Download Venture Partners

Morgan Stanley Dean Witter
Venture Partners
Venture Capital Perspectives on the Ag.com Industry
February 1999
Morgan Stanley Dean Witter Overview
 Morgan Stanley Dean Witter is a preeminent global financial services firm that
maintains leading market positions in each of its businesses — Securities, Asset
Management and Credit Services.
– Currently over 53,000 employees in 550 offices operating in 25 countries
– $425 Billion in Assets Under Management
 The Investment Banking Division is a worldwide leader ranking among the top
institutions in mergers and acquisitions, underwriting of equity and equity-related
transactions, high yield financing and corporate debt issuance.
– In the Internet and Technology Space, Morgan Stanley Dean Witter is the
market leader
– $15.4 Bn in Initial Public Offering volume(1)(2)
– $357.5 Bn in Technology Mergers and Acquisition volume(3)(4)(5)
Source: Securities Data Corporation, 1999 Institutional Investor All-America Research Team
Notes: (1) Full credit to sole bookrunning managers. Credit split equally between joint bookrunning managers
(2) Includes all U.S. technology issues greater than $10MM from 01/01/95 to 1/20/00
(3) 01/01/95 to 1/20/00. Includes worldwide transactions completed and announced greater than $25MM
(4) Full credit given to target and acquirer advisor
(5) Excludes spin-offs
Morgan Stanley Dean Witter
Venture Partners Overview
 Limited Partnership with $1.1 billion under management
– Currently investing $550 million fund – MSVP IV
– The vast majority of MSDWVP’s funding originates from independent
sources
– MSVP I and MSVP II both top quartile performers
 Invest in Early and Expansion Stage Companies and Growth Buyouts in the U.S.
and Western Europe
 Focus on Information Technology and Health Care
 Equity Investments of $5 to $25 million
 Actively involved in portfolio companies at the board level
 Part of Morgan Stanley Dean Witter Private Equity - $8.0 billion under
management
 Utilize Morgan Stanley Dean Witter’s global resources and relationships
Morgan Stanley Dean Witter Venture Partners
Selected Internet Investments
Our Active Role as Venture Investors
 Select industry-leading companies to partner with
 Marshal Morgan Stanley’s resources and leverage our brand name on behalf of
our portfolio companies
 Work with portfolio companies to develop their businesses
– Contribute capital
– Help set up strategic partnerships
– Assist in business planning/strategy setting
– Help build out management team
 When the time is right, help them secure the right investment banks for their IPO
– or sale
 If it makes sense, continue to work with post-IPO
MSDWVP’s B2B Strategy
What We Look For in B2B Markets
 Large, Fragmented Market – no concentration of buying or selling power
 Transaction Randomness – buyers who change suppliers on a regular basis
 Dynamic Products – scrappage and spoilage; changing values based on product
quality and shelf-life
 Inefficiencies in Supply Chain – opportunity to create value through supply
chain optimization...manage complex business information online
 Opportunity to Create a Sustained Competitive Advantage – create barriers to
entry & benefit from networking effects, velocity
 Gross Margins and Gross Income Opportunity
 No Established “Winner” Yet – unless, of course, we can back them!
Some Things We’ve Learned from
B2C Apply to B2B...
 First Mover Advantage and Critical Mass – whoever signs up the
buyers/suppliers/partners first will have strong potential to keep them
 Increased Productivity – B2B success will be based on increasing
customer’s productivity by reducing cost, improving service and/or
saving time
 Deep Beats Broad – focusing on solving all of the needs of an
individual market may beat solving some of the needs of lots of markets
 Markets will be dominated by one, perhaps a couple, players
...But Some Things Will Be Different from B2C
 Domain Expertise – companies need to understand the industry to understand
the problem that needs to be solved
 Strong Back-End System Integration – businesses need to keep records so
system integration is key, this creates much higher switching costs than B2C and
is the key to customer retention
 There are a lot of verticals to be dominated – so, there may be a lot more
dominant players (read: great investments) than in B2C, at least in the early
days
 Purchases/commissions can be big
 Session stickiness may not be key – business users want to do business quickly
and save time
Displacing Will Be Much Harder in
B2B than in B2C
 Harder to “Amazon” the entrenched
 In B2B, buyer/seller relationships matter, “golf is golf”
 B2C switching costs are nominal
 B2B switching costs are high – both offline and online
 Lower risk strategies:
– Add value to channel without replacing
– Create channel where one does not currently exist
– Riskiest strategy – replacing current channel
Agriculture Is Attractive
 Large, Fragmented Market
$400+ Bn
10s of suppliers
100s of distributors
1000s of dealers
2.2 million farms
+
 Transaction Randomness
Few long-term contracts

