Excellence in Business

The Case for VC and the Opportunity in Europe2018

2

Private Equity has historically proven to be the Asset Class with

the Best Risk-Adjusted Return, and within it, Top VCs have

outperformed all other PE strategies

Also, VC is the one that, considering the macroeconomic

environment ahead, remains the most attractive and has the

biggest Upside Potential

Private Equity as the Best Asset Class1

3

Average(1): 7.0%

Average(1): 3.7%

Private Equity Has Been, and Is Expected to Be, the Asset Class with the Best Risk-Adjusted Return

4

Private Equity is the asset class that has historically yielded the highest returns and is expected to retain such position during the next 10 years, with an average of 10% annual return.

Historical and Future Expected Returns

9%

4%

6%

9%

13%

5%

1%

3%

6%

10%

Global Equities Cash Fixed Income Real Estate Private Equity

Historical Next 10 Years

(1): Average excluding Private EquitySource: “Global Private Equity and Venture Capital 2017”, Prequin; “Horizon Q1 2017” Pictet; UBS Asset Management Bloomberg; MIT-CRE; Cambridge Associates; “Guide to Private Equity and Venture Capital for Pension Funds”, Invest Europe.

Increase

48%

Maintain

46%

Reduce

6%

Consequently, Private Equity Assets Under Management Have Steadily Grown and Investors Show Increased Interest in It

5

Private Equity AUM have doubled in the last decade, and investors still show a considerable appetite from towards the asset class.

Private Equity Assets Under Management Evolution($tr)

Increasing Investor Appetite for Private Equity

2017 Investor’s Intended PE Allocation

• 94% of portfolio managers intend to maintain

or increase their exposure to PE assets

Sources: “Global Private Equity and Venture Capital 2017”, Prequin; “Horizon Q1 2017” Pictet; UBS Asset Management Bloomberg; MIT-CRE; Cambridge Associates; “Guide to Private Equity and Venture Capital for Pension Funds”, Invest Europe.

1,2

1,4

1,7

1,9

2,2

2,5

2006 2008 2010 2012 2014 2016

• Private Equity AuM have doubled in the last

decade proving a strong appetite for this asset

class

6

Thus, Experts Recommend A 10%-20% Allocation to Private Equity

Allocating a small portion of any portfolio to Private Equity during the past 20 years would have improved significantly its risk-adjusted return.

40%

60%

Traditional Portfolio

40%

40%

20%

Portfolio With Private Equity

Bonds Stocks Private Equity

7,1%

5,7%

8,9%

4,8%

Return Volatility

Traditional Portfolio Portfolio with Private Equity

25% ReturnEnhancement

16% Risk Reduction

Sources: “An Overview of Private Equity Investing” 2017, Voya.

20 last years Performance of a Portfolio With & Without a 20% Allocation to Private Equity

Breaking Down Private Equity Returns3

7

Sources of Value Creation by Type of Private Equity

Buy-Out and Infrastructure obtain much of their return from the leverage embedded in their transactions. Unlike these, VC’s main source of return is the innovative nature of the companies it invests in.

8

• Normally, VC is not exposed to debt. Other PE strategies obtain much of their return from debt-to-equity optimisation

• There is a good amount of management in VC although not as important as it can be in buy-out strategies. VC relies more on the entrepreneur selection

• Early stages have more market imperfection because selection is more difficult. There is a lot to gain from it as compared to other PE strategies

✓Source of Value Creation

Not a Source of Value Creation

Implications for VC

• VC invests in innovative companies that add value via the increase in productivity, gaining market share from zero or simply creating new sectors. Much more than any other PE strategy

LeverageValue from debt to equity

optimisation (low interest rates)

Active OwnershipValue from control and active

management

Arbitrage & SelectionValue from selection processes,

including price and terms arbitrage

Innovation & TechnologyValue from technology

breakthroughs

Lobbying & RegulationValue from lobbying and

optimising around regulatory frameworks

Venture Capital

Buy-Out Infrastructure

✓ ✓✓

✓ ✓✓

✓✓ ✓

✓✓

✓ ✓✓• As all strategies, VC is impacted by regulation.

