Venture Capitalist’s an Overview

1

“VC” - Venture Capitalist is a speculator who is looking at high-risk, high-return investment in support of business creation and growth.

Funding

2

Pre - Venture Capital Funding ProcessConcept

VC

Re

venu

e

FoundersAngel Financing

Venture Capital Firms & Corporate Investors

Time

Gestation

Inception

Prototype

Roll Out

Rapid Growth

Expansion

Maturity

BanksIPO Acquisition

Typical cycle of a “VC” funding

3

Venture Capital Investment Stages

Seed Stage

AngelsInvestors Early Stage

Series A

Series B

Series C

Mezzanine

Amou

nt o

f Mon

ey

Stage of Startups

First Commercial Deals

Concept/ Research

Business Planning

Product Development

Fully Operational

Expansion Ready for IPO

The financing of the initial product development

It is the second stage in the venture capital cycle. Here in the entrepreneur has moved closer towards establishment of a going concern

It is also called first stage capital which is provided to entrepreneur who has a proven product

It is the capital provided for marketing and meeting the growing working capital needs of an enterprise that has commenced the production but does not have positive cash flows . In this stage the risk factor for a VC is high.

This stage is for an established commercial production and basic marketing set-up, typically for market expansion, acquisition, product development etc, this stage is a significantly high risk stage.

In this stage Market expansion, acquisition & product development for profit making company will be the goal of the company, this is the medium risk stage.

This is the final stage for a VC participation, in this stage the company will facilitate itself for a public issue, this is the low risk stage.

Stages of a VC funding

4

Pre - Venture Capital Funding Process

Idea or Concept

Patent and Trademark Research

Technical feasibility

studies

Competition Review

Initial Venture Planning (Report)

Entrepreneur Characteristic

Business Model

Reviews

Revenue Model

Reviews

Market Studies

Research

Market Characteristic

Competition

Technology Breakthrough

Pricing Studies

Business Plan

Executive Summary

Power Point Business Plan

Elevator Speech

Due Diligence

Valuation Models

First Chicago Methods

Discounted Cash Flow

Market Value Research

Investment Stage

Comparison

5

Process of different funding stages ………… Exit stage

Board of directors liquidity event decision tree

MergerSeed Capital

Round

Private Placement Reg

D

Friends, Family & 300,000+

Incubator Selection

Plan to complete

prototype/service

Angel Round

Board of Advisors and

Directors

Develop personal

contact list

Solicit Advisor Recommendati

on

Locate Local Associations of

Angels

Break-Even Plan

First Venture Capital Round

Venture Fund Research for a

fit

Portfolio Company

Comparisons

Angel Recommendati

on

Set Valuation Target

Term Sheet Comparisons

Second Round Financing

Venture Fund Research for a

fit

Portfolio Company

comparisons

First Round Recommendati

ons

Set Valuation Target

Term Sheet Comparisons

Ex

it P

roc

es

s

Valuation comparison

IPO or Merger

Decision tree

IPO Determine

Value

IPO Vs Merger

Shareholder Value

Option Values

Build Value Vs Liquidity Event

Tax Analysis

Building Block or First Move

Investment Banker Review

M & A Firm Selection

Merger Candidates

Check Current IPO Markets

Target Candidate Screening

Acquisition Candidates to Grow for IPO

Determine Financial

Needs

Determine Value &

Negotiate Deal Structure

Poll Investors BOD & BOA for best fit

Select (3+) Underwriters

Road Show

6

Synergistic combination of your distinctive and reproducible capabilities

TANGIBLE Intellectual property rights Exclusive licenses Statutory monopolies

INTANGIBLE Strong brands Leadership Tacit knowledge & skills Teamwork Organizational culture Business processes Partnerships

Distinctive Capabilities (Cannot be replicated by competitors)

Technical capabilitiesFinancial capabilitiesMarketing capabilitiesExplicit knowledgeNon-exclusive licenses

Reproducible Capabilities(can be replicated by competitors)

Venture process selection criteria

Business founders must assume that everything written in their

business plan will be checked by prospective investors

When reading a business plan they look for reasons such as

traps, oversights, oversimplifications, hidden

competitors, and upside opportunities.

