This document discusses securing early stage funding. It provides an overview of how venture capital works, including that venture capital firms invest funds from limited partners and aim to profit from IPOs or acquisitions within 10 years. It describes how to raise money by giving yourself options, creating scarcity, and raising funds when not needed. Examples are given of raising money from friends and family or venture capital firms. The document emphasizes matching the offer to funder needs and that raising venture capital requires demonstrating necessity while other options also exist.

1. Securing Early Stage
Funding
David Berry, MD PhD
Partner, Flagship Ventures

2. Overview
 How does VC work?
 A snapshot of venture capital: then and now
 How to raise money
 Examples in raising money:
– Friends and family
– Venture capital
– Large scale financing
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3. A Primer on Venture Capital
 Venture capital firms are managed by a General Partner
 The General Partner invests funds from Limited Partners
 Funds have a ten year life with a limited number of extensions
 The General Partner receives is compensated by a management fee and carry
– Management fees cover salary and expenses
– Carry is a percent of the profits
– Most partnerships have to pay back the LPs and the fees before the General
Partner can share in the profits
 Incentives vary based on fund size and number of partners
– Small funds are typically driven by carry only
– Large funds can be driven by fees
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4. How Venture Capital Works
 The General Partner invest from the fund into a number of
companies defined by the strategy
 Typically, subsequent rounds are required after an investment
by a given VC
– Existing investors are driven to increase share price and
reduce dilution
– VCs are motivated to ‘enhance’ the fundraise
– The single biggest value of a VC is reducing the cost of
capital
 Venture capitalists only make a profit upon an IPO or M&A
 Fund life may influence exit behavior
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5. Understanding the VC Incentives
 2 and 20
– Management fees provide for salaries (2% per year)
– After the LPs are repaid, 20% of profits (the carry) are split by the GP in a pre-
defined manner
 VCs are eager to return the fund
 VCs are eager to get disproportionate returns
 Strategies define the motivation
– Spray and pray
– Targeted bets
– Portfolio plays
 Venture capitalists bet on people, trends, IP, and the potential to ‘create value’
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6. Venture Capital: A Major Economic Engine
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7. Venture Capital is Not Evenly Distributed
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8. What Happens to Venture Backed Companies
 Remember: Entrepreneurs Build Companies…VCs just fund them
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9. The Venture Industry Is Now in Challenging
Times
Vintage Year Mean Return (%)
1999 -1.79
2000 -1.83
2001 0.38
2002 0.83
2003 3.20
2004 3.19
2005 -0.46
2006 -1.74
2007 -0.95
2008 2.20
2009 2.17
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10. Snapshot on venture backed M&A
 Acquisition volume has decreased, and remains down
– Transactions over last 10 years are reduced compared to the
90’s boom
– Volume has been decreasing on a quarterly basis since 2007
 The average age to acquisition has increased, and remains high
M&A Transactions since 2000 Time from Equity financing to M&A
8
534 507 524 526
491
460
$98.3 440 6.6
$100 410 421 450 6.1
385
6.0
6
5.4 5.5
5.1
$75 298
$61.1 4.6
300
4 3.7
$50
$37.7 2.8
$27.7 $31.5 2.5
$26.9 150
$24.0 2.1
$25 $19.0 $17.7 2
$12.1 $14.0
$0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q- 0
3Q'10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q-
Amount Paid ($B) Number of Transactions 3Q'10
Source: Dow Jones VentureSource Source: Dow Jones VentureSource 10
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11. IPOs in a mixed environment
 IPOs have returned
– 2010 activity is the highest since 2007
– Data is trending higher
 IPOs have an evolving character
– Higher valuation
– Flat/less money raised
IPOs since 2000 IPO sizes since 2000
205 $500
200
$350
$25
$395 $300
$400 $383
$367
$20 $19.0 150 $250
$309
$300 $275 $284
$200
$15 $229
100 $226 $227
79 $202
$200 $150
67 $166
$10
56
44 $7.5 $80 $75 $80 $100
50 $76
$5.0 32 $56 $65 $56
$5 $100 $51 $50 $52 $54
23 20 23 $3.7
$2.3 $50
7 8 $2.3
$1.7 $1.6 $1.5
$0 0 $0 $0
$0.6 $0.9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q-
3Q'10 3Q'10
Amount Raised ($B) Venture-Backed IPOs Median Pre-Valuation at IPO ($M) Median Amount Raised at IPO ($M)
Source: Dow Jones VentureSource Source: Dow Jones VentureSource 11
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12. IPO exits are taking longer
 The amount of time to IPO has consistently risen
 The amount of equity financing prior to IPO is markedly
increased
 The increase in median valuation does not compensate for the
increased time and money prior to IPOs
Time from equity financing to IPO Money raised prior to IPO
10
8.7 8.8
$75 $73 $72
7.9
8 $65
6.8 $57 $58
6.2 $55 $55
$51
6 5.7 5.7 5.7 $48
$50 $44
$43
4.6
4 3.6
3.1
$25
2
$0
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q-
3Q'10
3Q'10
Source: Dow Jones VentureSource Source: Dow Jones VentureSource 12
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13. The ecosystem is responding
 Entrepreneurs are responding to the changes
 Firms are focusing their efforts
$85.5
$80
$60
$42.5
$40.1
$40
$31.2
$28.7 $28.6
$19.0 $18.9
$20 $13.5
$10.4 $9.2
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q-
3Q'10 13
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14. How To Raise Money
 3 Rules:
– Give yourself options
– Create scarcity
– Raise money when you don’t need to
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15. Give Yourself Options
 Options give you flexibility in any negotiation
 Allows you to better match with your goals
 Flexibility is essential to create options
 Be creative and aggressive
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16. Example 1: Wellstone Filters
 Based on the development on dialdehyde starches as effective
binders of AGEs
– Removes 96% carcinogens
– Removes 94% tar
– Removes 10% nicotine
 Initially commercialized to remove carcinogens from cigarettes
 Funded by angel investment, brought public within 12 months
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Confidential and Proprietary