But the value does not come from playing with regulation (i.e. tariff controls, etc)

Cheap Credit and Historically High Market Prices Have Fuelled Buy-Out Returns, but ECB’s Growth Predictions Have Now Been Going Down for +10y

With low interest rates, buy-out funds have found cheap credit and obtained significant returns, also helped by Market Prices, which are currently over turmoil situation levels, allowing for little room for growth. GDP and Productivity growths are expected to shrink during the next years. By investing in traditional companies, investors cannot expect anything much better than 1-2%.

9

Source: Thomson Reuters.(1) CAPE Ratio or Cyclically Adjusted PE Ratio: Price to earnings ratio that considers today’s price and the average inflation-adjusted earnings of the last 10 years.(2) European Central Bank.

Low Interest Rates Vs. Buy-Out Returns & Market Prices

Reb

ased

to 1

00

-100

-80

-60

-40

-20

0

20

40

60

feb.-

07

ago.-

07

feb.-

08

ago.-

08

feb.-

09

ago.-

09

feb.-

10

ago.-

10

feb.-

11

ago.-

11

feb.-

12

ago.-

12

feb.-

13

ago.-

13

feb.-

14

ago.-

14

feb.-

15

ago.-

15

feb.-

16

ago.-

16

feb.-

17

ago.-

17

0%

1%

2%

3%

4%

5%

6%

Fed Funds Rate (RHS) Private Equity Index (LHS)

10 year CAPE Ratio (LHS)

+550%

31.3x

27.3x

Current10y CAPE Ratio(1)

Pre-Financial Crisis10y CAPE Ratio(1)

ECB(2) Real GDP Growth Forecasts(GDP Growth 5 years ahead)

ECB(2) Productivity Growth Forecasts(Productivity Growth 10 years ahead)

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

1.7%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

1.4%

The Opportunity Is to Be Invested in Companies that Profit from Technology Breakthroughs

Mobile Broadband Subscriptions are expected to grow by 50% during the next 6 years, creating numerous opportunities that companies driving future technology breakthroughs can benefit from, just like Amazon, Netflix, Airbnb or Uber are doing today.

10

Source: Ericsson Mobility Report November 2017.

Mobile Broadband Subscriptions(bn)

0

1

2

3

4

5

6

7

8

9

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

8.5bn

Blockchain

Artificial Intelligence

Internet of Things

Autonomous Vehicles

3D and 4D Printing

Technologies

• Uber disintermediated the traditional taxi service by putting in contact part-time drivers with willing clients in a more effective way$62bn

• Amazon changed, and is still changing, the retail industry with a huge offer, low prices and a high quality customer service

• Netflix turned its business model from mailing DVD to delivering video content online and eventually killed Block Buster

• Airbnb leveraged on hotels’ high prices to connect prospective guests with people that wanted to share their houses and make an income out of them

$523bn $86bn

$31bn

5.8bn

c. 50%

11

VC’s Nature Allows for More Value Added and Potential Upside

When properly executed, VC backs companies that not only have higher potential upside but also permit to achieve more beneficious deals with regard to valuation and terms.

Skills

Direct VC Experience

Sourcing & Screening Power

Multi-Sector Know How

Due Diligence Capabilities

Valu

ati

on

Time

Venture & Growth Capital Buy-Out

Enormous Potential Upside

• To capitalize on the opportunity VC, the skills that only firms with direct VC expertise can provide, are a must-have

Company Lifecycle and Valuation Necessary Skills to Invest in VC

• VC offers a much greater upside potential but VC experience is required, since the investment process is much more qualitative

1

2

3

4

12

All in, VC Turns Out to Be the Strategy with the Strongest and Most Solid Fundamentals

Venture Capital is set to benefit from strong fundamentals.

