1. Chad Barden Financing Options for Entrepreneurs

2. Discussion Overview Available Options Venture Capital Private Equity (Angels) Grants Strategic Partners Choosing an Option Exit Strategy Returns and Timing

3. Financing Sources – Private Equity Candidates: Friends, Family & Fools Indiana Angels through Tax Credit Private Equity Raise from a Firm like Crown or Perriculum Pros: Friendly terms to existing investors Relatively passive investors Cons: Fund raising is time consuming Relatively passive investors Risks: Raising enough money to get to a milestone VC’s sometimes will shy away from a deal with lots of angel investors Mitigation: Set an escrow level that gets you 2 months past the milestone, then keep raising to get the company 6 months past the milestone Group angels into LLC’s so that a subset of them control the votes of all the investors

4. Financing Sources – VC’s Pros: Industry connections & credibility One stop shopping…maybe Industry terms are improving in the Bay Area (Fenwick & West) IFF pressure is increasing Cons: Due diligence time period Adverse terms for existing investors Typically later stage investors Coastal money may involve a move of the company Risks: Timing, given length of due diligence Mitigation: Identify milestones you can achieve and that add real value Reducing uncertainty about market, technology, or exit

5. Financing Sources – Grants Candidates: 21 st Century Fund SBIR / STTR Pros: Cheap money…Free Cons: SBIR / STTR’s are based on specific programs Not necessarily in concert with your development plans Reporting obligations can be time consuming Timing – process can be lengthy Risks: Time invested may yield no results, requires technical time away from product development Mitigation: Hire a grant writer

6. Funding Sources – Strategic Partners Pros: Validates market need for VC’s Can create more favorable investment terms from VC’s Cons: Expensive money in business deal associated with investment Risks: Partnering usually occurs when funding risk is mitigated, asking for funding complicates the negotiation Mitigation: Secure partner traction first, then pursue investment as part of negotiations

7. Choosing an Option DON’T CHOOSE… …PURSUE THEM ALL!!!!

8. Available Exit Strategies 1)Technology Acquisition Industry leader acquires technology based on DISRUPTIVE potential 2)Business Acquisition Typically requires achievement of $10M - $30M annual sales Requires dilutive financing for achieving revenue AND growth 3)IPO Could be a viable option, but timing will likely be the same as Business Acquisition Much more expensive and painful than pre-Enron days

9. Technology Acquisition Risks: M&A discussions can disrupt your ability to get a viable business deal established with a partner...needed for VC funding Mitigation: Engage a limited set of potential partners outside of a technology acquisition process

10. ALWAYS Manage to Exit Options 2 & 3 Need to plan to raise all money needed to get to cash flow positive Sources: Private Equity Grants (21 st Century, SBIR) VC’s Strategic Partners Identify key milestones that increase the certainty around your exit strategy Plan funding rounds about 6 months after each significant milestone

11. Why Angels Invest The Person Familiarity with the integrity and abilities of the management team OR Friends, Family & Fools The “Cause” The company is doing something that contributes to a social cause that is meaningful to the angel… Curing cancer, improving the environment The company is targeting a market segment in which the angel has experience and insight Perceived BIG opportunity The Angel perceives the technology to be disruptive and does some cursory due diligence that confirms his / her suspicions

12. What a VC Looks for in a Deal SEED Developing product 250K-$1M IRR 70+%Need 10X in 5 years Series A Revenue - paying Customers $1- $3MIRR 50%Need 5 X in 3-4 years Series B Sales Expansion $3- 10MIRR 40%Need 3X in 2-3 years Late Stage Mature Business $15-50MIRR 25%Need 1.25X in 12 mos

13. What a VC Looks for in a Seed Deal Technology that is proven to work At least proof of concept, if not a prototype Validated market Someone credible will validate the pain that the product or service is solving That company is perceived to be indicative of a larger market opportunity Validated exit strategy Comparable deals that have exited for a value that yields requisite returns Management team