17. Create Scarcity
 People want what they cant have
 Investors need to be compelled to have something
 If they feel they can get something at any time, they will wait
 Only 3 in 1000 deals a VC sees get funded—scarcity and
essentialness are differentiating
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Confidential and Proprietary

18. LS9: Building a better biofuel
High-quality, low-cost drop-in fuels and sustainable
chemicals for large and growing markets
Any Most Unique Drop-in
renewable efficient one-step infrastructure
feedstock conversion process compatibility
Confidential and & Confidential
Proprietary Proprietary - 18 -

19. Fatty Acid Biosynthesis:
The Best Route to Hydrocarbons
Metabolic Modeling
Fatty Acid Biosynthesis
 Preferred pathway
 90% energetic efficiency
 Commercial productivity
 Well characterized
 Structurally diverse
 Immiscible
Carboxylic Hydrocarbon chain
acid
Confidential and & Confidential
Proprietary Proprietary - 19 -

20. Synthetic Pathways Enable One Step Conversions
Confidential and & Confidential
Proprietary Proprietary - 20 -

21. Clear Path to Commercialization
Product
Revenue
Break Ground on
Commercial Plant
Increasing Value
Demonstration
Scale Production
Pilot Plant
Success
2009 2010 2012 2013 and
beyond
Confidential and & Confidential
Proprietary Proprietary - 21 -

22. Joule Unlimited™
or fresh water
Solar Fuels and Chemicals
Without LimitsTM
of infrastructure-compatible
renewable fuels
© 2010 Joule Biotechnologies, Inc., Proprietary and Confidential 22 www.joulebio.com

23. Channeling the Power of Photosynthesis to
Produce Fuels
O2
CO2 Waste
CO2
Solar Fuel
Water O2
Water
Nature’s Way Joule’s Way
Sunlight, CO2, and water make Harnessing nature to produce
trees grow and produce O2 fuels
© 2010 Joule Biotechnologies, Inc., Proprietary and Confidential 23 www.joulebio.com

24. Integrating Synthetic Biology with
Bioreactor Design
Joule’s Proprietary Organism
PRODUCT
Waste CO2
SolarConverter
Waste
CO2
Joule Production Facility
© 2010 Joule Biotechnologies, Inc., Proprietary and Confidential 24 www.joulebio.com

25. Towards Future of Unlimited Reserves
Joule’s current Pilot Plant, Leander, TX Joule’s New Mexico 1000 Acre SunSprings Diesel Plant
(in process)
© 2010 Joule Biotechnologies, Inc., Proprietary and Confidential 25 www.joulebio.com

26. Raise Money When You Don’t Need To
 Give your self options
 Give yourself leverage
 Give your self time
 Give yourself opportunity
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27. © 2011 Essentient, Inc. Proprietary and Confidential
2011 Essentient, Inc., Proprietary and Confidential 27 www.essentientinc.com
www.essentientinc.com

28. Securing an Essential Nutrient Supply is THE Most
Important Challenge for 21st Century Health
• The current infrastructure is an enormous resource drain
– Agriculture covers >40% of all land
– Produces >30% greenhouse gases
– Responsible for over 75% of fresh water use
– The single greatest driver of land degradation, ground water depletion, habitat destruction, and
biodiversity loss
• Yet it cannot sustainably provide nutrition
– ~1 billion people are chronically undernourished
– Another 2 billion people are poorly nourished
– The ‘properly’ nourished often have an inappropriate nutrient balance leading to the major causes of
developed world mortality: cancer, heart disease, diabetes
• Nutrition and food security has been lacking needed innovation
© 2011 Essentient, Inc., Proprietary and Confidential 28 www.essentientinc.com

29. Essentient’s Nutrient Proteins will Transform
Global Nutrition
No requirement for arable land No dependency on fresh water Minimized GHG emissions
Nutrition tailored to needs Reliable, predictable supply At ultra-low costs
© 2011 Essentient, Inc., Proprietary and Confidential 29 www.essentientinc.com

30. Summary
 Raising money is about matching your offer to funder needs
 Venture capital is a potent source of capital, but not the only one
 Raise money from venture capitalists requires creating the
sense of need
 There is no one way to get there
 Once you get investment, interests are generally aligned
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31. Thank you!
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