Potentiality Map

Market

Tren

dS

tren

gth

Value Creation Potential

Innovation&

Technology

Leverage

Lobbying&

Regulation

Active Ownership

Arbitrage&

Selection

Venture Capital

LeveragedBuy-Out

Infrastructure

Infrastructure Average: 14.6%

The Opportunity Is Such that, Even in a Context Most Favorable to Buy-Out, Top VCs Have Outperformed All Other PE Strategies

13

Top Quartile IRRs from Vintage Year until 2016: VC vs. Other Private Equity Strategies (Net IRR for Investors up to 2016)

18,00%

24,50%

27,50%

29,20% 29,60%

10%

15%

20%

25%

30%

2008-16 2009-16 2010-16 2011-16 2012-16

Venture Capital Buyout Distressed Private Equity

Buyout Average: 22.1%

VC Average: 25.8%

Source: “Global Private Equity and Venture Capital 2016”, Prequin; Dealroom.

Despite the cheap credit availability that has fueled Private Equity strategies like Buy-Out, Upper Quartile VC Funds consistently outperform their upper quartile counterparts, providing greater upside potential.

Fund Vintage - 2016

32%28%

27%25%

26%21%

20%23%

31%35%

38%41%

33%34%

32%

40%39%

28%27%

58%

64%

41%

35%38%

46%

29%

34%

45%43%

29%

44%

54%

52%48%

63%62%

61%

14

Backing an Evermore Bigger Number of Successful Companies

VC has backed innovative ideas behind some of the most important companies, contributing to the development and the improvement of the welfare status, showing no regard or preference in terms of industry.

Percentage of VC-Backed IPOs 1980-2016

Source: Forbes, Crunchbase, CNBC, Damodaran Research.

(1) As of December 2017.

Today’s Top 5 Global Largest Companies by Market Cap(1) were all backed by VC

1980 1986 1997 2004 2011

The VC Opportunity Is in Europe4

15

16

European Society Has Shifted Towards Entrepreneurship

Europe has acquired a strong Entrepreneurial Mindset with a great acceptance of entrepreneurship as a career path and a high rate of repeat founders with a greater acquired experience.

Evolution of Entrepreneurs by Geography(Percentage of Entrepreneurs over Working Age Population)

Sources: Atomico Survey.(1) Total Entrepreneurial Activity –Global Entrepreneurship Monitor 2002 - 2016

of Students think that Entrepreneurship is a valid

career path 79%

85%of Students are optimistic or think that European

Tech Ecosystem is going to remain about the same

82%

Entrepreneurship is Taught in the Best Universities

5%

7%

10%

6% 6%

7%

5%6% 6%

5%

5%

8%

2002 2009 2016

Eastern Nordic Southern Western

Acceptance Rate between women, 2% more than in

men

Average 5% 6% 8%

• European Entrepreneurship has almost multiplied by 2x in

the last years, reaching about 8% of working age population

1,1

9,7

0,5

4,5

Graduates Per Annum Graduates Last 10 Years

There Is an Unparalleled Engineering and Science Talent Pool in Europe

Europe has an unprecedented ecosystem of talent that has been backed by world-class academic institutions, which are currently producing significantly more talented professionals, focused on the tech industry, than the US.

17

5 of World’s Top 10 Computer Science Institutions are European

c. 5m

Source: Atomico, Eurostat.

Developers By Hub

71.497

9.990

27.333

40.538

15.915

9.586

11.346

22.944

83.262

London

Lisbon

Madrid

Paris

Berlin

Oslo

Stockholm

Istanbul

San Francisco

Science, Technology, Engineering and Mathematics (“STEM”) Graduates

c. 0.5m

Global Rank Institution Location

1 ETH Zurich

3 Oxford Oxford

7 Imperial College London

8 EPF Lausanne

9 TU Munich Munich208.429

17

19

1

2

18

Europe is the Largest Developed and Integrated Market

Europe is the largest developed and integrated market and the best positioned for technology development due to its impressive size in terms of GDP, Internet Users and Smartphone Users.

