James F. Kenefick - Azafran Capital INSIGHTS Vol. 12 by James F. Kenefick

YOUR EYE ON INNOVATIVE MACHINE LEARNING SOLVING REAL WORLD PROBLEMS

Azafran Capital Partners

INSIGHTS Valuation, Liquidity and Opportunity in Uncertain Times

As society navigates uncharted waters on many fronts, the Azafran team offers perspective on areas relating to the venture capital ecosystem, marketplace and fund thesis. First and without question, we send our hopes and wishes to everyone in the Azafran community - for you, your families and colleagues to remain safe and unharmed by the COVID-19 virus. In economic terms, there is no precedent or vocabulary for the long list of what is happening now and the world is ﬂooded by news media trying to make sense of it all. As is our custom via INSIGHTS editions and our market research, we will keep the focus in our Special Report Series on the Azafran Thesis, limiting our comments and coverage on what we see ahead through this lens.

The Venture Market Looking at the wider market, combining up-to-date research with our decades of shared experience in businesses, investment, and markets - here are some of the macro realities we see for the future: ●

When COVID-19 levels off and starts to subside by summer, we see a short recession considering the fundamentals leading into the crisis were solid, unlike 2008.

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Later-stage investors will see limited exits for their portfolio companies with exits via public markets extremely limited, and PE/later stage suitors focusing more on distressed scenarios.

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There will be a lot of activity in the secondary market - with an opportunity to buy portfolios or funds at lower prices if they need liquidity.

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Resulting in VCs in the mid to later stages of the market (i.e. invested $10’s and $100’s of millions or more) required to put more money into their existing portfolio companies and holding them for a longer than normal timeframe.

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At the angel and seed stage, market losses will hamper their ability to make new investments and follow-ons.

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In the current cycle, valuations in vintage funds from 2016-2019 most likely peaked before the crisis (some say were already heading down), so timing is a positive for early stage, new vintage 2020 funds (i.e. Azafran).

[Continued on Page Two]

SPECIAL REPORT SERIES Part One

part one FOCUS Azafran Capital Partners is an early stage venture fund investing in companies ($2M to $8M) that are using deep learning and machine learning, emphasizing voice, acoustics and imagery datasets in the health, wellness, IoT / automation and enterprise spaces. Part One (of Three) of our Special Report Series focuses on both the Venture Market and road ahead as seen through the lens of Azafran’s Investment Thesis, taking into account new global realities we are experiencing personally and professionally. This Series will also be accompanied by a podcast with Azafran partners Marty Fisher, and James Keneﬁck discussing the main topics of each Issue. Featuring below a timely quote from the Executive Editor of PitchBook, Alexander Davis from an open letter earlier this week to subscribers and the PitchBook community:

A disorienting reversal is underway in the markets, and it is instilling fear in many investors, especially folks who have been greedy during the go-go years. These players—many of whom never worked or invested during a down market—have now joined the fearful crowd, and they will fall to the sidelines. But I've checked in with a wide variety of skillful, experienced investors to take their pulse since the coronavirus has brought the world economy to its knees. Most of them are forging ahead, albeit while exercising more caution and advising their partners and portfolio companies to do the same.” — Alexander Davis, executive editor - PitchBook

Special Report Series, Part One - Page One

Valuation, Liquidity and Opportunity (Continued from Page One)

The Opportunity There is sufficient market and economic consensus that the bestperforming vintages tend to be those which invest at the low point of a downturn and into the early stage of recovery. As a 2020 vintage fund, Azafran Fund Two (ACP2) will capitalize on these new valuations and opportunities. The new social distancing environment coupled with trends that were already well underway (i.e. technologies moving to the edge), we see further validation of the Azafran Investment Thesis: Investing in the imagery / voice / acoustics modalities feeding machine learning / deep science tech into health / wellness and IoT / enterprise markets. From technologies that are helping mitigate the pandemic, to those enabling the remote enterprise and at-home worker, and health / wellness, these new realities will further speed the adoption / commercialization of this machine learning tech revolution. This is Azafran’s investment focus. Since 2017, our team has been compiling a proprietary database (KESAR) using 347 tech tool attributes, tracking over 1,800 vetted and qualified companies. Groundbreaking Machine Learning and AI algorithms, combined with deep science, is creating new innovations leveraging voice, acoustics and imagery as the input modality, are already in the market and eliminate the inefficient touch based inputs; keypad / keyboard. These technologies and modalities meet the challenges of our new world realities such as hygiene and social distancing. Considering these new realities, the Azafran thesis of investing / partnering in the modalities of voice, acoustics and imagery is even more compelling with even greater market-fit. The companies Azafran has invested in and those under LOI offer edge solutions, technology networks & platforms that make our lives better in the health / wellness and IoT / enterprise. Our deep experience, global network, and hands-on focus are key at this stage of investing and company development, especially in this time of crisis. We are working every day with our founders / managers, focusing them on short term actions while strategically executing over the mid term horizon. In recognizing the moment and appreciating the implications and severity of the situation, our team wishes you, your family and colleagues safety, health and peace as we face these incredible challenges together.

