1. Funding a start-up: How to raise your first round Jayan Ramankutty Founder/CEO YuMe Networks BITSAA.org, June 25 th 2006

2. Outline Investment Sources State of the VC Industry Funding Process & Decision Making Seed-Stage Valuation Entrepreneur’s checklist Preparing for the next step

3. Investment Sources Angel Investors –Wealthy individuals with industry background –Usually a small investment (< $1M) in a very early-stage company (demo, 2-3 employees) Financial VCs –Most common type of VC, an investment firm, capital raised from institutions and individuals –Fund sizes: ~$25M to 10’s of billions –Exit through - IPOs, Mergers and Acquisitions (M&A) Strategic VCs –Typically a (small) division of a large technology company. Examples: Intel, Cisco, Siemens, AT&T –Corporate funding for strategic investment –Not exclusively or primarily concerned with return on investment

4. Sources of Funds Source: Ten3 Coach

5. State of the VC Industry Source: PWC NVCA Report Q1 ‘06 $0 $100 $80 $60 $40 $20 Total Investment in Billions Investment# of Deals 1999 - 8000 6000 4000 2000 Q1 2006 Investment of $5.6B for 761 deals 200020012002200320042005 Investment reaches a state of equilibrium

6. State of the VC industry Life Sciences $1.5B $5.6B, 716 deals in Q1 06 Software $1.2B Internet $0.8B Telecom $0.6B Media & Entt $0.4B $1.3B, 215 first-time financing deals Source: PWC NVCA Report Q1 ‘06

7. Stages of funding Initial Funding Stages Pre-SeedA small amount of capital is provided to entrepreneur to prove a concept for a potentially profitable business opportunity. SeedFinancing is provided to newly formed companies for use in completing product development and in initial marketing. FirstFinancing is provided to companies that require funds to initiate commercial-scale manufacturing and sales. Growth & Expansion Funding Stages SecondWorking capital is provided for the expansion of a company to support growing accounts receivable and inventories. ThirdFunds are provided for the major expansion of a company which has increasing sales volume. LaterFinancing is provided for a company expected to "go public“ within six months to a year.

8. Investment Criteria CriteriaRanking by Angels Ranking by VCs Trustworthiness of the entrepreneur (s)21 Enthusiasm of the entrepreneur (s)13 Expertise of the entrepreneur (s)42 Sales potential of the product35 Growth potential of the market66 Perceived financial rewards84 Investor liked entrepreneur (s) upon meeting59 Quality of product710 Track record of the entrepreneur98 Expected rate of return107 Source: Ten3 Coach

9. Opportunity Evaluation 6 in 1000 business plans get funded on an average 5% of business plans are read beyond the executive summary 10% of proposals pass initial screening 10% of pre-screened proposals pass due diligence & receive funding 2. Initial Screen 1. Opportunity Introduction Start 3. Due Diligence Management Team Business Plan Valuation Ownership Control Mgmt Legal Contract 4. Negotiation Presentation Exec Summary Milestones CF forecast FUNDING Mgmt, Personnel Marketing Production Financials References

10. Seed Stage Valuation Historically seed stage funding is limited to $1M+ (higher risk – lower funding) Seed valuations tend to be subjective –Quality of the leadership –Strength of intellectual property –Time-to-market expectations –Cap-ex and burn rates expectations –Sector volatility

11. Financial Chronology of Amazon.com Source: Ten3 Coach

12. Entrepreneur’s checklist Understand short-term and long-term financial needs of the company Provide accurate forecasts of revenue, market share and margins Have clear milestones for development Understand selling and buying process Understand competition and market trends

13. Preparing for the next step First “big” round of financing (> $3M) Financing dependent on progress made with seed capital Before Series-A –Assemble a quality team –Meet development milestones and targets Develop “proof of concept”

14. Upcoming BITSAA events

15. Plan E Educational Events Mission –Provide a forum for building relationships between aspiring and successful BITSian entrepreneurs –Stimulate entrepreneurial thinking amongst BITSians Objectives –Conduct ten or more educational cum networking events by May 2007 –Attract five BITSian startup ideas for an idea pitching event by May 2007

16. Plan E Educational Events Event Format –Each event will have one theme/topic and will have one to two speakers or three to four panelists to cover enough breadth as well as potentially differing viewpoints Next Event –Topic From idea to success: The Pinnacle Systems Story: From start to $350 million and a successful exit –Speaker Ajay Chopra, Venture Consultant - Trinity Ventures, Founder - Pinnacle Systems –Date Jul 15, 2006