Their business plan evaluation criteria, in order of importance,

include: Key personnel: people/management that can

get the job done

A large, rapidly expanding market and the company's

marketing strategy a unique brilliant idea or technology that

can be commercialized and protected a business strategy that has a strong sustainable

competitive advantage

7

1 2

5

3 4

Advantages

Disadvantages

Angel’s Characteristics Value-adding Geographically dispersed More permissive investors

Investment Characteristics Seek smaller deals Prefer start-ups & early stage Invest in all industry sectors Like high-tech firms

Added Bonuses Leveraging effect Give loan guarantees No high fees

Little follow-on money Want a say in firm Could turn out to

be “devils”

No national reputation

leverage

Potential Pros and Cons of Business Angel Investments

Business Angels

8

Sources of funds for a start up……

First Round Second Round Third Round0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

70%

10%18%

5%

8%

8%

32%25%

7%

15%

10%

7%

15%

17%

3%10%

20%10%

10%

Public stock issuesCommercial banksNon Financial CorpsVenture CapitalistsBusiness AngelsFamily & FriendsPersonal Savings

9

Potential Investor Returns, Timing & Cost Of Capital

Cash Returns, Investment Periods, and Rates of Return

ReturnInvestment Period

2 yrs 3 yrs 4 yrs 5 yrs 6 yrs 7 yrs 8 yrs

2 x 41.4% 26.0% 18.9% 14.9% 12.2% 10.4% 9.1%

3 x 73.2% 44.2% 31.6% 24.6% 20.1% 17.0% 14.7%

4 x 100.0% 58.7% 41.4% 32.0% 26.0% 21.9% 18.9%

5 x 123.6% 71.0% 49.5% 38.0% 30.8% 25.8% 22.3%

6 x 144.9% 81.7% 56.5% 43.1% 34.8% 29.2% 25.1%

7 x 164.6% 91.3% 62.7% 47.6% 38.3% 32.0% 27.5%

8 x 182.9% 100.0% 68.2% 51.6% 41.4% 34.6% 29.7%

9 x 200.0% 108.0% 73.2% 55.2% 44.2% 36.9% 31.6%

10 x 216.2% 115.4% 77.8% 58.5% 46.8% 38.9% 33.4%

11 x 231.7% 122.4% 82.1% 61.5% 49.1% 40.9% 35.0%

12 x 246.4% 128.9% 86.1% 64.4% 51.3% 42.6% 36.4%

10

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

Profit (In Millions) for last four quarters

Top ten companies in silicon valley who have made profits in the year 2010 – these companies were majorly funded by top VC’s

Voted # 1 Brand in the World overtaking Google in

the recent past

11

Top segments in silicon valley who have made profits in the year 2010 – these companies are majorly funded by top VC’s, Computer peripherals have high sales and high profits but when Sales to net profit ration is compared Bio medical stands out because the sales to profit ration is 28% and computer peripherals at 13%

Computers, perip

herals

Semiconducto

r

Software

Networking, telecommunica

tions

Internet service

s

Non-Technology

Semiconducto

r manufactu

ring equipment

Electronic c

ontract s

ervices

Bio Medica

l

Instruments,

other high technology

Storage$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00Sales (Billions) Net profit (Billions)

Sale

s (B

illio

n)

Net

Pro

fit (B

illio

n)

Sectors Sales (Billions) Net profit (Billions) Net profit ratioComputers, peripherals $206.15 $25.82 13%Semiconductor $80.08 $16.16 20%Software $62.54 $10.40 17%Networking, telecommunications $56.41 $8.40 15%Internet services $49.03 $11.80 24%Non-Technology $18.48 $1.81 10%Semiconductor manufacturing equipment $17.79 $2.87 16%Electronic contract services $15.68 $0.21 1%Bio Medical $13.95 $3.89 28%Instruments, other high technology $13.26 $1.42 11%Storage $10.49 $1.95 19%Total $543.86 $84.73

Net profit ratio 28%

Net profit ratio 13%

12

Com

pute

rs, p

erip

hera

lsSo

ftwar

eIn

tern

et se

rvice

sSe

mico

nduc

tor

Net

wor

king

, tel

ecom

mun

icatio

nsBi

o M

edica

lN

on-T

echn

olog

y

Inst

rum

ents

, oth

er h

igh

tech

nolo

gy

Sem

icond

ucto

r man

ufac

turin

g eq

uipm

ent

Stor

age

Elec

tron

ic co

ntra

ct se

rvice

s$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

Market Capitalization

Bio

Med

ical

Inte

rnet

serv

ices

Stor

age

Sem

icond

ucto

r man

ufac

turin

g eq

uipm

ent

Com

pute

rs, p

erip

hera

lsN

etw

orki

ng, t

elec

omm

unica

tions

Sem

icond

ucto

rIn

stru

men

ts, o

ther

hig

h te

chno

logy

Softw

are

Non

-Tec

hnol

ogy

Elec

tron

ic co

ntra

ct se

rvice

s

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

Sales per employee

Companies who have more profits have huge market capitalization but Bio medical sector has generated high sales per employees even though their profit and market capitalization is low, this is because these companies are more based on innovative products.

