Ppt ttf inzake spin outs 03-04-12

Harm de Vries - Twente Technology Fund

University of TwenteFunding your company, opportunities, rules

26 January 2012


A techno log y sp in -o f f i s a new company founded

to exp lo i t a p i ece o f i n te l l ec tua l p roper ty

c rea ted i n an academic i n s t i tu t ion or company


Creating a company is not a new research project;

it is a business project that is able to turn a technology

or an invention into a shareholders’ return.


Spin-off Process

Decision Phase Separation Phase Post


Why Commercialise IP?

• Non-core business, thus more focus / less distraction

• Better development in entrepreneurial environment

• Better external financing solutions (share risk and rewards with other parties)

• Expand presence in the marketplace

• Allow quicker growth than in the mother company

• No more drain on mother company’s resources


Spin-off or License?

Spin-Off

License

• Upside potential • Control • Focus • Employment

• Financial risk • Active role • Wait for return

• Quick return Royalties • No further investments / involvement

• Sit back and wait

• Limited upside • Loss of control (shelving)?

• Finding a proper licensee

+ -


NewCo

Venture Capitalist

IP Transfer

Research Coll. Capital

Labour & know-how

Office space

Common Shares

Prefe

rred S

hares

Separation Phase Post Separation


• Transfer of IP (how?)

• Future Collaboration (R&D, launching customer)

• Transfer / use of personnel

• Investment in cash or in kind

Separation Phase


Financing

• Bank loan

• Grants

• Friends & family

• Venture Capital

Post Separation Phase


VC Criteria• Unique product(s) and/or technology platform

• Skilled and committed team (with entrepreneurial spirit)

• Solid IP and IP ownership

• Clear market and medical need

• Exit potential within 3-5 years

• High expected internal rate of return (IRR)

• Realistic valuation


Investment ProcessSourcing

Meetings

Negotiations & StructuringDue diligence

Syndication & due diligence

Term Sheet

Contract drafting

Closing


Term Sheet• Focuses parties

• Secures exclusive position

• Reduces future misunderstandings

• Sets a time line for negotiations and closing

• Addresses the main concerns of VC investors

1. Did I pay the right price?

2. How will the funds be used?

3. How and when can I exit?

4. How can I retain the key persons?


use of milestones

staged investments

anti-dilution protection

Did�� I�� pay�� the�� right�� price?

liquidation preference

syndication


shareholders consent

board representations

information rights

business planning

How�� will�� thefunds�� be��

used?

corporate governance

veto rights


drag along right

How�� and�� when

can�� I�� exit?

redemption rights

registration rights (IPO)tag along right


share ownership

employment contract

How�� can�� I�� retain�� the�� key�� persons?

lock - upoption plan

reversed vesting


IncorporationCommon %Shares Holding

Professor A 600,000 60%University 400,000 40%

Total 1,000,000 100%

Incorporation


Angel RoundPre financing Seed round Post financing

Common % Shares Total %Shares Holding Amount issued # Shares Holding

Professor A 600,000 60% 600,000 40%University 400,000 40% 400,000 27%Angel 0% €250,000 500,000 500,000 33%

Total 1,000,000 100% €250,000 500,000 1,500,000 100%

Valuation Pre-money €500,000 Price per share €0.50Investment round €250,000Post-money €750,000


Series A RoundPre financing Series A Post financing

Common % Shares Issuance Total %Shares Holding Amount issued ESOP # Shares Holding

Professor A 600,000 40% 600,000 27%University 400,000 27% 400,000 18%Angel 500,000 33% 500,000 23%VC 1 €2,000,000 600,000 600,000 27%ESOP 110,000 110,000 5%Total 1,500,000 100% €2,000,000 600,000 110,000 2,210,000 100%

Valuation Pre-money €5,000,000 Price per share €3.33Investment round €2,000,000Post-money €7,000,000


Series B RoundPre financing Series B Post financing

Common Pref Total % Shares Issuance Total %Shares Series A # shares Holding Amount issued ESOP # Shares Holding

Professor A 600,000 - 600,000 27% 600,000 17%University 400,000 - 400,000 18% 400,000 11%Angel 500,000 - 500,000 23% 500,000 14%VC 1 600,000 600,000 27% €3,500,000 442,000 1,042,000 29%VC 2 - - 0% €6,500,000 820,857 820,857 23%ESOP 110,000 - 110,000 5% 65,000 175,000 5%Total 1,610,000 600,000 2,210,000 100% €10,000,000 1,262,857 65,000 3,537,857 100%



Series C RoundPre financing Series C Post financing

Common Pref Total % Shares Issuance Total %Shares Series A+B # shares Holding Amount issued ESOP # Shares Holding

Professor A 600,000 - 600,000 17% 600,000 9%University 400,000 - 400,000 11% 400,000 6%Angel 500,000 - 500,000 14% 500,000 7%VC 1 1,042,000 1,042,000 29% €5,000,000 321,623 1,363,623 20%VC 2 820,857 820,857 23% €5,000,000 321,623 1,142,481 16%VC 3 - - 0% €15,000,000 964,870 964,870 14%VC 4 - - 0% €15,000,000 964,870 964,870 14%ESOP 175,000 - 175,000 5% 875,000 1,050,000 15%Total 1,675,000 1,862,857 3,537,857 100% €40,000,000 2,572,987 875,000 6,985,844 100%



IPOPre financing IPO Post IPO

Common Pref Pref Pref Total Conversion % Shares Total %Shares Series A Series B Series C # shares & Stock split Holding Amount issued # Shares Holding

Professor A 600,000 600,000 715,733 9% 715,733 6%University 400,000 400,000 477,155 6% 477,155 4%Angel 500,000 500,000 596,444 7% 596,444 5%VC 1 600,000 442,000 321,623 1,363,623 1,626,651 20% 1,626,651 14%VC 2 820,857 321,623 1,142,481 1,362,852 16% 1,362,852 12%VC 3 964,870 964,870 1,150,983 14% 1,150,983 10%VC 4 964,870 964,870 1,150,983 14% 1,150,983 10%Flotation - €50,000,000 3,333,333 3,333,333 29%ESOP 1,050,000 1,050,000 1,252,533 15% 1,252,533 11%Total 2,550,000 600,000 1,262,857 2,572,987 6,985,844 8,333,333 100% €50,000,000 3,333,333 11,666,667 100%

Valuation IPO Pricing €125,000,000 Price per share (before split) €17.89Investment round €50,000,000 Price per share (after split) €15.00Postmoney €175,000,000

Harm de Vries - Twente Technology Fund!

Titel:

Venture Capital Term Sheets “a guide to structuring and negotiating venture capital transactions”

Authors:

H.F. de Vries and M.J. van Loon

Publisher:

Reed Business Information

ISBN13:

9789059016323

Economy & Finance

Ppt ttf inzake spin outs 03-04-12