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Overview
§ Introduc0on:WoodsideCapitalPartners,RonHeller
§ TypicalFinancingCycleforaU.S.Company
§ PrimaryEarlyStageFinancingSourcesintheU.S.§ Angels/AngelGroups§ Accelerators§ VCs§ Strategics/CVCs
§ ForEachStage§ Overviewoftypicalsize,stage,structure,investmentlevels§ Applica0onprocessorhowtoaccessthem
§ TipsforRaisingCapital
§ M&AMarketHighlights(0mepermiPng)
WCPisaglobal,independentinvestmentbankthatprovidesworld-classstrategicandfinancialadvicetoemerginggrowthtechnologycompanies
§ Services:Primarilysell-sideM&Aadvisory;withsomebuy-sideadvisory,strategicpartnership,privateplacement(debtandequity),andothercorporatefinanceservices
§ M&Atransac0onvaluesaretypicallybetween$20Mand$200M
§ People:25professionals;backgroundsfromtopinvestmentbanksandentrepreneurs/CEOs
§ OfficesintheU.S.andEurope:HeadquarteredinbothCalifornia(PaloAlto)andEngland(London)
§ InternaDonalFocus:40%+oftransac0onsarecross-border
§ GlobalNetworkofPotenDalBuyers:Strongrela0onshipswithStrategicPartnersandPEfirms
§ DepthofExperience:Foundedin2001:over$8billionintransac0onvalue
§ IndustrySectors:Things — ADAS
— Ar0ficialIntelligence─ Cloud/EnterpriseSocware─ InternetofThings─ CyberSecurity
─ DigitalAdver0sing/Marke0ng─ Ar0ficialIntelligence─ HealthTech
─ Communica0ons/Networking─ Media─ DigitalEntertainment
WoodsideCapitalPartnersOverview
2SALEOFCOMPANY
SALEOFCOMPANY SALEOFCOMPANY SALEOFCOMPANY SALEOFCOMPANY SALEOFCOMPANY SALEOFCOMPANY SALEOFCOMPANY
SALEOFCOMPANY
25+yearsofexperienceadvisingtechnologycompaniesonM&Atransac;onsandprivateplacements
• PriorExperience:o NewforthPartners(bou0queTechM&Afirm)o CSFB’sTechnologyGroup:EquityPrivatePlacementsGroupo SmithBarney’sTechnologyGroup:NYC,LondonandSanFranciscoo BainandCompany(StrategyConsultant)o NuMarketCommunica0ons(privatecableandtelevisionservicesprovider):FinanceandOpera0onsManager
• EducaDon:o BAdegreeinEconomicsfromStanfordUniversityo MBAfromHarvard’sGraduateSchoolofBusiness
• RepresentaDveClients:Smaato,Spotzot,SenseNetworks,3Scale,Infrascale,Ekahau,Oerlikon,Technicolor,GearyLSF,Conformia,Eagleware,EdgeDynamics,iSystems,Reciprocal,BeHere,ZhoneTechnologies,OpSource,Sanctum,ChinaNetcom,Eachnet,Vivendi-Universal,KestrelSolu0ons,Interwoven,CommerceOne,LucentDigitalRadioandSculpturedSocware
RonHeller,ManagingDirector,ron@woodsidecap.com
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Founder / Co-
Founders Friends &
Family VCs Strategics PE /
Growth Equity
TypicalCompanyFinancingLifecycleforaSuccessfulStartupCompany
Angels/ Accelerators
IPO Sale
Debt
5
Founder / Co-
Founders Friends &
Family PE /
Growth Equity
TypicalCompanyFinancingLifecycleforaSuccessfulStartupCompany
IPO Sale
Debt
VCs Angels/
Accelerators Strategics
OverviewofAngelsandAngelGroups
§ Typicallyhighnetworthindividualsinterestedinmakingearlystageinvestments
§ Maybeorganizedintogroupsorclubs,buttypicallymakeindividualdecisions
§ Investmentamountvaries;commonly$25Kto$100Kinaroundof$100Kto$1million
§ Ocenprefertoinvestinanindustrywheretheyhaveexperience§ Investorsmaytakeac0ve(butgenerallyunpaid)roletoassistcompany’sdevelopment
§ Investmentstructuretypicallyaconver0blenote.Theinvestmentisconver0bleatadiscounttothepriceofafutureround(maybesubjecttoacap)andearnsaninterestrateun0lconverted
