1. VENTURE CAPITAL Phil Proulx Pamela Twu Denise Liu Amanda Blakeslee

2. VENTURE CAPITAL WHAT IS IT? A BRIEF HISTORY OF VENTURE CAPITAL NEED FOR FUNDING ADVANTAGES AND DISADVATANGES SOURCES OF FUNDING ALTERNATIVE PATHWAYS

3. VENTURE CAPITAL WHAT IS VENTURE CAPITAL?  Way to obtain money and experience for a business via the private equity of Venture Capitalists (individuals willing to invest in a start up)  If money is not obtained through VC, it will have to be obtained from one of the following:  Bank Loans, personal savings, or boot legging (Use of company’s profits early-on to grow)

4. VENTURE CAPITAL THE HISTORY OF VENTURE CAPITAL  Some of the first Venture Capitalist include the following:  Vanderbilts  Whitneys  Rockefellers  Warburgs  VC in the first half of the 20 th century was the domain of wealthy individuals and families  The Small Business Investment Act of 1958 was the first step toward a professionally-managed venture capital industry  Officially allowed for the licensing of private "Small Business Investment Companies”  Considered as the first venture capital firm

5. VENTURE CAPITAL THE HISTORY OF VENTURE CAPITAL  In 1960s and 1970s, VC firms focused their investment on starting and expanding companies  Companies were primarily exploiting breakthroughs in electronic, medical, or data-processing technology  In the 1980s, the industry was hampered by sharply declining returns and certain venture firms began posting losses for the first time  The market for initial public offerings cooled in the mid-1980s before collapsing after the stock market crash in 1987 NASDAQ Composite Index

6. VENTURE CAPITAL THE HISTORY OF VENTURE CAPITAL  The late 1990s were a boom time for VC, they benefited from a huge surge of interest in the Internet and other computer technologies  Initial public offerings of stock for technology and other growth companies were in abundance and venture firms were reaping large returns  In the 2000s VC funding has spread widely through the medical field  Many start-ups have become centered around early disease detection and prevention

7. 2010 Investments in Industry In Millions of Dollars VENTURE CAPITAL [1]

8. VENTURE CAPITAL WHY DO YOU NEED VENTURE CAPITAL?  New companies are often too small and lacking in experience to raise the money needed to produce a new product  Examples of Startup Costs: Continuation of R&D Employee Salaries and Benefits Manufacturing and Production Costs Patent Fees  Venture capitalists bring much needed capital to the companies but also bring often needed financial expertise

9. VENTURE CAPITAL WHY VENTURE CAPITAL OVER BANK LOAN?  Availability  Banks usually do not offer loans to startups without strict provisions to reduce the risk  Venture capital is usually generated from a pool of investors, which reduces the overall risk of the investment

10. SOURCES Friends & Family Angels Venture Capital Government Grants Banks VENTURE CAPITAL Corporate Investment Public Investors Customers

11. Members of your personal network Have adequate means to make an investment Friends & Family Angels Venture Capital Corporate VENTURE CAPITAL Experienced investors using own wealth Professional investment managers Corporations make the investment

12. Banks Gov Grants Public Investors Customers VENTURE CAPITAL Commericial/State institutes providing financial services Loans and such Department of Defense General public can invest by buying shares of the company For established companies Customers make direct investment in the R&D of new products or services

13. Venture Capitalist Invest in companies with potential for high return Raise money and put into funds Funds vary in size ($50m to $2b) Each fund has a specific profile (eg. Medical devices) & investment horizon (eg. 5 yrs) Able to povide multiple rounds of funding & have extensive networks of contacts Venture Capitalist Invest in companies with potential for high return Raise money and put into funds Funds vary in size ($50m to $2b) Each fund has a specific profile (eg. Medical devices) & investment horizon (eg. 5 yrs) Able to povide multiple rounds of funding & have extensive networks of contacts Corporate Investment Made by large companies for strategic & financial reasons Two ways to provde funds: Purchase equity in support of R&D or licensing agreement Traditional venture investments Corporate Investment Made by large companies for strategic & financial reasons Two ways to provde funds: Purchase equity in support of R&D or licensing agreement Traditional venture investments VENTURE CAPITAL

