Go Big or Get Rich: Liquidity Alternatives at $3M+ ARR with Turn/River Capital

1. GO BIG OR GET RICH LIQUIDITY ALTERNATIVES AT $3M+ ARR JOANNE YUAN VP of Investment Turn / River Capital @joanneyuanyuan

2. Joanne Yuan VP of Investment Turn/River Capital @joanneyuanyuan Go Big or Get Rich: Liquidity Alternatives at $3M+ ARR

3. We All Want to Make a Dent in the Universe (and Bank Account!)

4. $0 $20 $40 $60 $80 $100 $120 1 2 3 4 5 6 7 $M Years from $1M ARR That’s Doable, Right? IPO +300% +300% +200% +200% +200%

5. (Actual Picture of Me Riding a Unicorn That Poops Rainbows)

6. $0 $20 $40 $60 $80 $100 $120 1 2 3 4 5 6 7 $M Years from $1M ARR • Infrastructure • Development • Communication • Marketing • Sales • Customer support • Operations There Was Only One Way: Go Big (with VC) or Go Home IPO: $150M Raised Seed: $1M Series A: $5M Series B: $15M Series C: $50M Series D: $80M

7. What Happens to Venture Funded Companies? 26% Sustain or Exit <$50M 70% Fail 4% Exit >$50M 0.1% Ever IPO

8. I Know What You Are Thinking

9. Turns Out, It’s The Universe That’s Going to Make in a Dent in You (AND Your Bank Account!) • 736 software companies that raised funding were acquired in 2018 • 40% fail to exit for more than they raised, including 25% of $50M+ acquisitions • Another 20% exit for <2x raised Fail <1x <2x

10. In Actuality, What This Means Is This 1 Guy SAASTR 2017

11. What If I Told You There Was Another Way

12. Barriers For Software Building Have Fallen Dramatically… More than 35k APIs Exist Today $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 $0.45 Falling Cost of Instance

13. ...As The Community of Software Developers Has Expanded…

14. … Even Across the Globe 63% Departments have team members that work significant time remotely Hiring managers predict their workforce will be predominantly remote in 10 years 38%

15. Coupled With The Rise of Recurring Revenue Models… 11% 13% 34% 22% 20% 40% 0% 10% 20% 30% 40% 50% Systems Infrastructure Applications Gartner Forecast: Cloud % of IT Spend 2018 2022

16. • Venture debt • MRR/ARR line • Revenue-based financing • Debt-Equity hybrids • Private Equity funds investing earlier, more operational • Venture buyouts …A New Asset Class Has Emerged: Software ARR

17. $0 $20 $40 $60 $80 $100 $120 1 2 3 4 5 6 7 $M Years from $1M ARR • Bootstrap to $millions, then partner to scale • Raise angel funding to build product, then go solo • A first round of funding that derisks with secondary rather than adds to preference stack There Are Now More Ways to Win: Get Big or Get Rich 5-6 VC Rounds, then IPO Secondary + Partner

18. -80% -60% -40% -20% 0% 20% 40% -10% 0% 20% 40% 60% 80% 100% Turn/River Capital’s SaaS Archetypes at Scale Growth Profitability Escape Velocity Cash Cows No Man’s Land Efficient Machines

19. -80% -60% -40% -20% 0% 20% 40% -10% 0% 20% 40% 60% 80% 100% If You Are One of These Guys, You’re Good! Growth Profitability Escape Velocity Land of Rainbows: >60% Growth and Profitable?  Congrats! Lots of options Escape Velocity: >60% Growth at Scale, Not Profitable  Silicon Valley is built around you! VC, growth equity, venture debt, secondary marketplaces, 3rd party funded employee tenders

20. -80% -60% -40% -20% 0% 20% 40% -10% 0% 20% 40% 60% 80% 100% Growth Profitability For Those In The Death Zone:

21. For Those In The Death Zone:

22. For The Rest of Us: Welcome to the Great, Big Middle!

23. -80% -60% -40% -20% 0% 20% 40% -10% 0% 20% 40% 60% 80% 100% Growth Profitability Escape Velocity Cash Cows No Man’s Land Efficient Machines Cash Cows: Milk or Move

24. Cash Cows: Low Growth, Profitable Revenue EBITDA • Low growth (<20%) but strongly profitable • Multiple devaluation at this growth level unless get growth back above 20% • Different buyer profile and valuation even though liquidity categories are same as Efficient Machines • Most likely path to liquidity is harvesting cash flows through debt-like alternatives

25. Cash Cows: Stay Slow Growth, Milk Liquidity Outside Help? Liquidity Timing Alternatives No Now • Traditional bank debt: 1-2x profitability; no dilution; restrictive covenants and default risk; only modest liquidity available Yes Now and Later • Value Oriented Private Equity: Initial liquidity 35- 100%; ops help to reduce costs; return thru dividends or 2nd exit

26. Cash Cows: Get Growth >20% for Valuation Bump Outside Help? Liquidity Timing Alternatives No Later • MRR Line of Credit: 4-12x MRR, expensive and may include warrants. Can’t be used for liquidity, only bridge for growth Yes Now and Later • Lower Mid-Market Private Equity: Initial liquidity 35- 100%; ops help; returns thru dividends or 2nd exit