321

510

1

2Population

(Millions of people)

176

228

1

2Smartphone Users

(Millions of people)

GDP(PPP, $tr)

Internet users(Millions of people)

279

405

1

2

Europe is the Largest Developed Market(1)

Source: World Bank, Atomico.(1) Europe includes EU, Switzerland and Israel.

Benefits of an Integrated Market

Free Capital Movement

Unrestricted Commerce

Unique Regulatory Environment

Strong Investor Protection

Pan-European Financial Institutions

Cost-Effective Advantages

1

2

3

4

5

6

European VC Industry has Been Built over the past 20 Years, With Stable Teams Capable of Exploiting the Opportunity

VC teams in Europe have developed a solid experience of c. 10 years proving their ability to select the best investment opportunities given that they have been through several economic cycles and understand the challenges involved in the sourcing and selection of the best alternatives.

19

Currently Active European VC Firms by Founding Period

European VC Funds with +10 Years of Experience(1)

5%

16%

25%

31%

22%

1990 - 1994 1995 - 1990 2000 - 2004 2005 - 2009 2010 - 2015

c. 80% of the European VC industry already has more than 10 years of experience

Source: Invest Europe.(1) Non-exhaustive list.

Founding Period

Results

1.311

308

265

240

229

179

134

118

78

GreenTech & Transport

Energy Efficiency

Education & Support

Agriculture & Food

HealthTech

ICT

DeepTech

General Innovation

Security & Public Services

And Public Institutions Will Continue Supporting Entrepreneurship

20

European Union Programs represent only c. 10% of Public Investment in Europe. The Union will keep supporting entrepreneurship in Europe, as it has done historically, fuelling many successful businesses.

Source: European Commission

Europe 2020 Initiative is Fuelling Entrepreneurship Post-2020 Europe Investment Plan

Total 2016 Allocation to SMEs through innovation

programmes

€2.9bn

2020 2027

Horizon 2020 Funding by Topic in 2016 (In €m) High Quality

Proposals Funded

Expected Impact in the European

Economy

Research & Innovation

Investment Long-Term Objective

€80bn of Public Investments €120bn in Public Investments2014

• Focused on Entrepreneurship and Innovation, Horizon 2020 is

“Europe 2020 Initiative” flagship program to support SMEs

Exemplary Program within “Europe 2020”

Achieve a 33% of proposalsfunded

(vs. current 20%)

€400bn by 2030

3% of the EU’s GDP,compared to the current 2%

1

• Mobile, Telecom, Healthcare and Software

Not Surprisingly, Europe Is Already One of the Largest Global Tech Hubs…

Europe has been able to develop some of the most powerful tech hubs globally.

(1) Also includes Rhein-Main-Neckar.(2) Taking into account Cambridge Area too.

Amsterdam & EindhovenThe Netherlands

• Amsterdam: ICT / LifeSciences

• Eindhoven: Green Tech and software

Antwerp & BursselsBelgium

• Life Sciences

ZurichSwitzerland

• Medtech and pharma / lifesciences

ParisFrance

• Media, advertising, e-commerce, sharingeconomy, AI

London & Dublin(2)

UK and Ireland

• Cambridge: Biotech, wireless

• Dublin: Medtech, hardware• London: Consumer, finance

StockholmSweden

• Telecoms, Peer to Peer, Software

HelsinkiFinland

• Mobile telecoms, gaming, open source

CopenhagenDenmark

• Life sciences

21

Berlin & Munich(1)

Germany

• Berlin: ICT / Life Sciences• Munich: Hardaware,

software• Rhein: IT

Tel AvivIsrael

BarcelonaSpain

• Mobile Telecom, E-Comerce, Gaming and Software

10

11

9

1 2 3 4 5

6

7

8

2

3

4

5

6

7

9

8

10

11

…with a Large Deep Tech Startup Ecosystem

22

Europe is thriving with deep tech companies, closing the gap between the continental and American startup ecosystems. However, European deep tech startups lack the funding levels strengthening US companies.

