1. S. Michael Camp, Ph.D. The Center for Entrepreneurship The Ohio State University September 25, 2007 The Ohio Capital Fund Early Stage Summit III Ohio Venture Capital Overview

2. Confusing Messages (Ohio) VC investing hits bottom... Ohio venture capital plummets... Ohio venture-backed companies have growing economic impact... Ohio ranks best in Midwest for venture capital investment... Venture capital flows to Midwest life sciences at record rate...

3. It Depends Source of Data –Timely, reliable and relevant Unit/Level of Analysis Definitions and Selection of Metrics Time Frame –Sound research design and methodology Agenda –Regional collaboration and agreement on use

4. Problems with National Data: Ohio Seed and Early Stage Investment (000)

5. Collaborative Project Goals Ohio Capital Fund –Fund compliance –Economic impact State-Wide, Cross-Regional Assessment –A single reliable source for data Project future needs, demand, and opportunities Measure economic impact Promote unique investment opportunities Inform public policy

6. Regional Collaboration State and regional leaders take initiative –BioEnterprise –CincyTech –Dayton Development Coalition –JumpStart –Regional Growth Partnership –TechColumbus Focus of analysis and time frame –Seed and early stage investment activity –2002 - 2006

7. Definitions Stage of investment –Seed Stage Investment includes: startup, non-VC seed, seed, individual, angel and TITC funding –Early Stage Investment includes: first round or early funding –Growth Stage Investment includes: expansion, growth, later stage including explicitly recorded 2 nd, 3 rd, 4 th, 5 th and later rounds of funding

8. Ohio Seed & Early Stage Investment: Number of Companies

9. Ohio Seed & Early Stage Investment: Total Dollars Invested

10. Ohio Seed & Early Stage Investment: Total Dollars Invested by Stage

12. Ohio Seed & Early Stage Investment: Percent of Dollars Invested by Industry (2002-2006)

13. Ohio Seed & Early Stage Investment: Percent of Investment by Geography

14. Ohio Seed & Early Stage Investment: Weighted Moving Average Investment per Stage Stage of Financing Average Annual Investment per Company per Year Average Total Investment per Company Seed$530,000$1.06 million Early$2.47 million$4.94 million Growth$6.89 million$13.78 million Weighted moving average weighted heavier for 2004-2006 Data have been scrubbed for outliers (e.g., Sky Bus)

15. Ohio Seed & Early Stage Investment: Estimating Future Capital Demand 2 year development cycle per stage 50% attrition rate from seed to early and early to growth stages conservative 5% annual growth in average investment per company conservative 6% annual growth rate in deals no other investment activity considered (only new seed deals)

16. Ohio Seed & Early Stage Investment: General Outlook Seed level funding is accelerating in Ohio, suggesting a surge in new deal flow Better accounting of deal activity New influx of risk capital Deal quality and aggressive grassroots networking Solid technological advancements in key technologies (e.g., life sciences, IT, materials) State/regional policies/programs designed to encourage seed & early stage investment (e.g., Third Frontier, ESP) State programs designed to encourage advanced R&D in select target industries (e.g., Wright Centers)

17. Ohio Seed & Early Stage Investment: General Outlook (cont.) Four to six year lag from lab to market, suggests a pending acceleration in idea/deal flow in Ohio Will require focused commercialization strategies Two year lag in the need for follow on funding for surviving seed deals suggests a pending surge in early and growth stage funding over the next 4 to 5 years Including deals in the pipeline in 2007 and new activity between 2007-2011

18. Ohio Seed & Early Stage Investment: General Outlook (cont.) Ohios seed-level funding needs in next five years could easily exceed $330 million Focus only on new activity (2007-2011) Assumes 6% annual growth rate in number of new deals Assumes 5% annual growth rate in company investment Additional funds necessary to take surviving new seed companies through growth in 5 to 7 years could easily exceed $2.1 billion Assumes 50% attrition from seed to early stage Assumes 50% attrition from early to growth stage

19. Ohio Seed & Early Stage Investment: General Outlook (cont.) For every $1 in seed funding, Ohio needs approximately $7 dollars in follow on funding to adequately fund surviving ventures Assumes an average of 2 years per company per stage Funds will have to come from: New independent funds New sponsored funds (e.g., OCF, Third Frontier seed and validation funds) Non-domestic funds

20. Ohio Seed & Early Stage Investment: General Outlook (cont.) Rate of investment in Ohio by funds from outside Ohio is increasing Less competitive climate (i.e., better valuations) Access to unique technologies and talents Increase in qualified deals through angels More research needed on attractiveness of VC investing in Ohio Valuations and returns

21. Ohio Seed & Early Stage Investment: General Outlook (cont.) The future is ours and we must be the champion of our own story New regional funds are difficult to raise Convince LPs to put money in Ohio Partnership is in place through OCF You teach people how to treat you. Dale Carnegie