breakout session: optimizing your debt-to-equity ratio

Optimizing Your Debt to Equity Ratio: Ben Johnson

Managing Director

SVB Silicon Valley Bank

June 1, 2016

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Agenda• Quick Intro/SVB Commercial• When is the Right Time?• What is the Right Formula?• CEO Dialogue – David Springer, Cayenne Medical• Q&A

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Where innovation can be foundGlobal locations

• SVB Financial Group’s offices• SVB Financial Group’s coverage• SVB Financial Group’s international banking network

SVB Corporate Overview

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©2016 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq: SIVB). SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license. Investments include assets being held at SVB Asset Management, a registered investment advisor, and SVB Securities, member of FINRA and SIPC, which are non-bank affiliates of Silicon Valley Bank and members of SVB Financial Group. Investments also include assets held in Cash Sweep as well as Repurchase transactions, which are offered by Silicon Valley Bank. Data as of March 31, 2016. Wealth planning and investment and stock option strategies are provided through SVB Wealth Advisory, Inc., a registered investment advisor, and non-bank affiliate of Silicon Valley Bank 16-14885. Rev. 04-22-16.

Investment Products and Wealth Advisory Inc. • Not FDIC Insured • No Bank Guarantee • May Lose Value

Providing a range of comprehensive financial servicesGlobalcommercialbanking

Investmentsolutions

Valuations& research

Privatebanking

Fundsmanagement

Connections& insights

Our services & solutions

Financial highlightsQ1 2016

$44BAssets

$18BLoansPeriod-end loan balances increased 5.9%**

$81BDeposits &InvestmentsPeriod-end totalclient fundsdecreased 2.6%**

**Over Q4 2015

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Life Science and HealthcareEverything we do helps life science and healthcare companies move bold ideas forward, fast. With more than three decades of experience, SVB meets clients’ needs with tailored banking solutions and unparalleled industry insights.

Medical devices Healthcare IT/digital health

Healthcare servicesFocus Areas

Our Clients

$1.5BTotal loans outstanding

Loan Portfolio$551M Biopharma and diagnostics$341M Medical devices$282M Healthcare IT/digital health$359M Healthcare services

51% of life science and healthcare companies that went public in 2014

Life Science and Healthcare Specialists Cover North America, Europe and China

Biopharma anddiagnostics

77% Larger companies23% Startup companies

SVB Financial Group’s OfficesSVB Financial Group’s CoverageSVB Financial Group’s International Banking Network

$21Bin deposits andinvestments

62% of CNBC’s Top 50Disruptors in 2015

MORE THAN

2,200Life science andhealthcare companies

75% Private25% Public

©2015 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of the FDIC and the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq: SIVB). SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license. Data as of September 30, 2015. B-15-14459 Rev. 11-02-15.

Investment Products: • Not FDIC Insured • No Bank Guarantee • May Lose Value

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Venture Debt – When is the Right Time?

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Applicability of Venture Debt by Stage

Clinical Stage Commercial Stage

FDA ApprovalV.o.D.“Next Round Risk” VAC/Mkt Penetration

“Venture Risk” “Business Risk”

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What Do Lenders Consider?

Mgmt

Tech.BoD

Forecast

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What Problem Are You Trying To Solve?????

•Valuation Frontier

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•Valuation Frontier•Runway Extension

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•Valuation Frontier•Runway Extension•Cap Table Conflict

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•Valuation Frontier•Runway Extension•Cap Table Conflict• IRR Enhancement

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•Valuation Frontier•Runway Extension•Cap Table Conflict• IRR Enhancement•Defending Optionality

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When to Raise Debt?

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When to Raise Debt?

When You Don’t Need It.

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What Venture Debt is NOT:

• A replacement for Equity

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What Venture Debt is NOT:

• A replacement for Equity• Short term bridge financing

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Debt – What is the Right Formula?

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Typical Venture Debt Structure

• Interest only period 6-18 months

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• Paid in full within 42-48 months

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• Potentially funded in tranches

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• Typically low/no up front fees

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• Yield is driven from interest plus back-end fees

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• IRR ranging from 5-15%+

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• May contain financial covenants

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Typical Venture Debt Structure• Interest only period 6-18 months






• May contain financial covenants

• Collateral: lien on all business assets; sometimes IP

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Venture Debt: Important Considerations

•Clear Pathway

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•Clear Pathway•Execution confidence

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•Clear Pathway•Execution confidence•Debt Repayment?

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Key Structural Considerations

• Solve for 6 months of runway extension

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• Plan on a refinance event

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• Regulated or Non-Regulated Entity?

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• Regulated or Non-Regulated Entity?

• Debt Broker: To Be, or Not To Be?

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Debt: Potential Pitfalls

• There is such thing as too much debt

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• Pricing/Structure: balance fear vs greed

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• Amortization creates pressure

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• Amortization creates pressure

• Venture Debt vs “Dequity”

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CEO Dialogue – David Springer

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DisclaimerThis material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete.

The information should not be viewed as tax, investment, legal, or other advice, nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.

SVB Private Bank is a division of Silicon Valley Bank. Banking products and services are offered by Silicon Valley Bank. Loans and credit cards are subject to credit and/or collateral approval. Financing is available and varies by state. Restrictions may apply. Wealth Advisory Services are provided through SVB Wealth Advisory, Inc., a registered investment advisor and non-bank affiliate of Silicon Valley Bank and member of SVB Financial Group.

©2015 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve System. SIVB, SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, NEXT NEXT HAPPEN NOW. and the Chevron device are trademarks of SVB Financial Group, used under license. Investments include assets being held at SVB Asset Management, a registered investment advisor, and SVB Securities, member of FINRA and SIPC, which are non-bank affiliates of Silicon Valley Bank and members of SVB Financial Group. Investments also include assets held in Cash Sweep as well as Repurchase transactions, which are offered by Silicon Valley Bank. Data as of June 30, 2015. SVB Private Bank is a division of Silicon Valley Bank. Loans are subject to credit and collateral approval. Financing available and varies by state. Restrictions may apply. Terms and conditions subject to change.

Wealth planning and investment and stock option strategies are provided through SVB Wealth Advisory, Inc., a registered investment advisor, and non-bank affiliate of Silicon Valley Bank. B-15-13911 Rev. 08-21-15.

Wealth Advisory Inc.: • Not FDIC Insured • No Bank Guarantee • May Lose Value

©2014 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve System. SVB>, SVB>Find a way, SVB Financial Group, and Silicon Valley Bank are registered trademarks.

Silicon Valley Bank3003 Tasman DriveSanta Clara, CA 95054T 408 654 7400svb.com

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• Private• Public• Angel-, VC-, Corporate-, PE-backed• Independent• Zero to multibillion in revenue

Venture capital and private equity firms

SVB Corporate OverviewGet to know usFor more than 30 years, SVB has helped innovators and their investors move bold ideas forward, fast. Today, we provide a full range of banking services to companies of all sizes in innovation centers around the world.

We’re at the intersection of innovation and capitalIndustry expertise

Hardware &infrastructure

Energy & resource innovation

Software& internet

Life science & healthcare

Private equity &venture capital

Premium wine

Helping high-growth companies navigate at every state

94%Larger companies

SVB loan portfolio

6%Startups

47%of U.S. tech and life science companies with an IPO in 2015

50%of all venture-capital-backed tech and life science companies in the U.S.

Our clientsInnovative companies

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*Approximate