1. Funding the Startup: Dilutive Capital Angel, VC, and Corporate Funding Stephen Snowdy, PhD Ansley Ventures

2. Illustrative example to learn basic concepts and vocabulary of private equity Differences between the dilutive funding sources What the investors will be looking for Current environment for private equity Topics

3. Introduction Past 9 years as a healthcare venture capitalist PhD-Neurobiology, University of North Carolina, Chapel Hill MBA-Finance, University of North Carolina, Chapel Hill Bachelor of Chemistry, University of Florida US Navy Special Forces

4. The Set Up Professors Cornea, an optical engineer, and Professor Stroma, an ophthalmologist, have co-invented a new contact lens that they claim will arrest myopia progression in children. They have formed a new company called iSee, Inc. iSee is just a shell corporation, with each of the PIs owning 50% of the company Founding Common ShareholdersShares% Fully Diluted Stroma5,000,00050.0% Cornea5,000,00050.0% Preferred Shareholders Total10,000,000100.0%

5. The License Professors negotiate with university that university will own 10% of the new company in exchange for license to the technology. FoundingLicensing Common ShareholdersShares% Fully DilutedShares% Fully Diluted Stroma5,000,00050.0% 45.0% Cornea5,000,00050.0% 45.0% University 1,110,00010.0% Preferred Shareholders Total this Round10,000,000100.0%1,110,000100.0% 10,000,000Pre$ Shares10,000,000 New Shares1,110,000 Post$ Shares11,110,000

6. The First Venture Round What are the investors looking for? Large market High-quality supporting data Very strong domestic and international patents No obvious issues with regard to freedom to operate Meaningful impact to patients or health care economics Known regulatory path with reasonable trial structure likely Low hurdle to payer acceptance Definable endpoints/milestones to get to selling point

7. FoundingLicensingSeries A Preferred Common ShareholdersShares% Fully DilutedShares% Fully Diluted $Shares% Fully Diluted Stroma5,000,00050.0% 45.0% 15.7% Cornea5,000,00050.0% 45.0% 15.7% University 1,110,00010.0% 3.5% Option Pool 4,000,00012.6% Preferred Shareholders Lowpre Ventures $2,000,00011,110,00035.0% Value Partners $1,000,0005,555,00017.5% Total this Round10,000,000100.0%1,110,000100.0% $3,000,00020,665,000100.0% 10,000,000Pre$ Shares10,000,000Pre$ Shares11,110,000 New Shares1,110,000Pre$ Value$2,000,000 Post$ Shares11,110,000Pre$/Share$0.18 Post Shares31,775,000 Post$ Value$5,720,072 The First Venture Round -$2,000,000 Pre-money value, with 12.6% options post-money -$3,000,000 Raise -Series A Participating Preferred Stock with 1X Liquidation Preference

8. FoundingLicensingSeries A PreferredSeries B PreferredExit-$40 Million-All up front Common ShareholdersShares% Fully DilutedShares% Fully Diluted $Shares% Fully Diluted $Shares% Fully DilutedLiquidation PreferenceParticipating Stroma5,000,00050.0% 45.0% 15.7% 13.1% $4,589,562 Cornea5,000,00050.0% 45.0% 15.7% 13.1% $4,589,562 University 1,110,00010.0% 3.5% 2.9% $1,018,883 Option Pool 4,000,00012.6% 10.5% $3,671,650 Preferred Shareholders Lowpre Ventures $2,000,00011,110,00035.0%$1,333,3334,236,66640.2%$3,333,333$14,086,895 Value Partners $1,000,0005,555,00017.5%$666,6672,118,33420.1%$1,666,667$7,043,449 Total this Round10,000,000100.0%1,110,000100.0% $3,000,00020,665,000100.0% $2,000,0006,355,000100.0%$5,000,000$35,000,000 10,000,000Pre$ Shares10,000,000Pre$ Shares11,110,000 Pre$ Shares31,775,000 $35,000,000 New Shares1,110,000Pre$ Value$2,000,000 Pre$ Value$10,000,000 Available for Distribution Post$ Shares11,110,000Pre$/Share$0.18 Pre$/Share$0.31 Post Shares31,775,000 Post Shares38,130,000 Post$ Value$5,720,072 Post$ Value$12,000,000 The Second Round and Exit -Second round is an up-round -Acquirer offers $40M cash, all up front -1X liquidation preference of $5M leaves $35M to distribute

9. Comparison of Dilutive Capital Types AngelVentureCorporate ValuationMidLowHigh StageSeedEarly-LateLate Amount$50K-$2M$250K-$30M$5M-$30M ProValuation Control Expertise Connectivity Valuation Expertise ConLittle operational help Limited $ Attractiveness to CEOs Dilution, control Urgency Swing for fences Lock-up IP No-bid Unknown conflicts

10. Working with investors -Key is to build long-term relationships with investors -Get to know them LONG before you need the money -Be patient; kiss many frogs -Look for investors with experience in your area -Try to connect with the most senior people possible -Lots of sensitivity right now with regard to regulatory and reimbursement

11. Current Environment for VC

12. Scale Venture Partners-No more healthcare investing Prospect Ventures-No more healthcare investing Highland Capital Partners-Cutting back healthcare investing CMEA-No more medical device investing De Novo-Will not raise additional healthcare fund Versant Ventures-Reducing healthcare practice (half?)

13. What Happens Next?