§ Canbeiden0fiedandaccessedviaGust,AngelList,directly(website)orthroughamember
§ Mostgroupshaveaspecificapplica0onform/process,andsomehaveafee§ Selectedcompaniespresenttothemembershipatperiodicmee0ngs
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AngelAc0vityinCalifornia
10Source:AngelResourceIns0tuteandPitchbook,HaloReport2017:AnnualReportonAngelInvestments
OverviewofAccelerators
§ Makesmallequityinvestments(e.g.,$20Kto$100Kfor5%to15%ownership)§ Mayhaveco-investmentrightsforfuturerounds
§ Offersharedworkspace,conferenceroomsandotherofficefacili0es
§ ProvideaccesstoIT,legalandfinancialresources(ocenatdiscountedrates)
§ Mayfocusonspecificver0cals(Healthcare,Educa0on,VideoGames),countries,orcorporateecosystems(suchasMicrosoc)
§ Maylimitperiodofusage,to3or6months,thenrequirecompaniesto“graduate”
§ Mayhavefounderdinnersorothereventsthatfeatureexperts,suchasbankersorlawyers,orwell-knowninvestors,execu0vesoradvisors
§ “DemoDays”provideforumforfounderstopresenttootherinvestorsandguestsoftheaccelerator
§ Mayexpectcompanytobebasedintheacceleratororrelocatenearby
§ Mosthaveanonlineapplica0onavailableontheirwebsitesforeachclasscycle
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OverviewofTradi0onalVentureCapitalIndustry
§ Firmsthatinvestfunds(primarily)fromins0tu0onalinvestors(theirlimitedpartners),includinginsurancecompanies,pensionfunds,anduniversityendowments,andwealthyindividuals
§ ThesizeoftheVCfirmcanvarydrama0cally,ascanthetypicalsizeoftheinvestment,andthestageofcompaniestheyinvestin(fromseedtolatestage)
§ MostVCsinvestwhilecompaniesareintheloss-makingphase.Whencompaniesbecomecashflowposi0ve,theycangenerallycangethighervalua0onsfrom“growthequity”PEfirms
§ Inconnec0onwithaVCround,oneormoreoftheindividualsfromtheVCthatleadstheroundwillocentakeaboardseat
§ Theearliertheinvestmentinthecompany’sdevelopment,thehighertherisk,whichgenerallytranslatesintoalowervalua0onandhigherpoten0alreturn
§ Theinvestmentstructureisgenerallyaconver0blepreferredequitysecurity(conver0bleintocommonequitywithaliquida0onpreferenceuponaliquidityevent)
§ Recenttrendshavebeentowardslargerfundsandlargerandlaterstageinvestments§ Socbank’sVisionFund($100B),SequoiaCapital($12B),moreunicornfinancings($1B+valua0ons)
§ ThebestwaytogetanaudiencewithaVCistomeethimorheratanevent,orbeintroducedtohimorherthroughsomeonewhoknowshimwell,suchasanotherentrepreneur,alawyerorabanker
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§ Large,GrowingMarkets(tosupport10x+Returns)
§ Disrup0veTechnologies/Solu0ons§ Businessplanwithcompellingini0alfocusplusabilitytoexpandover0me§ Beginwith“MVP”–minimumviableproduct,thenrepeatedlyiterate,andimprovebasedonuserfeedback
§ Demonstra0onofCommercialAcceptance§ Ifpre-revenue,growthinotherMetrics,suchasdownloads,pageviews,orbetausers
§ StrongCEO/Management/TrackRecord§ Passionate/hungry,charisma0c,leadershipability§ Resilience(nevergiveup),abilitytosolvevastrangeofproblems§ Abilityto“sell”(beaneffec0vespokespersonandsalespersonforthecompany)andraisecapital§ Opennesstofeedbackofallkindsandinputfrominvestors(“coachability”)
§ Geography(local)–VCswanttheircompaniestobewithin1hoursdrive
§ HighMargins
§ BarrierstoCompe00on(patentedtechnology,partner/customerrela0onships)
§ MarketLeadership(winnertakeall?,networkeffects?,virtuouscycles?)