NEWSWORTHY… Is VR The Solution To The Impact Coronavirus Is Having On The Events Industry? (Forbes) “Coronavirus is having an unprecedented impact on the events scene, but the virus doesn’t have to bring the industry to a halt. HTC has reacted to the current situation by hosting the ﬁrst fully-virtual industry conference. The HTC Vive Ecosystem Conference (VEC) is usually held in Shenzhen, China. Re-styled as the Virtual Vive Ecosystem Conference (V2EC), the event was held on March 19th.

from the HEADLINES VC won’t respond to the looming downturn like it did to the GFC ●

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The asset class has changed and matured so much in the last 12 years that this recession will bring different challenges and spark new solutions & the secondaries market is more robust now. Valuations, in tandem with the public market turmoil, will also have an adverse impact on exit activity. The assumption now is that 2016-2019 vintages will have the most challenging performance - at the high valuations ﬁrms have to hold on to investments a little longer. Firms looking to raise later vintages (2020)...may not take as much of a hit. If institutional investors feel they have to deploy capital, these funds may seem like the safest option. Source: Venture Capital Journal, Rebecca Szkutak March 18, 2020

market SOLUTIONS How Do You Solve a Pandemic Like COVID-19? Together. A new collaboration has formed between a number of businesses and organizations like Microsoft, the Allen Institute, and the White House Ofﬁce of Science and Technology (OSTP), has yielded a trove of data related to COVID-19. The COVID-19 Open Research Dataset (CORD-19) is a machine learning-readable repository of some 29,000 articles about coronaviruses. And then the data scientists mobilized: Kaggle, a Google company that bills itself as the world’s largest community of data scientists, launched a forecasting challenge to uncover factors that impact coronavirus transmission rates. Kaggle is launching two companion COVID-19 forecasting challenges to help answer a subset of the NASEM/WHO questions. Sources: VentureBeat | AI Weekly & kaggle.com

The conference took place place within ENGAGE, the virtual reality training and education platform developed by Immersive VR Education.” Azafran INSIGHTS © Azafran Capital Partners 2020 - All Rights Reserved

Special Report Series, Part One - Page Two

AI-Imagery Products Deploying to Help Fight COVID-19 Focus now on listening, sensing, seeing in move away from touch/keypad modalities

from experience comes WISDOM Fundraising wisdom during COVID-19

Miso Robotics deploys AI screening devices to detect signs of fever at restaurants

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(VentureBeat) “Miso Robotics, a startup developing robots that can perform basic cooking tasks in commercial kitchens, today announced that it has deployed new tools to its platform in CaliBurger restaurants will be part of an advanced approach with CaliGroup intended to improve safety and health standards.

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The hope is to minimize the threat of infection for patrons and delivery workers during the COVID-19 pandemic, which has sickened hundreds of thousands of people worldwide. In the coming weeks, in partnership with payment provider PopID, Miso will install a thermal-based screening device in a CaliBurger location in Pasadena, California, that attaches to doors to measure the body temperatures of people attempting to enter the restaurant, along with Miso’s Flippy robot in the kitchen, to address health concerns.

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Thermal sensing device that will greet patrons soon at select Caliburger locations (Source: VentureBeat)

VC funds well into the fundraising process should be able to hold ﬁrst or ﬁnal closes, but most new efforts will be put on hold, says Kelly DePonte of Probitas Partners. “You cannot do a pitch to an LP in person and you cannot schedule onsite due diligence. If you’re a newly launched fund or thinking about launching, you are basically in pause mode.” “Let’s say you launched a fund in September of last year,” DePonte says. “You’ve already met with bunch of LPs, and for the ones that are interested you have already have had a number of on-sites.” Those funds should be able to get over the line with some follow-up phone calls or video conference calls. Source: Venture Capital Journal, Lawrence Aragon interview with Kelly DePonte, March 19, 2020

Fever detection is on trend. Various companies have begun deploying cameras that detect people who may have COVID-19 by using thermal imaging, including Austin-based Athena Security. Ramco Innovation Lab in Singapore recently unveiled a facial recognition-based system with embedded temperature recording, and in China, authorities have reportedly used drones to detect signs of fever. Miso also says it will also install physical PopID terminals so that guests can transact without touching a panel, using cash, or swiping a credit card — all of which can transfer pathogens. Customers will also be able to pay using PopPay on the CaliBurger website.”

voice-acoustics-imagery & AI/ML Industry Snapshot At a Glance: Top 5 Markets & Global

Special Report Series, Part One - Page Three