Success With V Cs And Angels (10 22 07)

Success with Venture Capital and Angel Investors

Presentation to the America & China Small & Medium Sized Business Conference

October 30, 2007

Dan Loague

Capital Formation Institute

www.cfi-institute.org

Capital Formation InstituteCapital Formation Institute


Outline: About CFI Basics of the investor market About Venture Capital and Angel Investors

– Characteristics– Skill sets

How to find– VCs– Angels – Strategic investors

What Investors Want Think of Investors as Buyers Success Examples from VC Portfolios



CFICapital Formation Institute

The Capital Formation Institute provides

expert knowledge, research and education,

helping leaders build more competitive local economies



National Board of Directors Chairman:

Dr. Richard T. MeyerPresident - Orion Technical Associates, Albuquerque, New Mexico

President: Woody MaggardAssociate Vice Provost – STOR-UB Office of Science, Technology Transfer and Economic Outreach, University at Buffalo, Amherst, New York

Directors: Mr. C. Michael CassidyPresident - Georgia Research Alliance, Atlanta, GA



National Advisory Board Dr. H. Randall Goldsmith, President and CEO, Mississippi Technology Alliance

Dr. Joseph E. McCann III, Dean, John H. Sykes College of Business, The University of Tampa

Dr. Robert G. Schwartz, Chairholder, College of Business and Public Administration, Eastern

Washington University

Dr. Frank Hoy, Director, Centers for Entrepreurial Development, Advancement, Research and

Support, University of Texas at El Paso

Dr. William E. Wetzel, Jr., Professor of Management Emeritus, Whittemore School of Business

and Economics. Director Emeritus of the Center for Venture Research, University of New

Hampshire




Essential ideas and tested techniques for

starting and growing entrepreneurial ventures

2005 Guide to Bootstrapping: Back to 'Bootstrapping'! (or Buddy, Can You Spare Some Cash?)

Innovators and Enterprise Creation

Planning for Future Growth & Its Consequences

A Sea Change in the Economy

Incubators and Angel Investors

Entrepreneurs - Gamblers or Risk Managers?



discussing the issues and works-in-progress that promote seed and early stage investing and enterprise development

Rules for Mentoring Entrepreneurs

Creating Venture-Backable University Start-Ups

University Pre-Seed and Venture Funds Entrepreneurial Development Corporation Midwest Research University Network

(MRUN) Building Intellectual Capital of University

CommunitiesAccess to Capital for Entrepreneurs Act of

2006Building a Culture of Innovation

Click-and-listen programs featuring early

stage investment professionals

Faculty CEOs

State Sponsored Venture Funds

Translational Research

Investing in Intellectual Property


CFI’s Audience:

• Committed to the “double-bottom line”• Practice the art, not science, of seed and early stage investing• Build relevant value-added relationships• Expect peer-to-peer interactions (flat structure – networking is key)• Participate in adding to knowledge base of early stage investment practices• Open to ALL points of view in the exchange of information• Worldwide represent the full range of private, public and non-profit organizations

committed to investing and facilitating investing in local entrepreneurs



CFI Network members are expert in:

developing new and emerging technology structuring companies valuing start ups mentoring management creating networks of investment resources scrubbing deals to reduce risk establishing investment exits



Basics of the

Investor Market:

Center for Venture Research - University of New Hampshire

StageEarly LaterSeed/ Start-Up

SourceFDRS FFF Angels Venture Funds

Demand$25K $100K $500K $2,000K

Supply ------------------------------------------------------------------

Funding Gap

Equity Capital for Entrepreneurs


Valley of Death


Who invests in what: Financial industries and investment communities

Financial Industries Investment Communities– Later stage investment “Valley of Death” investments– Professional management Individuals and informal groups of 4-5– Extensive government regulations Regulations minimal– ROI driven Psychic income– Professional associations Often “Invisible” investors– Corporate management skill sets Entrepreneurial start-up skill sets– Lobbying groups common Limited interest in government actions– Staff focus on financial analysis and Sophisticated in early stage due diligence – macro-economic conditions practices



Financial industries and investment communities (continued) Financial Industries Investment Communities

– Large scale market focus Focus on “deals” with expectation of high returns– Funding “mobilization” common Emphasis on high growth of enterprise– Little interest in start-up companies Consistent high interest in start-up companies– Capital leveraging Producing magnitudes of scale value-adds– Secondary and tertiary role in Primary role in technology commercialization

technology commercialization– Extensive business consultant useExtensive personal involvement in company

development (risk control techniques)– Incremental involvement in growth Strategic and tactical involvement in company

of company growth




Venture Capital Partnership Funds Raising Trend 1993 - 2004

14.921.9

32.2

106.0 110.2

59.4

43.939.4

56.4

97.2

178.5

84.7

0

20

40

60

80

100

120

140

160

180

200

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

$ In

Bil

lio

ns

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Commitments to all types of Private Equity Partnerships NASDAQ

Source: Private Equity Analyst



VC Investments by Stages: 2004

Source: PricewaterhouseCoopers/Venture Economics/NVCA Moneytree SurveySource: PricewaterhouseCoopers/Venture Economics/NVCA Moneytree Survey


About Angels

Angels are the "invisible" portion of the early stage VC investment market - UNH research shows that since about 1985 an estimated 400,000 angels annually invest on average $30 billion to $40 billion in over 50,000 ventures.

