The document discusses the US innovation ecosystem and venture capital landscape. It notes that in Q3 2007, $7.1 billion was invested in venture capital deals in the US, with software and biotech each receiving around $1.1 billion. CleanTech like alternative energy also saw increased investment. The Silicon Valley area, within a 20km radius, receives 35% of US venture funding and benefits from proximity to top universities and venture capital firms. Successful startups like Google, Apple, and eBay began with no proven team, technology, or business model but received early funding based on their potential. The document advocates an approach for venture capitalists and entrepreneurs that accepts failure as part of iterating through ideas to find big successes, like Google

1. InnoTech.My 2007 Colin Wong President of Prosperati

2. Bio

3. Bio CEO President

4. U.S. VC Landscape 2006 $25.7B invested Q3 2007 $7.1B invested

5. VC Activity By Category

7. $844M (Q3Y07)

11. TV

12. AdvertisingVideo Technologies Consumer oriented Technologies Enterprise oriented Technologies

13. VC Activity By Location

14. VC Activity By Location Silicon Valley represents 35% of all U.S. VC activity Q3 Y07 Silicon Valley – 287 deals New England – 119 deals LA/Orange County – 56 deals

15. USA San Francisco Bay Area

17. University Research

18. Venture Capital

19. Technology Entrepreneurs

21. The U.S. Innovation Ecosystem Oracle Electronic Arts BlueRun Capital Draper Fisher Jurvetson Google Network Appliance Accel Partners Cisco Benchmark Capital Yahoo Sun Microsystems Kleiner Perkins NASA Research Adobe Sequoia Capital Intel Stanford University NVIDIA Hewlett-Packard Apple Ebay

22. Research Research Build a world-class University The best MINDS from all over the world travel here to study here Incredible pool of world class talent Google Larry Page (Michigan) Sergei Brin (Mathematics prodigy from Russia) PhD Computer Science candidates Started Google in a garage within Stanford

23. Venture Capital Access to EASY seed capital Google got $100K in seed capital from Andy Bechtolsheim (Angel Investor & Co-Founder of Sun Microsystems) over lunch Access to EASY startup capital Google got $1.1M in startup capital from Sequoia and Kleiner Perkins No proven management team No proven technology No proven business model Venture Capital Sequoia Capital got lucky?

24. Sequoia Capital AND MANY MORE….

25. A Question for You What does Hewlett-Packard, Apple, Ebay, Microsoft, Google, Yahoo and YouTube have in common? No Proven Team No Proven Technology No Proven Business Model

26. How Do You Evaluate Startups?

28. Cash Flow Oriented

29. Short-term horizon (12 – 18 months)

30. Long-term horizon (3 – 5 years)

31. Collateralized Loan

32. Preferred Equity

33. Proven Business Model

34. Law of Numbers1/2 of investments loose money 1/3 of investments break even 1/6 of investments make (lots of) money 1/6 $$$ > 5/6 $

35. Risk vs. Reward Risk Cutting vs. Reward Projecting Risk Cutting Concentrate on avoiding the company that will loose 100% of your funding The “Restaurant” Play Reward Projecting Concentrate on finding the company that will give you a 100x return on your funding The “Cure for Cancer” Play

36. Case-Study: Google Seed funding: $100K from Andy Bechtolsheim (angel investor & co-founder of Sun Microsystems) over lunch Early stage funding: $1.1M from Kleiner Perkins, Sequoia Capital on unproven management, technology and business model IPO: $23B valuation - 2300x ROI Today: $210B valuation – 21,000x ROI As a VC, what is the success / failure ratio you are willing to risk?

37. Entrepreneurs 1 in 20 new companies survive past 1st year More of a myth U.S. SBA : 50% of new companies fail in first 5 years But mindset must be the same Be willing to go off the business plan A business plan is just a beginning Iterate through discoveries market/technology/business model Entrepreneurs

38. The Iteration Game (Evolution) Raise more money than you need, to iterate Don’t expect your 1st iteration to hit the lottery Every iteration tells you what you shouldn’t do, to get you to what you need to do Google Business Model / Omid vs. Larry Expect second or third round of VC funding Build milestones Understand your failures

39. Closing US Innovation Ecosystem is about: For VCs Risking x failures to find the next Google For Entrepreneurs Failure *is* an option Risking x failures (iterations) to find the next Google failure Risking to get outsized rewards Fail Fast, Fail Often to Find Success

40. Thank You It’s all about risk. Colin Wong colin@prosperati.com