13

Bottom ten companies in silicon valley who have made losses in the year 2010 – these companies are majorly funded by top VC’s, the trend shows that these products have a lot of competition and the margins in these products are really low, piracy is also one of the major factors for attaining huge losses in Entertainment software industry

Wire

less netw

orking pro

ducts

Broadband ch

ips

TV servi

ces,

digital r

ecord

ers

Entertainment s

oftware

$(450.00)

$(400.00)

$(350.00)

$(300.00)

$(250.00)

$(200.00)

$(150.00)

$(100.00)

$(50.00)

$-

Sum of losses (In Millions) for last four quarters

14

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Market value of the company (in millions)

Technology companies lead pack of market capitalization, it also clearly shows that high profit margin companies have high market capitalization.

15

Number of venture firms expected to decline in traditional markets, expected to grow in emerging markets

Brazil

Canada

China

France

Germany

India

Israel

United kingdom

United States

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0.3

0.48

0.06

0.21

0.1

0.22

0.04

68%

28%

51%

11%

22%

65%

3%

6%

17%

6%

10%

8%

4%

47%

1%

72%

61%

9%

60%

59%

68%

19%

11%

20%

10%

24%

Increase Significantly (More than 30%) Increasly moderatly (1% to 30%) Remain the same Decreased slightly (1% to 30%)Decrease Significantly (More than 30%)

Expected Growth in Next 5 Years – Number of VC Firms

• Brazil, China, India respondents see an increase in number of VC firms• Canada, France, Germany, Israel, UK and U.S. respondents see a decrease in number of VC firms

16

Venture capital available for investment in home country over the next five years

Expected Growth in Next 5 Years– $$ Available for VC Investment

Brazil

Canada

China

France

Germany

India

Isreal

United kingdom

United States

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0.51

0.700000000000001

0.41

0.1

0.02

0.01

49%

50%

30%

22%

39%

50%

31%

17%

6%

11%

17%

6%

10%

11%

33%

61%

44%

3%

70%

61%

57%

11%

6%

10%

6%

14%

Increase Significantly (More than 30%) Increasly moderatly (1% to 30%) Remain the same Decreased slightly (1% to 30%)Decrease Significantly (More than 30%)

• Brazil, China, India respondents see an increase• Canada and Germany respondents were split with approximately half expecting a increase and half expecting a decrease• France, Israel, UK and U.S. respondents see a decrease

17

Telecommunications

Semiconductors including electronics

Software

New media/Social Networking

Biopharmaceuticals

Medical device and Equipment

Clean technology

Consumer business

Finance services

Healthcare services

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

27%

17%

36%

56%

42%

51%

80%

51%

39%

63%

48%

44%

52%

34%

40%

37%

17%

41%

47%

30%

25%

39%

12%

10%

18%

13%

3%

8%

14%

6%

Increase Remain the same Decrease

Investment by sector in the next 5 years

• Clean technologies and healthcare services are the hottest industries• Semiconductor and telecommunication see the biggest slow down in future investments

18

Industry investment highlights by country

Top 2 industry sectors countries will be increasing their investment in

Country #1 Increased Investment Sector #2 Increased Investment Sector

Brazil Consumer Business – 92% Clean Technologies – 85%

Canada Clean Technologies – 67% New media/social networking – 50%

China Clean Technologies – 95% Healthcare Services – 92%

France Clean Technologies – 88% Health care Services – 69%

Germany Clean Technologies – 71% New media/social networking – 64%

India Clean Technologies – 90% Healthcare Services – 89%

Israel New media/social networking – 86% Medical device and equipment -67%

United Kingdom Clean Technologies – 85% Healthcare Services – 62%

U.S. Clean Technologies – 72% New media/social networking – 58%

19

42% of the VC’s felt that U.S. remain a dominant force in the technology

industry in light of increased competition in the venture capital industry

54% of the VC’s felt that they are very important for the growth of

US economy

2010 Trivia

2006 2007 2008 2009 2010 20110

20

40

60

80

100

57

86

612

72

14

Companies converted from VC to IPO

Limited Partners expected to shift larger allocations to emerging markets

Cross border investing increases expected to plateau

Political, regulatory and market environments causing impediments to venture capital investing