§ CapitalEfficiency22
WhatdoEarlyStageInvestors(Angels,Accelerators,VCs)LookFor?
§ InvestmentDocuments§ Execu0veSummary(1–2pages),InvestorPresenta0on,BusinessPlan(financialmodel/projec0ons/
assump0ons,useofproceeds,analysisofcustomerandcompe00on)§ Keymetrics,suchasCAC(customeracquisi0oncost)andCLTV(customerlife0mevalue)
§ Coreteam(CTO,CFO,VPofSales/Marke0ng)
§ Teamofadvisors§ Legal,financial,technology,targetedmarketexper0se
§ Listoftargetedinvestors
§ Veryshortexplana0onofyourbusiness§ Whatdoyoudoandwhatproblemdoesitsolve§ “Elevatorpitch”
§ Prac0ceyourpitch,presenta0on,andanswerstocommonques0ons§ WatchSharkTanktoseegoodandbadexamples(hzps://www.youtube.com/watch?v=k3PY_p_M-8w)§ Don’twatchHBO’sSiliconValley(oratleast,don’ttakeitseriously!)
§ hzps://www.youtube.com/watch?v=3T6X-8oSPUE
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Pre-financingPrepara0on
ConsiderReloca0ngtoSanFrancisco/SiliconValleyArea?
§ Mostwell-developedecosystemintheworldforstart-ups§ Largestpoolsofearlystageinvestors(VCs,angelgroupsandindividuals)§ Accesstowidevarietyofeventsandresourcesthatsupportstart-upecosystem§ World-classtechnicaltalentandotherstart-upemployees§ Otherhighlyexperiencedprofessionaladvisors(bankers,lawyers,accountants,formercompany
execu0ves
§ SiliconValleyVCstypicallydonotinvestincompaniesthatarenotbasednearby§ Iftheyinvestinnon-UScompanies,theyocenhaveadedicatedfundfortheregionandprofessionals
basedintheregion(oranaffilia0onswithalocalfirm)
§ Abilitytoassesstopcompe00on,aswellasriskthatalargecompany(Google,Facebook,etc.)willentermarket(“killzone”)
§ Rela0onshipsneedtobebuiltoverextendedperiodof0me
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OverviewofCorporateVentureCapital
§ Aninvestmentreceivedbyanearlystagecompanyfromanunaffiliatedcompanyasanalterna0veto(orsupplementto)venturecapital
§ Theseinvestmentsaregenerallymeanttobestrategicinnature,andresultinameaningfulnon-financialbenefittothecorporateinvestor§ Leveragethetargetcompany’snewtechnologyorproduct;learnaboutanew
marketorapplica0on(suchasAIordrones)§ Leveragelargercompany’smanagement/marke0ngexper0se,manufacturing
plants,distribu0onchannels,etc.
§ MostCVCcomesfromcompaniesthathaveexplicitstrategicinvestmentmandatesandemployeesdedicatedtothisfunc0on§ However,aCVCgenerallyneedsasponsor/strongsupporterfromabusiness
division§ Objec0veisocentobecomemorecompe00veandadapttochangingmarkets
§ In2017,CVCsrepresented$31.7Binfinancingacross1,791dealsglobally(CBInsights).CVCspar0cipatein~20%ofVCdeals(upfrom15%fiveyearsago)
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§ FuturerevenueGrowth§ Maybe“offensive”(proac0vegrowth)or“defensive”(fendoffnewcompe00on)
§ “TryBeforeYouBuy”§ ReduceAccoun0ngImpactofLosses(vs.acquisi0on)
§ Technology,Products,PeopleorGeographicMarkets§ Tofillagap,orbeabletopursueanewopportunity
§ Market/Product/TechnologyKnowledge§ Especiallyfornewtechnologiesthatmayimpactcorebusiness
§ BezerInsightintoSmallerCompany’sStrengths
§ Op0ontoAcquireCompany(RightofFirstRefusal)
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WhatdoCorporateInvestors(CVCs)LookFor?
