BLACKSTONE ENTREPRENEURS NETWORK

Carolina Innovation Seminar - UNCOctober 4, 2012

Harness the collective wisdom of area Serial Entrepreneurs

Scour the region – on and off campuses

Select high potential ideas in the Triangle

Guide them to next inflection point using EIR’s knowledge, contacts and resources

A joint program of Duke University, North Carolina Central University, North Carolina State University, the University of North Carolina at Chapel Hill, and CED-Council for Entrepreneurial Development, funded by the Blackstone Charitable Foundation.

Objective – Support Innovation/Entrepreneurship resulting in more companies and economic impact for Triangle

Unique Model “Portfolio” approach to building successful companies

Each client has a lead entrepreneur in residence (EIR) EIRs meet regularly as a group to review and discuss

strategies/tactics for each client: Experience of group/team – value in collaboration Connections/Networks of EIRs

Coaching Support Funds Deal Team from Blackstone Group assigned to Network Collaboration and resources of Network Partners

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Client Snapshot• Tethis & Joosy Cloud• Tethis – Water desalination for fracking industry. • Joosy – Management of content for CDMs. • Chris Evans, Lead EIR

• MintMarket • Online marketplace for local food allowing chefs in the Triangle to

discover, purchase, and schedule delivery of food directly from area farms.

• Frank Plastina, Lead EIR• KeonaHealth• Tech software company developing solutions for providing better

access to quality of care at a lower cost.• Kay Wagoner, Lead EIR

• SLEDVision• Software solution for State, Local and Education organizations to

manage and negotiate their enterprise software contracts. (Vendor Management System)

• Lee Buck, Lead EIR

Blackstone EIRs• Frank Plastina

• Lee Buck

• Kip Frey

• Igor Jablokov

• Alston Gardner

• Chris Evans

• Kay Wagoner

• Peyton Anderson

• Kevin Bowles

Venture Capital Market

VC Market – Interesting Contrast

• New Venture Funds started in Q2 2012 at lowest number (10) since Q1 2009▫Down from 12 in Q1 2012 and 14 in Q4 2011

• Returns to Funds gradually improving Q1 to Q4▫1 year – 12.8% vs 13.2%▫3 year – 12.6% vs 10.0%▫5 year – 5.9% vs 5.3%▫10 year – 4.4% vs 3.3%

▫ Source - NVCA

Latest Numbers- Fundraising

•Venture Investments: Q2 2012 vs Q1 2012(Billions/deals)

2nd Qtr 2012 1st Qtr 2012

Overall Invest $7.04 - 898 $6.04 - 809

Early-Stage* $2.10 - 410 $1.81 - 321

Seed $.199 – 63 $.150 - 55

Sequence – 1st $1.05 – 282 $.849 - 222

*Highest deals since Q1 2001 PWC Money Tree

VC Survey Q2 2012

•High Confidence:▫Cloud computing, software, healthcare IT,

new media/social networking

•Low confidence:▫Semiconductors, telecom, clean tech,

biotechnology

PWC Money Tree

VC Terms Series A – Q2 2012•Median Pre- Money:

▫$11 million in Q2 - $9 million in Q1•Liquidation Preference:

▫91.7 % at less than 1 vs Q1 at 97%▫8.3% at 1x -2x vs 0% in Q1

•Participating Preferred:▫32% in Q2 vs 51% in Q1 overall

25% in Series A vs 37% in Q1 21% were full participation and 4% were 3x cap

Cooley LLP

VC Terms Series A – Q2 2012•Anti-dilution:

▫90% broad based weighted average▫No real change

•Pay to play:▫4% in Q2 vs 6% in Q1

•Drag along provision:▫71% in Q2 vs 65% in Q1 and 59% in Q4 2011▫Series A – 54.2% Cooley LLP

Academic Funding Models• Development/Grant awards:

▫NCSU, Harvard, Utah, UNH, U. Mass• Industry/Academic Institution:

