle the

wiggle long term.

-Peter Lynch

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Apple

2005-2015


Stock Price CAGR: 36% EPS CAGR: 55%

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Priceline

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Growth

Double-Edged Sword

Where would you rather invest $100K?

High Octane Fund

Year 1 Up 100%

Year 2 Down 30%

Steady Eddy Fund

Year 1 Up 20%

Year 2 Up 20%

YEAR 1 YEAR 2

Return Value Return Value

HighOctane 100%

SteadyEddy 20%

Start $100K

YEAR 1 YEAR 2


HighOctane 100% $200K

SteadyEddy 20% $120K

Start $100K

YEAR 1 YEAR 2


HighOctane 100% $200K (30%)

SteadyEddy 20% $120K 20%

Start $100K

YEAR 1 YEAR 2


HighOctane 100% $200K (30%) $140K

SteadyEddy 20% $120K 20%

Start $100K

YEAR 1 YEAR 2


HighOctane 100% $200K (30%) $140K

SteadyEddy 20% $120K 20% $144K

Start $100K

Down To Break Even-10% 11%-30% 43%-50% 100%-70% 333%-90% 1000%

Breaking Even

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NASDAQ 2000: 5,000


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NASDAQ Today: 5,000


3

2

+417%1

If you were a consultant for a month, how would you prefer to be paid?

$10,000 per week

or 1 PENNY on day 1, doubling every day?

$0

$10,000

$20,000

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$40,000

Day 1 Day 5 Day 10 Day 15 Day 21 Day 31

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$0

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$10,000$10,000

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Day 21

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$40,000$30,000$20,000$20,000$10,000$10,000

$21,474,836

$21,000$328$10$0$0 $40K

$21 millionDay 31

Compound interest is the eighth wonder of the world.

He who understands it, earns it

he who doesnt, pays it.

Rule of 72

Interest Rate Years to Double $1 in 30 Years

3% 24 $2.436% 12 $5.749% 8 $13.2712% 6 $29.9615% 5 $66.2125% 3 $807.79

Rule of 72

Island of Manhattan, 1626

Island of Manhattan, 1626

Bought for $24

Good deal?

Island of Manhattan, 1626Value Today at

5% Annual Return

$4 billion

Island of Manhattan, 1626Value Today at 7.5% Annual

Return

$36.9 trillion

Island of Manhattan, 1626Value Today at 10% Annual

Return

$275

quadrillion

2000 2015$0.04

$7.03

Cost of Computing (per MM transistors)

Source: Deloitte

2000 2015$0.02

$4.77

Cost of Storage (per GB)

Source: Deloitte

1990: $20KToday: $1

Source: Deloitte

Moores Law

Source: Intel

Global Internet Users (billions)

1996 1999 2002 2005 2008 2011 2014

3.02.2

1.51.0

0.70.30.1

21% CAGR

Source: Internet Live Stats

2.1B Smart Phone Users

Source: Strategy Analytics

2012 2013 2014 (P) 2015 (P) 2016 (P) 2017 (P)

270225

180140

10070

Android and iOS App Downloads (billions)

Source: Gartner

31% CAGR

Human Genome Project 1990

Cost to Map Genome in 2003: $100M

Source: NIH

Cost to Map Genome in 2015: $100

Source: NIH, 23andMe, GSV Asset Management

$0

$20

$40

$60

$80

1977 1983 1989 1995 2001 2007 2013

Moores Law in Solar - Swansons LawCosts decline has enabled solar to reach grid parity

Source: Bloomberg New Energy Finance

Source: Facebook, World Bank

Population Size

1.4B 1.24B1.35B

Market Cap: $245 Billion

Tweets per Day

500M

Source: Statistic Brain, GSV Asset Management

Source: Google

1 Billion Viewers Watching

6 Billion Hours Per Month

586 Million Minutes Talking

Per Day

Source: Wall Street Journal

Total Number of Twitter Accounts

[INSERT]Source: Facebook

64 Billion WhatsApp Messages per Day

Total Number of Twitter Accounts

[INSERT]