OtherStrategicPartnerFinancingConsidera0ons
§ Similartosellingthecompany,exceptthetransac0onisfor<50%(minorityinvestment)ratherthan>50%(majority,controlinvestment)
§ Acommercialbusinessrela0onshiporstrategicpartnershipmayberequiredforaninvestmentfromastrategicpartner
§ Strategicinvestmentsmayrequiremore0metocomplete§ Corpora0onsmoveslowly,moreapprovalsrequired,businessrela0onship
nego0a0ons§ Venturecapitalistsgenerallydonotlikeforstrategicstoinvestin“their”rounds
§ Partlyduetoslownessandunpredictabilityofstrategics,andalsobecausetheypreferforthestrategicstoinvestacertheirround,andatahigherprice
§ Developrela0onshipswithbusinessunit/productexecu0veexecu0ves
§ MaintaincleanfinancialsandIPownership
§ Don’tagreetodistribu0onexclusivityorRightofFirstRefusal
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33
GlobalM&AVolume2001-2017(US$Trillion)
0,3 0,2 0,2 0,4 0,7
1,0 1,0 0,8 0,5 0,4 0,4 0,4 0,5
0,8 1,4
0,9 0,9
1,4 1,1 1,3
1,7
2,3
2,9
3,6
2,4
1,8 2,3 2,4 2,3 2,3
2,8
3,1
2,9 2,8
$1,7
$1,3 $1,5
$2,1
$3,0
$3,9
$4,6
$3,2
$2,3
$2,7 $2,8 $2,7 $2,8
$3,6
$4,5
$3,8 $3,7
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
>$10bn <$10bn
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GlobalM&A:2017Takeaways
§ AresilientM&Amarket:The2017globalM&Amarketposted$3.7trillioninannouncedvolumes,notwithstandingsubstan0alglobalgeopoli0caluncertainty
§ Cross-borderAcDvity:Cross-bordertransac0onsaccountedfor30%ofoverallvolume,meaningfullylowerthan36%in2016androughlyinlinewith31%in2015
§ MegadealsSlowDown:Thenumberof$10+billiondealswasdown5%(35dealsin2017vs.37dealsin2016),inpartreflec0nganuncertainregulatoryenvironment
§ TransformaDveandDisrupDvedeals:Severalstrategictransac0onsoccurredin2017,ascompanieslookedforopportuni0estoinnovatecorebusinessmodelsandmi0gatetechnologydisrup0on
§ ManyDealsWithdrawn:Thevolumeofwithdrawndealsin2017was$658billion,23%lowerthan2016and15%higherthan2015volume,partlyreflec0ngcon0nuedpressurefromregulators
§ U.S.TaxReform:ThesweepingtaxreformbillCongresspassedinDecember2017loweredtheU.S.corporatetaxrateto21%,andmayleadU.S.companiestorepatriatecashtobuyotherU.S.assetsandsellratherthanspinoffselectedsubsidiaries
§ LeadingSectors:Themostac0vesectorsbydollarvolumewere:diversifiedindustries,technology,realestateandhealthcare
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US/Tech:M&ATakeaways
§ SeveralStrongFundamentalsSuppor0ngRobustM&AAc0vity§ Highequityvalues,lowinterestrates,strongcorporatebalancesheets,loworganicgrowthopportuni0es,manyPEfirmswithdrypowder,availabilityofdebt
§ Fortech,2017wasadownyearrela0veto2016intermsofnumberanddollarvalue;about20%slowerin2017.PeakwasQ22016
§ Equityvalua0onsoftargetsveryhighreducingappealandreturnstobuyers§ Limi0ngfactorisnotenoughbuyersforallthecompaniesformed
§ Numberofpubliccompanieshasdeclined50%overthepast15years
§ Fourprimarybuyergroups:TechTitans(29%);Cross-Industry(16%);Interna0onal(29%);PE/FinancialSponsors(34%)
§ Cross-industryhasemergedmorerecently,andisgrowingrapidly
§ PEfirmsalsoincreasedtheirac0vityin2017
§ Interna0onaltransac0ons,especiallywithChina,hasslowed
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GlobalM&A:2018Outlook
§ AcDveM&AenvironmentconDnues:Weexpectstrongdealvolumein2018ascompaniescon0nuetolookforopportuni0estobolstermodestorganicgrowth
§ SectorConsolidaDon:Con0nuedsectorconsolida0onfueledbystrongequitycurrency§ DisrupDonDrivingM&A:Rateoftechnologicalchangeacceleratesdisrup0onacrosssectorsanddrivescross-sectorM&A
§ RegulatoryandGeopoliDcalChallengeswillRemain:EffortsbytheU.S.DepartmentofJus0cetoblocklargeacquisi0ons(suchasAT&T/TimeWarner),coupledwithincreasingscru0nyaroundChineseinvestmentsintheU.S.(aswellasincreasedM&Ascru0nybyChineseregulatorsofdealswiththeU.S.),demonstratethattheregulatoryenvironmentmayremainchallenging
§ U.S.TaxReform:U.S.companieswillbenefitfromalowertaxrateandtheabilitytorepatriatecashtotheU.S.
