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investing in
future global leaders
add partners
University of Exeter Lecture 28 November 2002
investing in
future global leadersadd partners
Agenda
What does it take to start a company ? What is Venture Capital ? What do VCs do ? A peek into Add Partners
– Strategy– Portfolio
VC returns Q & A
investing in
future global leadersadd partners
Components of a Startup
Product / Service that addresses a market need
Staff / Management team
Founders
Financing
investing in
future global leadersadd partners
Financing Options
Personal funds of founder(s) Friends & Family Angel investors Bank loans Private equity / venture capital
investing in
future global leadersadd partners
Venture Capital is …
money provided by professionals who invest alongside management in young rapidly growing companies that have the potential to develop into significant economic contributors
an important source of equity for startups Examples of venture-backed companies:
Intel, Compaq, Sun Microsystems, Ariba
investing in
future global leadersadd partners
Venture capitalists generally …
Finance new and rapidly growing companies; Purchase equity securities; Assist in the development of new products
and services; Add value to the company through active
participation; Take higher risks with the expectation of
higher rewards; Have a long-term orientation
investing in
future global leadersadd partners
Example Capitalisation Table
Founder 1Founder 2
Allocated ESOPUnallocated ESOP
Add Partners Investor BInvestor CInvestor D
TOTAL
Pre-Money ValuationPost-Money ValuationShare Price
InvestmentIn $
New Shares Fully Diluted Number of
Shares
2,000,0002,000,000
4,000,000
2,000,0006,000,000
0.22
2,170,000
9,200,0009,200,000
7,200,0001,200,000
800,0002,170,000
9,200,0009,200,000
29,770,000
Current Number of Shares
7,200,0001,200,000
800,000
9,200,00000
% Ownership
91.3%
8.7%
0.0%
78.3%13.0%
8.7%
29,770,000
100.0%
Acme IncCapitalisation Table
1st Round
Founder 1Founder 2
Allocated ESOPUnallocated ESOP
Add Partners Investor BInvestor CInvestor D
TOTAL
Pre-Money ValuationPost-Money ValuationShare Price
24.2%4.0%
2.7%7.3%
30.9%30.9%
Fully Diluted % Ownership
28.2%
10.0%
61.8%
100.0%
investing in
future global leadersadd partners
Why use Venture Capital ?
Make a company grow bigger, faster than it otherwise would.
Combination of funding and added value
Price is reflective of both financial investment and added value investment
investing in
future global leadersadd partners
Types of VCs
Investment Focus – generalists or specialists Stage of Investments:
– Seed– Early stage– Expansion stage– Late stage / pre-IPO
Others:– Acquisition, turnaround or recapitalisation– MBO / MBI / BIMBO
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future global leadersadd partners
Add Partners’ Strategy
Pan European TechnologyEarly Stage Hands On
• 1st or 2nd round
• Revenue visibility
• Focus on UK, Germany, France & Scandinavia
• Global potential
• Infrastructure enablers
• Technology validated
• Development capital of €3-5 million
• Active investor
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future global leadersadd partners
Adding Value to Future Global Leaders
Portfolio Company
Exposure
Financing
Recruiting
CustomersPartners
• Syndication partners• IPO• M&A
• Media• Analysts• Conferences
• Technology leaders• Keiretsu• Universities
• Specialized headhunters• Pool of contacts
• Technology leaders• Telcos, banks, insurance co’s
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Anatomy of a Deal
What do we look for in a company ?– Size of market– Product / Technology– Strength of management team
Term sheet– Valuation– Investor rights
Exit Considerations– Trade sale– IPO
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Valuation Metric ?
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From start-up to IPO
Nov 2001 Nov 2002 Nov 2004 May 2006 May 2008Company Incorporated
Incomplete team.
Product not yet proven (pre-beta)
Raise €4m VC at €2m pre-money valuation
Management Team strengthened.
Product working.
2-4 reference customers
Turnover of €500k to €1m
Loss-making
Raise €6m at €12m pre-money
Business model well proven.
Turnover of €4m to €6m in 2005.
Loss making still.
Raise €15m at €35m pre-money.
Turnover of at least €20m in 2007.
Profitable.
IPO – e.g. raise €20m to €50m at €150m pre-money
investing in
future global leadersadd partners
Current Portfolio
Terahertz Photonics• Optical component and backplane materials
• Lead 1st Round, Aug 2000
• Co-investors: Scottish Equity Partners
Freever• Messaging platform technology & services
• Lead 2nd Round, Sep 2000
• Co-investors: Net Partners, CDC Innovation, Apollo Invest
XIAM• Information routing technology
• Lead 2nd Round, Nov 2000
• Co-investors: Vertex, Delta Partners
www.terahertz-photonics.com
www.freever.com
Paris, France
Livingston, Scotland
Dublin, Ireland
www.xiam.com
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future global leadersadd partners
Current Portfolio
SurfKitchen• Portal infrastructure and applications software
• Lead 1st Round, Jan 2001
• Co-investors: n/a
Scientific Systems• Plasma measurement and control solutions
• 2nd Round, Sep 2001
• Co-investors: Vertex, ACT Partners
TempoSoft• Human Capital Management software
• Lead 3rd Round, Sep 2001
• Co-investors: Atlas Venture, CDC Innovation
www.surfkitchen.com
www.scisys.com
Dublin, Ireland
Zurich, Switzerland
www.temposoft.com
Paris, France
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future global leadersadd partners
Current Portfolio
Proximion• Optical components and subsystems
• 2nd Round, Sep 2001
• Co-investors: Celtic House, Innovations Kapital
Phyworks• Communications ICs
• Lead 1st Round, Feb 2002
• Co-investors: Atlas Venture, Prelude
PolarLake• Transactional XML Processing Software
• Lead 1st Round, November 2002
• Co-investors: Delta Partners
www.proximion.com
Kista, Sweden
www.phyworks-ic.com
Bristol, UK
www.polarlake.com
Dublin, Ireland
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Venture Capital Returns (1)
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Venture Capital Returns (2)
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A Convergence of Favorable Factors Re-shapes the European Technology Landscape
Development of venture capital
Local growth exchanges
Restructuring of technology giants
Real Deals, Tornado Insider, serial entrepreneurs
Cambridge, Thames Valley, Munich, Flanders, Kista
US VCs in Europe, European VCs more focused
Easdaq, Euro NM, Techmark & European NASDAQ
Nokia, Ericsson, Alcatel, Siemens, Philips, ST Micro
Success of technology clusters
Entrepreneurship on the rise
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future global leadersadd partners
Contact Details
Maisy NgAdd Partners Limited34 Dover StreetLondon, W1S 4NGUK
Tel: +44 (0) 20 7399 2280Fax: +44 (0) 20 7629 8398www.addpartners.com
