1. Seed Funding and Venture Capital CourseCertificate Program Greg Horowitt, Managing Director, T2 Venture Capital Kauffman Fellow, Class XV

2. Overview Introduction to Venture Capital Instruction provided by: Greg Horowitt, Managing Partner, T2 Venture Capital; Co-Founder, Global CONNECT, Kauffman Fellow, Class XV Instruction focus: Introduction of key terms The role venture capital plays in the funding of early stage companies The venture capitalist as a human capitalist The right funding for you Preparation and execution

3. Venture 101 Seed Funding and Venture Capital Course Certificate Program

6. Risk and Rewards

7. The Capital Food Chain Friends,family,fools Grants, SBIRs, etc. Angels VCs Strategic Partners Venture Debt Liquidity (M&A, IPO) ‘Inside’ money Not equity Seed Equity Early Mid, Late Early, Mid, Late Mid, Late Stage Usually later stage

8. Internet PersonalComputers IntegratedCircuits Microwaves/Defense TestEquipment VacuumTubes The Birth of Venture Capital Venture Capital Innovation Networks 1910 1960 1970 1980 2000 1990 1930 1940 1950 1920 Steve Blank, Stanford University 2009

10. Whitney, Rockefeller, Bessemer (1946-1969)

11. West Coast IPOs

12. Varian, Hewlett Packard, Ampex (mid to late ‘50’s)

13. SBIC Act of 1958 (SBA)

14. 3:1 government match

15. 700 SBIC funds by 1965

16. Limited Partnerships

17. External investors as LPs (pension funds, endowments, HNW)

18. The General Partners (GP) manage the money in exchange for:

19. 2% management fee

20. 20% of the carried interest (profits)

21. Capital Gains Reduction (‘78)

22. 49.5%  28%

23. ERISA (Employee Retirement Income Security Act (‘79)

25. Rock and Davis (‘61)

26. Sutter Hill (‘64)

27. Patricof & Co. (‘69)

28. Kleiner Perkins (‘72)

31. Entrepreneurs:Go Where the Investors Are Angels Number of Investors Valley of Death VCs $5 million $10 million Investment (one round)

32. <100 IPOs (VC funded) < 500 VC Seed/Start-up Investments 40-50,000 Angel Investments 500-700,000 New Companies 0 200,000 400,000 600,000 800,000 New Company FormationSource of Funds Typical Year

34. <1 in 1000 Start-ups are VC financed

35. <1 in 10,000 new companies go public

37. Venture Capital Method Investment Exit Year Revenues (5th year) Net Profit (5th year) P/E (industry) Company Value Required ROI Required Capital Growth % Equity Required at Exit Pre-money Valuation $2 million 5th Year $40 million 10% = $4 million 12X $48 million 50% = 8X $16 million 33% $4 million * In reality, we would need more than 33%, since dilution will probably occur

38. Venture Mechanics: Valuation Pre-money V: agreed value of company prior to this round’s investment (I) Post-money valuation V= V + I VC equity in company: I/V= I/(V+I), not I/V Example: $5M invested on $10M pre-money gives VC 1/3 of the shares, not ½ This should be viewed as a partnership, not an acquisition I and V are items of negotiation Generally company wants large V, VC small V, but there are many subtleties… This round’s V will have an impact on future rounds Possible elements of valuation: Multiple of revenue or earnings Projected percentage of market share

40. Deal Structuring

41. Value Creation

42. Preparation for exit

46. What do they look for?Great management that is emotionally competent Market opportunity that is trending in the right direction Sustainable competitive advantage Managed and mitigated risk Convinced that people will buy the product…and hopefully buy it again and again and…. Solid team with high integrity Strong IP position and / or significant trade secret Entrepreneurial passion, relentlessness imagination, flexibility, coachability, and ‘pushing hard at the edges’ VCs want to be assured that they will get their money out before they die

50. The pre-investment relationship

51. Helping entrepreneurs validate, calibrate, and refine value proposition

52. Assistance in building global advisory boards

53. Introductions to other investors

54. Mentorship and education

55. Helping them understand what’s ahead

56. The post-investment relationshipBeing an effective board member Mentorship, coaching and insights Using networks to accelerate value creation Access to high quality talent Access to domain and market experts Access to customers and partners Access to licensees / licensors Engineering a liquidity event

58. Execution and adaptation off business model to market demands and customer needs

59. Being able to attract, motivate, and empower team members

60. Being capable of synthesizing new ideas, and demonstrating relevance

61. Being able to mobilize and allocate resources efficiency and effectively

62. Giving customers what they need, AND what they want

63. Leadership and talent development

64. Staying ‘authentic’

66. Thank you Greg Horowitt Managing Director greg@t2vc.com