1. Patents and Pizza Presentation Applied Physics Lab JHU Oct 3, 2002 Rami Habal Mohr Davidow Ventures

2. Scope of talk  MDV Intro and Venture Capital  Qualities of great entrepreneurs  Practical Advice  What it means to build a viable company  Q&A

3. About MDV  Founded in 1983  Focused on Early Stage IT investments –Enterprise Software, Networking and Communications, and Semiconductors  Six General Partners, Six Venture Partners, Three Associates  Offices: Menlo Park; Seattle; Reston, Va.  Total capital under management: $1.3B  Companies: Agile Software; Brocade; Echelon; PMC- Sierra; ONI Systems; Rambus; MIPs

4. Our role after investing  Business and marketing strategy reviews: –regular team meetings with our partners to develop effective business and market strategies for entering a market and maintaining a leadership position  Management team recruiting: –assisting you to build the best team at the executive level  Strategic partner and customer development: –connecting you with key industry players and assisting you in securing strategic partners and, ultimately, helping to land early adopter customers

5. How Venture Capital Works Limited Partners General Partners Entrepreneurs Pension Funds University Endowments Rich people and trusts VC Firms (e.g. Mohr Davidow)Someone in this room! Committed Capital Invested $$ WHO: Allocate a portion of funds to Venture Capital asset class (~5%) Pick great companies, smart entrepreneurs Build great companies FUNCTION: Money in + about 70-80% of Gains Yearly Management fees to keep VC firm operating + 20-30% of Gains Portion of IPO or Sale of business (Gains) PAYBACK: Liquidity Event (IPO, Sale) = Gains for all parties

6. The role we would play with APL Spin-off Company $, active ideas, inventors, technology

7. The question that must be answered before we make an investment: Who is the entrepreneur?

8. Common denominators: qualities of great entrepreneurs  Magnet for other great people  Tenacious  Articulate  Self assured & driven, but not arrogant  Affinity for customers  Smart  Giant consumers of what other people know  Willing to take risks but afraid to fail

9. “Those entrepreneurs who start out thinking they’ll make it big – and in a hurry – can be guaranteed failure.” – Peter Drucker

10. Not all entrepreneurs…  …have all of those qualities on day one  …make good long-term CEOs  …want to stay in a company after it reaches steady state

11. © 2002 The New Yorker Collection from cartoonbank.com. All Rights Reserved

12. Practical advice to people in this room…

13. Customers: #1 Most Important  Technology is not enough –Customer validation is essential for funding  Compressed time-to-market development cycles –Early customers are development partners –Get something out and get feedback  Customer references accelerate growth –Market share matters

14. 2) Just Do It… All Develop Product Get Customers Raise Money

15. 3) It’s about the Business AND the Technology  What problem will you solve? Why did you build this technology?  Who currently has the problem?  How will you solve it?  How big is the market potential?  What is your distinct advantage?  How does the competitive landscape look?  What are the financial implications?  How much capital will you need to develop the solution (and the company supporting it)?  What kinds of volumes and margins are reasonable to expect?  What are your team's qualifications? Are you committed?  Which partners?  Which customers?

16. 4) Think Through your Intellectual Property Strategy  Be careful of your IP trails –Get a good attorney from the start!  The IP is your entrée, but don’t be over protective about it –You can disclose enough info without giving up the goods –But in some cases you may have to give up the good to get that customer, partner, or investor.  In structuring relationships between company and tech transfer office, “Simpler is Better” –Best to keep everyone’s incentives aligned to build successful company –Equity model is best model; TLO is viewed as another equity “investor”

17. 5) Startup Marketing is About… 1. Getting the right first customers 2. Developing the right 1.0 product 3. Creating a repeatable sales process Must be done in parallel with initial product development and before building a sales organization or risk major setbacks

18. a) Understand tech adoption Conservatives: Hold on! Visionaries: Get ahead! InnovatorsEarly Adopters Early Majority Late Majority Laggards Pragmatists: Stick with the herd! Skeptics: No way! Techies: Try it!

19. b) Translate the Grand Vision to Narrow Go-To-Market Strategy  Pick your market entry point –Highest pain –Tangible, hard $ benefits –Access to budget –Solvable problem short term –Competitive differentiation  Build the 18 month road map –Prioritize 1.0 features  Learn how to sell your solution

20. c) Pinpoint Market Entry Point with Customers Meet with 30 prospective customers in 3 months What are their priorities Where is greatest pain What do they do now to address it Listen Learn Refine How are they organized Who has the budget Who makes decisions

21. d) Engineering Marries 2-4 Customers Customer must –Have consistent requirements with each other –Be referenceable –Pay for product Engineering must –Work very closely with them through development and deployment –Do whatever it takes to make them happy –Deliver a GA product Result: A GA product and reference customers at the same time

22. e) Marketing Develops Sales Tools  Must have learned firsthand what it takes to get paying customers  Leverage with sales tools –Messages that light up customers’ eyes –Demos that say “a-hah!” –Payback model showing quick return of incremental $ invested –Clear competitive differences  Complete business strategy –Pricing and packaging –Distribution model after direct sales entry Result: A sales force who can sell

23. Elements of a viable startup  Customer focused  Selling into a large market  Keenly aware of the competition and marketplace dynamics  Adaptable to change  Execution machines

24. The important thing in life is to have a great aim and to possess the aptitude and perseverance to attain it." – Goethe

25. Q&A Contact Information: Rami Habal www.mdv.com Rhabal@mdv.com (703) 547-3480 Mohr, Davidow Ventures 12010 Sunset Hills Road, Suite 730 Reston, VA 20190