Despite challenges, VCs remain optimistic about quality of deal flow

Emerging marketsTraditional markets$ $

VC’s

20

1st Quarter

21

$1,483$1,265

$1,618

$1,253

$2,543224 221

233 233

272

Q4'09 Q1'10 Q2'10 Q3'10 Q4'10

Internet VC Investment and Deal Volume Trend

$ Funding # of Deals

www.cbinsights.com

Last Five Quarters

1% 1% 2% 1% 1%

22% 19% 20%31%

12%

28% 33%19%

27%

16%

28% 24%40%

23%

19%

16%10%

19% 7%

27%

5%13%

1%10%

25%

Q4'09 Q1'10 Q2'10 Q3'10 Q4'10

Share of Internet VC by Series - Dollars of Funding

Seed Series A Series B Series C Series D Series E +

www.cbinsights.com

Last Five Quarters

26%

24%

6%5%

3%

3%

3%2%

2%2% 2%

1%

2%

1%18%

VC Investment ($) in Internet by Sub-Industry, Q410

DiscountSocialAdvertising, Sales & MarketingBus. Intelligence, Analytics & Performance MgmtVideoGamingData StorageData & Document ManagementHealth & WellnessConferencing & CommunicationInformation Providers & PortalseCommerce enablementTravel (internet)Content ManagementAll Other

www.cbinsights.com

Venture capital investment in US - InternetInternet VC trends & deal volume trends Share of internet VC by series

VC investment in internet industry 2010

22

Top 5 acquired & venture capital funding deals in Internet industry at 2010

Company Bidder Bid value($ US million) Business description

CyberSource Corp. Visa Inc. $1,964 Provides electronic payment processing services for Web, call center, and POS environments

VeriSign Inc.-Identity Business Symantec Corp. $1,280 The identity and authentication business of VeriSign Inc., provides

Internet security services

Playdom Inc. Walt Disney Co $763 Develops social gaming software used in social networking sites such as Facebook

AdMob Inc. Google Inc. $750 Provides marketing solution services for discovery, branding and monetization on the mobile web

Internet Brands, Inc. Hellman & Friedman Capital $640 Provides Internet media services to large ticket consumer purchases

Company Venture Capitalist Funding

($ US million)

Business description

LivingSocialUS Venture Partners, Grotech Ventures, Revolution , Lightspeed Venture Partners, Amazon

$227 LivingSocial is the social commerce leader behind LivingSocial Deals, a group buying program that invites people and their friends to save up to 90 percent each day at their favorite restaurants, spas, sporting events, hotels and other local attractions in major cities.

Twitter Kleiner Perkins Caufield & Byers $200 Twitter is a social networking and micro-blogging service that allows users to post their latest updates.

GrouponDigital Sky Technologies, Battery Ventures, Accel Partners, New Enterprise Associates

$135 Groupon features a daily deal on the best stuff to do, see, eat, and buy in more than 565 cities around the world.

Whale Shark Media Austin Ventures, Norwest Venture Partners, Adams Street Partners $90 WhaleShark Media, Inc. is the world’s leading marketplace for coupons

and deals.

FleetMaticsInstitutional Venture Partners, Investcorp Technology Partners, New World Ventures

$68 FleetMatics is the leading software provider of GPS-based fleet management systems.

Acqu

ired

deal

sVe

ntur

e Ca

pita

l fun

ding

dea

ls

Appendix

23

Some companies will create increases in share value faster than 30 or 40% per year, but these are extremely rare. Everyone who has run a company knows that generating consistent 30 to 40% annual increases in value requires a great deal of hard work and some luck.

Time Required to Generate 10x to 30x Returns

20.00% 25.00% 30.00% 40.00% 50.00% 100.00%0

2

4

6

8

10

12

14

16

18

20

To achieve a minimally acceptable VC fund return of 20% per year and assuming all of the returns are from 20% of investments

Annual Return on Investment

Additional Years to VC Exit

Optimum time to exit

10X Return

30X Return

Year

s

If the venture has to be successful then yield on capital investments should be 30x on average else at least the business produce10x

The graph below shows venture capital exit times required to generate a minimally acceptable VC fund return from the winning investments.

24

Thank you

25

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26

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