700 Million Snaps per Day

Source: SnapChat

None of These Companies

Existed Before 9/11

Total Unicorns, 2000: 1

Source: Fortune

Total Unicorns, Today: 97


UBERcorns $10B+


Bubble vs. Boom

NASDAQ Top 10: 2000Company P/EMicrosoft 57x

Cisco 127xIntel 43x

Oracle 103xSun Microsystems 85x

Dell 57xMCI Worldcom 22x

Chartered Semiconductor 53xQualcomm 123x

Yahoo! 418xSource: Barrons

NASDAQ 100 P/E 2000: 105x

Source: CNN Money

NASDAQ Top 10: 2015Company P/E

Apple 15xGoogle 19x

Microsoft 16xFacebook 30xAmazon NM

Intel 14xGilead Sciences 11x

Cisco 13xComcast 17xAmgen 17x

Source: Barrons

NASDAQ 100 P/E 2015: 19x

Source: GSV Asset Management

Median Time to IPO

Source: National Venture Capital Association, PwC, WilmerHale, Fortune

2000: 3 Years

Median Time to IPO


2000: 3 Years

Today: 7 Years


2000: $18M

Median Annual Revenue at IPO


2000: $18M

Median Annual Revenue at IPO

Today: $68M


2000: 370 million

(6%)

Internet Access


2000: 370 million

(6%)

Internet Access

Today: 3.1 billion

(43%)


2000: 60 million

(1%)

Broadband Access


2000: 60 million

(6%)

Today: 2.3 billion

(32%)

Broadband Access


2000: 180 million

(3%)

PC Penetration


2000: 180 million

(3%)

PC Penetration

Today: 1.4 billion

(20%)


2000: 740 million

(12%)

Mobile Phone Penetration


2000: 740 million

(12%)

Mobile Phone Penetration

Today: 5.2 billion

(73%)


Smart Phone Penetration

2000: 0


Today: 2.1 billion

(28%)

Smart Phone Penetration

2000: 0


2000: 0

App Downloads


2000: 0

Today: 140+ billion

App Downloads


2000: 6%

Digital Natives in Workforce


2000: 6%

Digital Natives in Workforce

Today: 35%


2000: 1.4 billion

Global Middle Class


2000: 1.4 billion

Global Middle Class

Today: 2.5 billion

Old Global Innovation Map

London Risk isnt my cup

of tea.

New York City If its such a good idea, why hasnt it

been done already.

Minneapolis Looks promising

Lets test it.

San Francisco Can I write you a

check?

Shanghai Great idea. Now its

my idea.

New Global Innovation Map

Austin

Boston

Chicago

Sao Paulo

Mumbai

Shanghai

Global Silicon Valley

ImagiNation

Blackberry Apple

$70$70

2007 Market Cap: Apple vs. Blackberry

Source: Capital IQ, GSV Asset Management

Blackberry Apple

$730

$5

2015 Market Cap: Apple vs. Blackberry

Source: Capital IQ, GSV Asset Management

Founded: 1921

Founded: 2009

Market Value: $41 Billion

S t . P e t e r s S q u a re : 2 0 0 5

S t . P e t e r s S q u a re : 2 0 1 3

Founded: 1888

Market Value: Bankrupt

Founded: 2011

Market Value: $16 Billion

Founded: 1957

Market Cap: $8 Billion

Founded: 2008

Market Value: $13 Billion++

Megatrends S

ocia

l - M

obile

Clo

ud +

Big

Dat

a

Mar

ketp

lace

s

Sust

aina

bilit

y

Educ

atio

n Te

chno

logy

Investment Themes

PEOPLE PRODUCT

POTENTIALPREDICTABILITY

Megatrends

Eval

uatio

nO

wn

ersh

ip

4Ps

DCF, P/S

Datapoints + Milestones

Growth Drives Enterprise Value

Themes

Ranking of Companies

Underwriting Investment

Confirmation, On Track

Megawinners

Industry

Ten Commandments

Company

Valuation

Short Term

Long Term

Identifying and Investing in the Stars of Tomorrow

Finding the Next Facebook

Investor Relations

Transcript of Finding the Next Facebook