How to Attract Venture Capital

UNIVERSITY STARTUP DEVELOPMENT WEBINAR SERIES

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SPEAKERS

Tony Stanco, JD, LL.M. NCET2 Executive Director Former U.S. Securities and Exchange Commission Senior Attorney Steve Socolof NCET2 Startup Development Officer and Managing Partner of Tech Council Ventures

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BACKGROUND ON THE STARTUP DEVELOPMENT PROGRAM

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Commercialization Model Timeline

2015 2016 2017

Congress seeks to understand commercialization of $B137 annual R&D in Fed Labs / Universities

NCET2 Congressional Commercialization Summit – Corporate Sub-committee Formed

First Model Proposed

Model Vetting Roadshows: CA; PA; NY

Congressional Briefs

(Pilot) First Demo Day Second

Demo Day

IP2 Startup Pgm Announced

Startup Development Officers Pgm Announced

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Startup Development Program

•  Congress funds $137 billion in federal funded research at universities and federal labs

•  Excellent opportunity for entrepreneurs to build a university startup around that IP –  Universities have programs to help you

•  NCET2 Fortune 500 members and SDOs who will partner with university startups to help develop and fund those startups

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Startup Development Program

•  NCET2 Startup Development Officer will also help university entrepreneurs, faculty, researchers, and students create, develop and fund market aligned university startups (http://ncet2.org/sdo)

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SDO SERVICES

•  Early management teams of university entrepreneurs, graduating students, faculty, and researchers

•  Business plan •  proof-of-concept •  prototyping, •  early product development •  SBIR, Angel, and VC funding

–  “Commercialization Experiments” •  Get to work with Fortune 500 companies, angels, VCs, and serial

entrepreneurs to help commercialize university and Federal Lab technologies

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Benefits

•  Startups/Entrepreneurs/Faculty/Researchers/Students – Access to professional SDO talent to help

create, develop, and fund your startup

•  Universities – Moving IP to market for significant market

impacts – Graduating students into startups and working

with Fortune 500

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Interested?

•  If you are interested in creating a startup and have the SDOs help you, contact us at support@ncet2.org

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SPEAKERS

Steve Socolof NCET2 Startup Development Officer and Managing Partner of Tech Council Ventures

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How to Attract Venture Capital

September 2017 Copyright © 2017 Tech Council Ventures All Rights Reserved.

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Agenda

Confidential 13

•  The state of the venture capital industry and some statistics on what venture capitalists are investing in

•  The characteristics of opportunities that make venture capital an appropriate and timely potential source of funding

•  Ideas for how best to find and approach venture capitalists

•  The critical first interaction or meeting to gain a venture capitalist's interest

•  The relationship-building process that will involve due diligence on both sides

•  Proposal of terms by the venture capitalist on which he or she will invest in your opportunity

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Sources of Financing

Confidential 14

Type of Investor Description Investments

Friends & Family Close/known relationships. Not professional investors

<$100K

Angels Local individuals or groups

$100K - $1M

Grants Federal/State $100K +

Venture Capitalists Institutional $1M +

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VCs: >800 Firms with >$300B AUM

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151

90 93

130

150

79

52

68

0

20

40

60

80

100

120

140

160

$0-$10M $10-$25M $25-$50M $50-$100M $100-$250M $250-$500M $500M-$1B $1B+

Distribution of Venture Capital Firms by Assets Under Management in 2016

Source: NVCA, Pitchbook

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VCs: $70B in 8000 Deals in 2016

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Source: NVCA, Pitchbook

$22

$24

$29

$36

$37

$26

$31

$44

$41

$45

$69

$79

$69

2,593 2,928

3,301

4,292 4,707 4,458

5,411

6,771

7,987

9,326

10,550 10,468

8,136

-

2,000

4,000

6,000

8,000

10,000

12,000

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Capital Invested ($B)

# of Deals Closed

Company Count

US VC Deal Flow

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Only 1/3 Are Active 1st Round Investors

Confidential 17

Active VC Investors

Source: NVCA, Pitchbook

0

500

1000

1500

2000

2500

# Active VC Investors # Active VC 1st Round Investors

# of Active VC Life Science Investors

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2340 First Financings in 2016

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2016 VC First Financings By Stage and Sector

Source: NVCA, Pitchbook

Angel/Seed Early VC Later VC

Commercial Services

Consumer Goods & Recreation

Energy

HC Devices & Supplies

HC Services & Systems

IT Hardware

Media

Other

Pharma & Biotech

Software

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Most Geographies Are Represented

