Coronado Venture Forum Clinton Bybee ARCH Venture Partners September 16, 2004 Santa Fe, New Mexico

ARCH Venture Partners I II III IV V VI Vintage Year Fund $9M $42M $149M $329M $709M $1,059M ARCH Development Corp founded by University of Chicago in years of venture capital investing Nationally recognized, nationally focused 110+ investments in seed and early-stage technology companies 38 IPOs and acquisitions 24 employees with 17 investment professionals

Life Sciences Physical Sciences Information Technology

Portfolio Companies Life Sciences Physical Sciences Information Technology EnSemBle ArtificialMuscle

ARCH Technology Sources

National Scope Portfolio Company Location Technology Source ARCH Office: Chicago IL, New York NY, Austin TX, Seattle WA, Albuquerque NM A A A A A A

Organization Founding Scientists –Remain in Lab/Academic Institution or join the company? Pros/Cons Historical Data –Ongoing role with the company? Full Time Consultant –Compensation Equity Stake Cash

Organization Scientific Advisory Board / Other Scientific Contributors 1.Augment Base of Technology 2.Additional Technical Contributors 3.Tie-up Key Inventors in the Field 4.Signaling Effect Compensation –Equity –Cash

Organization Management Team: 1. Done it Before - Built successful company 2. Know it Cold - Industry expert: 10+ years - P&L/ management experience - Successful track record

Building a Management Team Done it Before YN Knows Industry Cold Y N

Building a Team in New Mexico Scientific Founders Abound –How to best work with them? Management –Proven Management Talent is scarce –Not a lot of local companies to recruit out of –Hard and expensive to import that talent –Start-up Infrastructure is developing but modest –Customers are not local generally –Corporate partners are not local –Acquirers are not local (can be a good thing) –Not a lot of examples of successes

Companies to Build in New Mexico Leverage Unique Infrastructure in NM –SNL capabilities –UNM capabilities –LANL capabilities –Other labs –Positive Regulatory Environment (?)

Team: Larry Bock ---- Calvin Chow Wally Parce Location:Cambridge ---- Palo Alto

3 8 7  Genetic control of broad set of building blocks  Massive parallelism  Nanoscale control of positions, assembly, material composition

Other Examples Intelligent Reasoning Systems Illumina Commotion All biotech companies we have ever invested in

Compensation Structure EquitySalary CEO5-10% Sci Founder1-20%0-10K/mo CTO3-5% VP-Engr1-3% VP-Sales1-2%

Options Still a Good Tool? –FASB changes to require companies to expense options –Expense hit to earnings is BIG problem for many public companies –Potential of option expense overhang in M&A –But… Still a great tool for private companies

Summary New Mexico is a great place to build the right company A+ Management is what really matters –Done it Before –Knows industry Cold