Invest close to home - about one-half day of travel time Cashed out entrepreneurs - "psychic" income important Markets and technologies with which they are familiar - angels are

"value-added" investors and "mentors for money" Terms and conditions - more Informal



About Angel Investments

Early stage round $100,000 to $1 million range 6 to 8 investors Co-investors are trusted friends and associates who have done

deals together before or know each other Angels provide crucial smaller rounds of seed and start-up capital -

over 80% of the seed deals are done by angel or private investors Longer exit horizons - patient investors who provide capital early



Types of Investments: Intellectual property Tech commercialization Concept/Seed Stage Start up companies Emerging high growth Rarely VC later stage Other limited partner



How to find investors:

Seed and early stage investors are part of networks that give

them access to deals. To find angels and VCs, become a part of

their working networks, such as:

High profile “super angels” Individual local investors part of community leadership Local informal angel investment clubs skilled in assessing and “scrubbing”

potential investments Local angel organizations with a legal structure, also skilled in assessing and

“scrubbing” potential investments Angel groups



Finding Investors (continued)

Investment professionals including:

Attorneys experienced in:– seed deals and expert in term sheets,– intellectual property (IP) law and investment

Founders - entrepreneurs who bootstrap their enterprises with personal

resources and sweat equity FFF (Friends, Family and Fools; also referred to as "Uncle Harry or Aunt

Harriet money") - investors in loosely structured seed/start-up deals



Strategic investors from corporations also source deals through their networks. Primary sources include:

Consultants, local financial organizations, regional private seed fund

managers, local entrepreneurs who have “cashed out” of a successful

enterprise and seeking new opportunities (especially those entrepreneurs with

successful technology-based companies) Technology associations that help develop specialized “clusters” of companies

Venture Capital companies that work with local private investors (first and later

rounds)

Corporate research and development directors with IP available for

investment, new product investment managers, seed and venture funds



Other Sources (continued) University IP and technology managers, business incubators assisting local

start up companies State sponsored seed and venture funds State departments of economic development/commerce with funded

technology development programs AND MORE …



Think of Investors as Buyers It’s not the amount of money, it’s about the quality of the

invesmtent in investment communities $1 million checks are readily

available and pooled investments often reach $50 million or

more smaller seed-stage VC funds can write checks for $5

million and often syndicate investments of greater than $50

million seed stage VC syndications often launch very large

enterprises. early stage investors wash out risks, make market

connections and help position products and services in the

global marketplace.




What investors want:

vetted deals experienced investment partners great enterprise management a winning portfolio psychic rewards



ROI Expectations: Desired 5-year return (IRR) and percent ownership required

3X 25% (third-stage financing)4X 32% (third-stage financing)5X 38% (second-stage financing)6X 43% (second-stage financing)7X 48% (second-stage financing)10X 58% (startup or first-stage projects)15X 72% (startup or first-stage projects)20X 82%25X 90%30X 98%


Examples from VC Portfolios

Innovalight Innovalight has developed a silicon nanocrystalline ink that holds the promise to bring flexible solar panels to cost that could be as much as ten times cheaper than current solar cell solutions. Using proprietary methods, Innovalight has developed a solvent-based silicon process that lends itself to a low cost production and high throughput manufacturing.

Conrad Burke, President & CEOMr. Burke brings over 17 years of proven expertise guiding innovative semiconductor and optical technologies into the commercial market. Prior to Innovalight, Conrad was senior vice president of worldwide sales and marketing for Bookham Inc. Before Bookham, Mr. Burke was a venture partner at Sevin Rosen Funds, a leading US-based venture capital firm.



KonarkaKonarka builds power plastic that converts light to energy – anywhere. The company develops and manufactures light-activated power plastic that is inexpensive, lightweight, flexible and versatile.

Howard Berke, Chairman & CEO Berke is chairman, chief executive officer and co-founder of Konarka Technologies. He has nearly 30 years of hands-on management experience launching, building and leading both public and private technology companies. This includes 20 years of general management with full P&L responsibility for eight start-up companies and nine years of business development and marketing focusing on emerging technologies. Berke has founded or co-founded 13 start-up companies and has initiated and completed numerous corporate acquisitions, mergers and R&D joint ventures in the US, Europe and Asia.



UltraCell develops and manufactures complete micro fuel cell systems for portable devices. The company has developed new technologies and intellectual property in the field of methanol-based fuel cells. UltraCell has an exclusive license with Lawrence Livermore National Laboratories for micro fuel cell technology based upon reforming methanol into hydrogen “reformate” using proprietary technology in the fuel reformer and hydrogen fuel cell stack. A single UltraCell fuel cartridge can power a typical laptop computer for an entire workday. By swapping in new cartridges, a wireless workweek is possible.

James L. Kaschmitter - Chairman, CEO and PresidentJim is Chairman, Chief Executive Officer (CEO) and President of UltraCell Corporation, and has held those positions since he founded the company in 2002. Previously, Jim was Chairman, CEO and President at PowerStor and PolyStor Corporations, both companies he founded. In 1987, he co-founded nChip Corporation, later sold to Flextronics. Jim has over 20 years of senior management experience in Silicon Valley's hi-tech industry and holds more than 20 patents.



Dan LoagueCapital Formation Institute Inc.University at Buffalo, Office of Science, Technology Transfer and Economic Outreach1576 Sweet Home Rd., Amherst, N.Y. 14228Ph: 405-824-5549Fx: 800-420-8329Web: http://www.cfi-institute.org

Em: [email protected]


Success With V Cs And Angels (10 22 07)

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Transcript of Success With V Cs And Angels (10 22 07)