Confidential 19

Source: NVCA, Pitchbook

20 (*) Source: Global Corporate Venturing, “The World of Corporate Venturing 2017”

Growing Number of Corporates Using Venture Capital

Confidential 20

348

472 457

627

801

965

0

200

400

600

800

1,000

1,200

2011 2012 2013 2014 2015 2016

#ofActiveCVCUnits(*)

21 (**) Source: NVCA/Pitchbook; Corporate Venture includes investment by CVC units and direct corporate venture investment

Corporates Represent Growing Share of Venture

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$13 $11 $13$24

$31 $30

$44$41

$45

$69

$79

$69

704 799 1,0041,207 1,268 1,069

6,771

7,9879,326

10,550

10,468

8,136

0

2,000

4,000

6,000

8,000

10,000

12,000

$-

$20

$40

$60

$80

2011 2012 2013 2014 2015 2016

#ofTransaction

s

TotalInvestm

ent($billio

ns)

CorporateVenturevs.TotalVCMarket (**)

CVInvestment TotalVCInvestment

#ofCVDeals #ofTotalVCDeals

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CVCs Can Bring Added Value to Deals

Why Do Corporates Partner

§  Identify and understand disruptive innovations to their businesses

§  Explore new markets

§  Bring new products and services to market through their channels

§  Develop and leverage new capabilities

§  Expand their ecosystem – support revenue drivers

§  Commercialize and scale internal innovations through spinouts

How Do Portfolio Companies Benefit

§  Exchange market intelligence and insight on industry trends and opportunities

§  Develop large customers and partners

§  Access resources to help with product development and commercialization

§  Reach customers and markets through corporate channels and go-to-market

§  Leverage corporate financial resources to scale business

§  May lead to M&A

CVC Investment

Confidential 22

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What Are VCs Looking For

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•  Business opportunities that can generate wealth at scale (profitable, sustainable, growing)

•  Evidence of a large and growing market

•  Belief in the team’s ability to execute – experience, talent, ability to learn and build

•  Sustainable advantage / IP

•  Signs of success – early traction that demonstrates customer interest, willingness to pay, successful business model - revenues

•  Clear path to liquidity

•  Ability to generate 10x return in 3-5 years

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Themes That Are Hot or Not

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Hot Not Autonomous Vehicles AI/Machine Learning Augmented/Virtual Reality Consumer Brands Digital Health Drones Fintech/Bitcoin/Bockchain Gaming/eSports SAAS Security

Apps for Phones ASICs Hardware Phamaceuticals Renewable Energy

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How to Find Them

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•  Cold calls / mass mailings likely to be ignored

•  Research to identify likely investors •  Geography, stage, and sector •  Look for relationship links – schools, advisors

•  Research sources •  CB Insights •  Dow Jones Venture Source •  National Venture Capital Association •  TechCrunch

•  Local resources •  Local venture capital associations •  Local angel groups •  Venture fairs •  Accelerators/incubators/co-working spaces •  University startup officers

•  Network through Advisors, Board Members, NCET2 SDOs

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First Contact: Elevator Pitch / Pitchbook

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•  VCs are making new investments, managing existing investments, and raising capital

•  VCs will receive 100s/1000s of solicitations to make 1-2 investments per year

•  Getting them to spend time on your opportunity is the first challenge

•  Elevator pitch / Pitchbook is critical first step

•  Need to highlight: •  Product / market description •  Valuable problem being addressed/solved •  Market size / go-to-market strategy •  Experience/strength of team •  Signs of success – market traction, partnerships, revenues,

etc.

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Due Diligence Can Take Several Months

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•  VCs will want to test the value proposition •  Leverage their network for perspective on the opportunity •  Call your customer / partner references •  Engage experts on technical aspects of product

•  VCs will want to get comfortable with team and its ability to execute •  Team references •  Advisors •  Interactions to build relationship, gain trust in listening/

learning/team-building •  Chemistry

•  VCs will want to know where their investment takes them •  Map investment versus spending over time •  Map investment versus key milestones / value inflection points

•  Having guides like the SDOs involved to prepare you for due diligence can be very helpful

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Finally, The Term Sheet

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•  If due diligence succeeds, then VCs will discuss deal terms and/or present a term sheet •  Reflects amount and terms under which they will invest •  Determines valuation and treatment of prior ownership and

investment •  Addresses governance and risk management

•  VCs may or may not be offering to fully fund the opportunity – may need to seek additional sources of capital

•  There may be some flexibility to discuss / negotiate terms, which also may depend on how competitive the opportunity is

•  Use experienced advisors to help navigate this part of the process – lawyers, SDOs, etc.