 Dynamic Products
Spoilage/switching

 Supply Chain Inefficiencies
Multiple tiers, suppliers
don’t have relationships
with buyers
+
 Opportunity for Sustained
Highly possible

 Gross Income
In some segments

 No Established Winner
Backing a leader,
no incumbents (yet)
+
Competitive Advantage
How Do We Evaluate Ag.com Companies?
 Value created by Ag.com Revenues to Ag.com Earnings Success
 Websites increasing efficiencies in value chain are interesting
Inefficiencies in the Ag value chain:
Multiple-tiered distribution adds complexity
Solution:
Rationalize distribution system, eliminate
inefficiencies
Fragmented buyers are costly to sell to and
service
Automate transactions and customer
service, add self-service functionality
Regional distributors cannot sell outside their
geography
Virtual marketplace
Difficult and costly to track orders
Automate and web-enable order tracking
Excessive returns and unused inventory in
channel
Immediate knowledge of demand enables
faster shifting of inventory
Illiquid markets and price translucency create
inefficient spot markets for commodities
Build markets of scale online
Agriculture Opportunities
 Large opportunities exist on the Input side:
Inputs
Seed
Feed
AgChem
Fertilizer
Vet Supplies
Equipment
Size of
Opportunity ($Bn)
6-7
25
9-10
11
6
15
Size of Gross
Margin Opportunity
large
medium
large
small
large
large
 Even larger opportunities exist on the Output side:
–
–
–
–
Produce
Livestock
Grains
Fiber
– Meat
– Crops
Near-Term
Opportunity
Y
Y
Y
Y
Y
Y
Keys to a successful Ag.com
 Management team with drive, vision and ability to execute
 Focused on measurable efficiency improvements
 Emphasis on fulfillment, logistics and back office support
 Gross margin opportunity critical to financial viability of company
 Selling products that can easily be purchased online
 Focus on driving transactions, not just community or content
How Will the Internet Change Agriculture?
Wholesaler
Sells to
Retailer
Market, Sell
Ag Input
Producers
Service
Buys
Internet
Internet
Retailer
Market Info
Distributors
Farmer
 All processes, from transfer of input producer’s inventory to the eventual sale of
product to a retailer, are integrated with Web sites or a Web site that creates
streamlined processes and efficient markets, tracks product information, hosts farm
management software and serves as the information system for the agriculture
industry.
How Will the Internet Change Agriculture?
Predictions/Possibilities
 Farmers manage all aspects of business using hosted applications on a website
 Farmers buy (and return) agricultural inputs directly via the internet; including
financing and shipping
 Inputs manufacturers track sales real time, down to the county level, hold 50% of
their current inventory level
 GMO-related outputs tracked “from dirt to dinner plate” via smart chips
embedded in livestock and Web-based database
 Farmers educate themselves on new products via on-line tutorials, online chats
with experts. For more assistance, they contract with service providers at an online marketplace
 Farmers can get a single bill for all of their inputs and services, with online
financing options available
B2B Exchanges Evolve to Collaboration Hubs
 It’s not just buying and selling over the Web
 Collaboration implies a more expansive concept to include many business
processes
 Project management, replenishment, knowledge management, forecasting,
planning, analytics
 Big B2B exchanges will be Integration and Hosting Platforms instead of just
trading exchanges