14. Government Grants DoD gives $1b/yr to early- stage R&D Projects must serve DoD need & have commercial applications There are two programs: SBIR and STTR Government Grants DoD gives $1b/yr to early- stage R&D Projects must serve DoD need & have commercial applications There are two programs: SBIR and STTR SBIR Small Business Innovation Research Small technology companies or Individual innovators who form a company Up to $850,000 SBIR Small Business Innovation Research Small technology companies or Individual innovators who form a company Up to $850,000 VENTURE CAPITAL STTR Small Business Technology Transfer Small companies working cooperatively with researchers at universities & other research institutions Up to $850,000 STTR Small Business Technology Transfer Small companies working cooperatively with researchers at universities & other research institutions Up to $850,000

15. GET STARTED VENTURE CAPITAL  Be a people person  Know your capital investors  Be active about your managerial decisions - Tips on raising money: http://www.youtube.com/ watch?v=151xSrGdEqo&NR=1&feature=fvwp [2]

16. VENTURE CAPITAL HOW TO OBTAIN VC?  Ensure the investors your company/idea fits their investment profile  Research & find your target  Which partner of the firm should you speak to about your idea  Who has a history of supporting ideas or companies similar to yours  Do:  NOT Send a “cold” email  Have someone introduce you (e.g. LinkedIn)  Set up a meeting with the investors

17. Concise Know Who Return Why $$ Needs ELEVATOR PITCH Potential Rewards How do investors get their reward Tailor speech Who are you speaking to? Know your audience 30 sec make them want to hear more Better What does your idea/product fulfill How much How much capital do you need

18. BUSINESS PLAN VENTURE CAPITAL  Once Elevator Pitch worked, business plan is used to provide the detailed plan How much you plan to make? Where do you plan to make the products? What is the cost of production? What is already in the market & how you compare?  Answer all the questions VCs have before giving you their money [2]

19. VENTURE CAPITAL Angels Venture capitalists Corporate investment SOUCE OF FUNDS Valuable experience to share with innovators Provide access to vast network of contacts Ablility to take on considerable risk Participate in multiple rounds of funding DISADVANATGESADVANTAGES Family and friends Least expensive funding source Flexible alternative for early-stage funding Moderately priced, early-stage funding source Take on considerable risk Exercise less control than venture capitalists and corporate money Act more quickly than venture capitalists Lead to meaningful product/project synergies Provide accesss to valuable resources Less expensive than venture capitalists funding Lend to young company’s credibility Provide company with a “built-in” exit strategy Limited expertise Do not understand level of inherent risk Not able to participate in subsequent rounds of funding Limited expertise Not able to invest in subsequent rounds Negatively affect terms and level of control by company’s perspective Multiple angels to meet funding needs Exercise considerable control over venture’s direction, management, and exit Require considerable share of ownership in exchange for investment Expect high returns or other terms not favorable to company Limited value in return for building business Conflicts with corporate investors Issues with intellectual property ownership Limit value realized from exit stragety if corporate investor has “right of first refusal” [2]

20. VENTURE CAPITAL Government grants Banks SOUCE OF FUNDS Access to funds usually does not require the company to share ownership No influence over any business decisions Interest payments are tax deductibles Secured relatively quickly and used to help bridge short-term financing gaps DISADVANATGES ADVANTAGES Customers Extremely inexpensive funding Potential for young company’s credibility Provide valuable market-based insights revelant to product development Inexpensive funding Founders not require to part with any equity in the company No influence over any business decisions Strengthen a young company’s credibility Lead to conflicts if company seeks to sell the innovation to customer’s competitor Customer seeks to limit way in which innovation is marketed to match its best interest Highly competitive High expectations based on rigorousness of research performed Lengthy funding review cycles Funding capped at $850,000 per project Business assets can be used as collateral Affect cash flow as regular payments of principal and interest must be made Start-ups pay a premium on their loans Start-ups may have difficuilty getting loans if no revenue or tradeable assests [2]

21. ALTERNATIVE PATHWAYS VENTURE CAPITAL  Partnering Two entities share responsibility for the development or commercialization of an idea or invention  Licensing Transfer of an idea or invention from the innovator to a licensee in exchange for ongoing royalties and/or other payments  Sale/Acquisition Innovator chooses to sell an idea outright, completely relinquishing control to acquirer [2]

22. VENTURE CAPITAL [2] Zenios, Makower, and Yock. Biodesign: The Processing of Innovating Medical Technologies. Ann Arbor, Michigan: Edwards Brothers Inc., 2010. REFERENCES [1] Berkeley Entrepreneurs Forum Shaking the MoneyTree presentation: http://entrepreneurship.berkeley.edu/main/index.html

23. THANK YOU!!!