Venture Capital Ecosystem & Technology Commercialization (in English)

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Venture Capital Ecosystem & Technology Commercialization Marco Rubin Exoventure Associates, LLC March 31, 2009


TOPICS  Venture Capital Ecosystem      

VC as a Strategic Asset Investment Magnitude The Ecosystem Typical Prescribers Reaching Investors Impact of the Meltdown

 Technology Commercialization Process     

Motivations The Decision Space Business Spectrum Start-up Trajectory Closing Remarks


I. VENTURE CAPITAL ECOSYSTEM


VC AS A STRATEGIC ASSET  Generates disproportionately large economic contribution to the economy:  VC-backed companies generated 10.4M jobs  17.6% of the GDP  $2.3T in sales Source - National Venture Capital Association/Thomson 2006

 Approximately $30B in annual U.S. deployments managed by:  Stage - seed through growth  Thesis - IC-T, clean tech, life sciences, materials  Geographic location - local, regional, national, international

 Asset class comparisons:  VC - capital deployed risen from $13.1B (‘97) to $30B (present) ~ 500 firms (US)  Hedge - capital under management ~ $2T in 2007 by 9000 firms (worldwide)


INVESTMENT MAGNITUDE US venture capital market

6351 6,000 4590

$75

2547 $49.5

$50 2211 $25 $13.1

$94.8

5,000

$17.9

4,000

3321 $36.5

Number of Deals

Amount Invested ($B)

$100

2577 2648 2477 2226 2354

3,000

$27.2 $29.9 $24.2 $22.1 $19.7 $22.4

2,000

2432

1,000

$0

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Amount Invested ($B) Number of Deals Source: Dow Jones VentureOne/Ernst &Young


THE ECOSYSTEM Incubators, Accelerators and Economic Development Authorities Government Agencies and NGOs

Investment Community

Strategic Corporations

RESOURCES

Events and Social Networking

Universities and Affiliated Laboratories

Service Providers, Consultants and Advisors

Associations and Advocacy Bodies


TYPICAL PRESCRIBERS - Research before launching capital campaign -

Associations – outreach and advocacy  National Venture Capital Association www.nvca.org  Angel Capital Association www.angelcapitalassociation.org  National Association of Seed and Venture Funds www.nasvf.org

Advocacy & Education – information and research  Kauffman Foundation www.kauffman.org  Stanford Entrepreneurship Network www.sen.stanford.edu  Harvard Business School www.hbs.edu/entrepreneurship

Service Providers – legal and accounting firms  PWC (MoneyTree Report)  Cooley Godward, Kornish (Capital Call)

Regional Investment Organizations (Investment Capital)  Ben Franklin Technology Partners www.benfranklin.org  Delaware Innovative Fund www.difonline.com


REACHING INVESTORS 

Before approaching people for money or access, become comfortable with this – build professional relationships first.

It is human nature to understand who they are dealing.

Angel groups and venture capital firms pay close attention to who brought them a deal. The source matters.

You will need advocates on the ground to establish a local presence.

Fund raising is a universally difficult, time-consuming task. A weak economic situation makes the challenge greater.


IMPACT OF THE MELTDOWN

Venture capital had been trending to larger funds under management

Angel investors are being approached by more established prospects

Limited partners are keeping money as evidenced by VC capital calls

VCs have eliminated weaker portfolio co.s preserving cash for the strongest An already high bar for start-ups has been raised even higher.


II. TECHNOLOGY COMMERCIALIZATION


MOTIVATION - Why are you going into business? -

Are you trying to create economic wealth? Founders? Investors? Employees?

Are you motivated to create more than just profit? Change the world? Drive social good? Validate innovation?

How much capital will you require to build your business? Where will it come from? Outside the company or organically?

Are you creating a growth firm or are you creating a lifestyle firm? How will you convince others to join you in your journey?

What business form will your idea take?


THE DECISION SPACE

APPROACH

A. Start-up?

+ + + + +

PLUSES

MINUSES

High reward Wealth creation Ecosystem formation Job creation Learning

- High risk - Steep learning curve - Results in years/decades - Loss of control

B. Licensing IP

+ Inventors focus on IP + Royalties may be large + Least capital outlay

-

C. Joint venture

+ Risk sharing + Deep -pockets + Leverage brand

- Multiparty complexity - Loss of control

Least return IP valuation Renter vs. owner? Enforcement?

COMMENTS

Ability to attract institutional capital in country? Desire to create presence abroad?

IP licensing process such as iBridge application – www.ibridgenetwork.org

May be most feasible to generate and retain resources in-country


BUSINESS SPECTRUM - Where does your innovation live? -

Disruptive Service-Centric

IP/Technology-Centric

• Ex. – Amazon, EBay, Salesforce.com, Skype

• Ex. – Qualcomm, Motorola, MedImmune, Cisco, Intel

• Focus – innovative technology enabled service

• Focus – proprietary assets as the “IP fortress”

• Founders – marketing, sales, product management

• Founders – highly technical or scientific

• Orientation – market pull

• Orientation – tech push


START-UP TRAJECTORY Mature

VALUE

Early adopter

Early majority

Late majority

• Ideation • Science • Invention

Chasm Events

Key Metric & Anti Metric

Investment Community

Service Providers

Facilitators

TIME

• Bootstrap co./seed • Unfinished technology, team • Launch α/β products • Lifestyle-v-license-v-investment?

• Institutional investors • Launch more products • Develop core team

• Grow revenue/get anchor • Build stable products/new product research • Build professional team Key Motivations • Acquisition or IPO?

• Innovation, e.g., patents • Fragmented revenue, if any • Profitability

• First sales • Profitability

• Top-line revenue growth, e.g., $5M+ in trailing revenues • Product line diversification

• Friends, family & fools • Angels • Grants etc

• Seed/early stage VCs • Occasional corporate • Placement agents • Grants etc.

• Later stage VCs • Investment banks • Corporate investors

• Dreams of wealth • Save the world • Both • ROI for investors • Strategic relevance for corp.interests • R&D / new vendors

• Legal • Financial/Accounting/ Insurance • Search firms • Public relations/media • Other - matchmakers; boot camps; online plan repositories; directories; bus. plan services

• Earn fees • Gain market share

• Associations and societies • Economic development authorities • Incubators

• Networking & lobbying • Jobs creation • Co. creation


GOAL START-UP

TEAM TEAM

Proven Domain

TECH TECH Built Built Protected

Clean Structure MARKET MARKET Sizeable Sizeable Strategic Strategic


IP AS A STRATEGIC ASSET


U.S. UNIVERSITY IMPACT  Bayh-Dohl Act - catalytic legislation (1980) ushered in new innovation  Allows academic institutions to own IP funded by federal research  One outcome has been the tech transfer/ tech licensing offices  Established 4,100 new companies since 1980, 2/3 of which still operating  Executed 30,000 active tech transfer licenses generating $1.3B in income  Filed ~ 8,000 patents in 2003


CLOSING REMARKS  Big innovations are a great start…but seldom determine success  Your venture must become economically sustainable  Demand-based (pull) businesses tend to garner greater market adoption  Advisory boards may be valuable – use Linked In and other assets to extend your know-how and reach.  Capital markets and corporate partners are becoming even more selective


CONTACT INFORMATION Exoventure Associates, LLC 400 North Washington St. #106 Falls Church, VA 22046 USA Office 703.533.3133 Marco Rubin mrubin@exoventure.com www.exoventure.com


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