§ PrivateEquityAcDvity:Privateequityfundswillcon0nuetobeac0velyseekingtodeploycapital§ ReturnofAcDvism:Theresurgenceofshareholderac0vism,par0cularlyfromcampaignstarge0nglarge-capcompaniesandthoseoutsideofNorthAmerica
§ IncreasedFocusonPrivacyandCybersecurityDueDiligence§ ImpactofBrexit?
TheInforma0onandopinions inthisreporthavebeenpreparedbyWoodsideCapitalPartners Interna0onal,LLC,and itsaffiliate,WoodsideCapitalSecuri0es,LLC(collec0vely,“Woodside”).Allinforma0onsuppliedorobtainedfromthisreportisforinforma0onalpurposesonlyandshouldnotbeconsideredinvestmentadviceorguidance,anofferoforasolicita0onofanoffertobuyorsellasecurity,orarecommenda0onoranendorsementbyWoodsideCapitalSecuri0es,LLC,WoodsideCapitalPartnersInterna0onal,LLCandWoodsideCapitalPartnersUK,LLPofanysecurity.Furtherinforma0ononanyofthesecuri0esmen0onedinthisreportmaybeobtainedfromouroffices.Otherthandisclosuresrela0ngtoWoodsideCapitalSecuri0es,LLCtheinforma0onhereinisbasedonsourceswebelievetobereliablebutisnotguaranteedbyusanddoesnotpurporttobeacompletestatementorsummaryoftheavailabledata.Anyopinionsexpressedhereinarestatementsofourjudgment on this date and are subject to change without no0ce. Periodic updates may be provided on companies/industries based on company specificdevelopmentsorannouncements,marketcondi0onsoranyotherpubliclyavailableinforma0on.
ImportantDisclosures:
WoodsideCapitalSecuri0es,LLCisnotamarketmakerinanysecuri0esmen0onedinthisreport.
WoodsideCapitalSecuri0es,LLCandtheirofficersandemployeesmayfrom0meto0meacquire,hold,orsellaposi0oninthesecuri0esmen0onedinthisreport.WoodsideCapitalSecuri0es,LLCcompensatesindividualsforac0vi0esandservicesintendedtobenefitthefirm'sinvestorclients.Compensa0ondetermina0onsforindividuals,includingtheauthor(s)ofthisreport,arebasedonavarietyoffactors,andmayincludetheoverallprofitabilityofthefirmandtherevenuesderivedfromallsources,includingrevenuesfrominvestmentbanking.
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WoodsideCapitalSecuri0es,LLCisanaffiliateofWoodsideCapitalPartnersInterna0onal,LLCandWoodsideCapitalPartnersUK,LLP.
Oneormoreprivatecompaniesinthisreporthaveconfiden0allyretainedWoodsideCapitalSecuri0es,LLC,WoodsideCapitalPartnersInterna0onal,LLCorWoodsideCapital Partners UK, LLP as an advisor. In addi0on, in the futureWoodsidemay seek to offer investment banking services to, and collect fees from, any of thecompaniesfeaturedinthisreport.
ThirdPartyDisclosures:
Anyanalystopinions, ra0ngs, andpublic company reports included in this report areprovidedby third-par0esunaffiliatedwithWoodsideCapital Securi0es, LLC,WoodsideCapitalPartnersInterna0onal,LLCandWoodsideCapitalPartnersUK,LLP.WoodsideCapitalSecuri0es,LLC,WoodsideCapitalPartnersInterna0onal,LLCandWoodsideCapitalPartnersUK,LLPmakesnoguaranteesthatinforma0onsuppliedisaccurate,complete,updatedor0mely,anddoesnotprovideanywarran0esregardingresultsobtainedfromitsuse.
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ImportantDisclosure
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