▫ Johnson & Johnson – Mass General Hospital▫Merck – Flagship Ventures▫ Incubators with Venture Groups

• Academic Institution – State – Private Donors▫Portland State University – tax credit for donors

• Funds:▫Partners Innovation Fund, Mayo, Kaiser, Ascension

▫

Thoughts on Fundraising

IT IS A CAMPAIGN – IT IS ONGOINGAND IT TAKES A LONG TIME

Source Timeline Their Goals Your Concerns

Bank Loans 2-4 months

Payback, interest, collateral

Rates & terms

Credit Card 0-1 month Payments, interest Ability to payback, interest rates

Friends/Family(debt or equity)

0-3 months

Success, payback Ability to sustain relationships, return the $$ or make returns

Customers/Partners(bootstrapping)

varies Mutual sales, marketing and/or product outcomes

Structure of relationship and ability to deliver

Suppliers/Trade(bootstrapping)

varies Payment relationship Credibility, relationship

Government Grants (for IP dev.)

6-12 months

Funding particular initiatives

Process & timeframe

Angel Investors 4-12 months

Return on investment, control

Strings & outside involvement & scrutiny

Venture Investors 4-12 months

Return on investment, control

Business growth curve, outside involvement & scrutiny

A Summary of Capital Sources .

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Equity Capital: High Growth Companies (by stage)

Estimate exit potential based on multiples of revenue levels achieved Use projected 4-5 year revenues to estimate exit potential• Companies with low profits and/or revenues < $2M: arms length equity capital not interested• Angels look for $7-10M revenue targets with room for growth• VCs (most) need to see north of $30-40M revenue with great potential

• No “exact” rules but stage of VC fund and total capital in use will point toward exit expectations

Stage Crystallize Idea &Demo-stration

Demo-strationStage

Funding Gap between $500,000 and $3,000,000,

EarlyScalingGrowth

Repeatable Growth

Source Founders, Friends and

Family

AcceleratorsIndividual

Angels and Angel Groups

Most

Venture Funds

Investment

$25,000 to $100,000

$100,000 to $500,000

$5,000,000 and up(initial capital may be smaller, but

exit targets higher)

Market Entry & Early Growth

Angel Groups and Angel Group SyndicationMicro-cap Funds

Checking out ANY Investor NETWORKING

▫ Get an introduction as high up the food chain as possible▫ Personal network or entrepreneurial organizations

• DO YOUR DILIGENCE▫ Industry focus – have they done deals in the industry▫ Size – average funding provided – initial, follow-on, age of fund▫ Stage of development – concept, revenue, team▫ Referral path/reputation – introductions to others▫ Experience, track record▫ Style & interaction with management – find the best fit partner▫ Call the CEOs of the portfolio and find out how the investor behaves

▫ GET THE RIGHT INVESTOR FOR YOUR STAGE

A VC’s Playbook

•PLAN/PRESENTATION MUST BE FOCUSED

•CLEARLY-DEFINED USER BENEFIT – ROI

•NUMBERS MUST BE SUPPORTED

A VC’s Playbook

•THOROUGH REVIEW OF COMPETITION

•SOLID DESCRIPTION OF MANAGEMENT

•DEMONSTRATE CUSTOMER/MARKET KNOWLEDGE – TALK TO THEM BUT DON’T TELL ME IF YOU DID NOT ACTUALLY TALK

A VC’s Playbook

•DO NOT OUTLINE THE RISKS INVOLVED

•DO NOT INCLUDE VALUATION

•TRY TO AVOID “CONSERVATIVE” OR UNUSUAL FINANCIALS

A VC’s Playbook

•PRE-MONEY – DOES IT INCLUDE OPTION POOL OR NOT

•CONVERTIBLE NOTES – BE CAREFUL

•GOAL OF THIS MEETING:• – GET TO THE NEXT MEETING

• Bob Creeden• Executive Director• Blackstone Entrepreneurs Network• bob.creeden@blackstoneen.org• 508.361.1914

• blackstoneentreprenuersnetwork.org

CONTACT