Deep Tech Startups Founded since 2011(Cumulative number of companies)

490

950

687

1252

2011-2013 2014-2016

Europe US

94% increase

• Between these two periods European deep tech startups have

increased at a 94% rate compared to an 82% increase in US

deep tech startups

Source: The State of European Tech 2016 – Atomico.(1) Data for 9 months only during 2016.

Deep Tech Investment and Exits in Europe(1)

($m Capital Invested and Number of Deals)

• $2.3bn has been invested in Deep Tech since the start of

2015, a 4x increase since 2011

289244

470

718

1.328

935

2011 2012 2013 2014 2015 2016F

8255

160

218

296

282

Capital Invested ($m) Number of Deals

23

Able to Build Extremely Successful Precedents…

Some of the most successful startups globally have been developed within the European VC landscape and each year a greater number of European companies achieve this condition, continuing a clear growth trend.

Source: CB Insights, Crunchbase and GP Bullhound Research.

European Extremely Successful Cases Evolution up to 2016(Number of companies with a valuation over $1bn)

13

59

13

23

33

43

2005 2010 2011 2012 2013 2014 2015 2016

mobli

…And a Proven VC Track Record

24

Venture Capital Teams in Europe have developed a solid experience and have proven to give consistent and increasing double-digit returns.

(1) Source: The Acceleration Point - Invest Europe. Data as of end of 2015.(2) Non-exhaustive list.

1,8

4,95,3

4

10,2

11,6

14,9

13,3

181

273

312

363383

529539

418

2009 2010 2011 2012 2013 2014 2015 2016

Exit Value # of Exits

European VC-Backed Exits(€bn and Number of Exits)

CAGR 33%

10 18 17 11 27 22 28 32

Average Exit Value (€m/exits)

Double-Digit Net Fund Returns in EIF’s VC Portfolio(Net Fund IRR since 2007)

33%

23%

16%

66%66%66%

46%

32%

27%

Top 10 FundsTop 20 FundsTop 30 Funds

IRR Boundary Median

3,8 3,8

5,1

5,5

6,4

2012 2013 2014 2015 2016

This Attractiveness is Already Being Perceived by Investors

25

Larger European VC Funds and increased fundraising are finally giving the industry enough scale to commit Pan-European investments and achieve higher returns.

Source: Invest Europe, EDC, Atomico, Pitchbook 1Q 2017 European Venture Report.

• Europe’s VC industry is coming off two record fundraising years

in which more than €17bn was raised. Before 2015, only in one

year (2008) fundraising had surpassed €6,5bn

• During Q1 2017 the industry raised €2.1bn setting the pace for a

>€8bn fundraising for the third consecutive year

48

66 64

108

127

2012 2013 2014 2015 2016

CAGR 14% CAGR 28%

• European VC Funds are now able to push for the winners

in later funding rounds and support the companies in

turnaround situations

Incremental Fundraising by European VC Funds(€bn)

Mean Fund Size Evolution(€m)

Conclusion: European VC’s Potential Is Being Untapped

26

European VC Ecosystem offers significant room for growth for the following years and represents, at the same time, an attractive alternative to the US overfunded VC market, being the improvement in performance of European VC’s a proof of it.

Ro

om

fo

r

gro

wth

• Given that the economies of the US and

Europe have almost the same size, it is

impressive how the amount of VC investment

in both geographies differ so much

• This difference makes clear the significant

room for growth that exists in the VC

Panorama

Sources: “Global Private Equity and Venture Capital” 2016, Prequin; NVCA; EVCA and Northzone Ventures.

16,5

18,9

69,4

13,3

United States EuropeSize of the Economy (GDP in $tr)

VC Investments during 2015 (in $bn)

110%

78%

158%

189%

2005-2010 2011-20152005-2010 2005-2010 2011-20152011-2015

+2

x

• An in depth analysis of the performance of VC

professionals and a comparison between the

US and Europe leaves us with a clear

conclusion: although both have improved

their efficiency with regard to the use of

Capital Commitments, Europe has

consistently surpassed the US during the

last 5 years

United States Europe

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Excellence in Business

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