27. Cash Cows: Full Exit Now Liquidity Timing Alternatives Now • Strategic M&A: Value synergies, more flexible on financial profile, may require 1-3 years stay • Lower Mid-Market Private Equity: Can buy up to 100%, no requirements to stay

28. Revenue EBITDA Cash Cows + Private Equity: Getting Growth >20% Illustrative Company $10M ARR, 10% growth, 30% EBITDA Initial Exit Sell majority to private equity for initial $15M liquidity to founders

29. Revenue EBITDA Cash Cows + Private Equity: Getting Growth >20% Illustrative Company $10M ARR, 10% growth, 30% EBITDA Initial Exit Sell majority to private equity for initial $15M liquidity to founders 2.5x sales via organic + inorganic tactics based on fund strategy

30. Revenue EBITDA Cash Cows + Private Equity: Getting Growth >20% Illustrative Company $10M ARR, 10% growth, 30% EBITDA Initial Exit Sell majority to private equity for initial $15M liquidity to founders 2.5x sales via organic + inorganic tactics based on fund strategy Full Exit 3 Years Later $25M ARR 25% growth 40% EBITDA 5x sale to strategic $85M to founders in 3 years

31. Revenue EBITDA Cash Cows + Private Equity: Getting Growth >20% Illustrative Company $10M ARR, 10% growth, 30% EBITDA Initial Exit Sell majority to private equity for initial $15M liquidity to founders 2.5x sales via organic + inorganic tactics based on fund strategy Full Exit 3 Years Later $25M ARR 25% growth 40% EBITDA 5x sale to strategic $85M to founders in 3 years

32. -80% -60% -40% -20% 0% 20% 40% -10% 0% 20% 40% 60% 80% 100% Growth Profitability Escape Velocity Cash Cows No Man’s Land Efficient Machines Efficient Machines: Accelerate Profitable Growth

33. Efficient Machines: Moderate Growth, Profitable Revenue EBITDA • Medium growth (20-80% y/y) • Medium profitability • May have raised some funding but now self sustaining • Cash generation limits growth  more years to scale • Accelerating growth >50% improves valuation multiple and strategic value and shortens time to reach meaningful scale

34. Efficient Machines: Stay Moderate Growth Outside Help? Liquidity Timing Alternatives No Now • Traditional bank debt: 1-2x profitability; no dilution; ops covenants and default risk; only modest liquidity available Yes Now and Later • Lower Mid-Market Private Equity: Initial liquidity 35-100%; organic and inorganic ops strategies; full returns in 3-4 years at up to 6x

35. Efficient Machines: Get Growth >50% for Value Bump Outside Help? Liquidity Timing Alternatives No Later • MRR Line of Credit: 4-12x MRR, expensive and may include warrants. Can’t be used for liquidity, only bridge for growth Yes Now and Later • Lower Mid-Market Private Equity: Initial liquidity 35-100%; organic and inorganic ops strategies; full returns in 3-4 years at up to 10x • Growth Equity: Initial stake of minority through majority ownership

36. Efficient Machines: Full Exit Now Liquidity Timing Alternatives Now • Strategic M&A: Value synergies, may require 1-3 years stay • Lower Mid-Market Private Equity: Can buy up to 100%, no requirements to stay

37. Revenue EBITDA Efficient Machines + Private Equity: Get Growth >50% Illustrative Company $10M ARR, 30% growth, 15% EBITDA Initial Exit Sell stake to private equity for initial $25M liquidity to founders

38. Revenue EBITDA Efficient Machines + Private Equity: Get Growth >50% Illustrative Company $10M ARR, 30% growth, 15% EBITDA Initial Exit Sell stake to private equity for initial $25M liquidity to founders 3.5x sales via organic + inorganic tactics based on fund strategy

39. Revenue EBITDA Efficient Machines + Private Equity: Get Growth >50% Illustrative Company $10M ARR, 30% growth, 15% EBITDA Initial Exit Sell stake to private equity for initial $25M liquidity to founders 3.5x sales via organic + inorganic tactics based on fund strategy Full Exit 3 Years Later $35M ARR 50% growth 40% EBITDA 8x sale to strategic $165M to founders in 3 years

40. -80% -60% -40% -20% 0% 20% 40% -10% 0% 20% 40% 60% 80% 100% Growth Profitability Escape Velocity Cash Cows No Man’s Land Efficient Machines No Man’s Land: Don’t Have to Go Home But You Can’t Stay Here

41. No Man’s Land: Moderate Growth, Unprofitable Revenue EBITDA • Slow to medium growth (<50%) but not yet profitable • Perhaps raised capital and grew fast at expense of efficiency but now needs to change as growth slows and VC isn’t an option • Used to be Death Zone, but today more options exist to bridge to exit • Goal to get back to safety: reaccelerate growth back to Escape Velocity or become profitable

42. No Man’s Land: Get to Profitable Growth Outside Help? Liquidity Timing Alternatives No Later • Venture Debt: 4-12x MRR, quick underwriting, no operating covenants; more expensive; may include warrants; default risk • Revenue-Based Loan: 20-40% effective rates from royalty payments for 24-36 months; no covenants or warrants Yes Now and Later • Lower Mid-Market Private Equity: Initial liquidity 35%+; turnaround help in cost cutting operations; full returns in 3-4 years at up to 10x

43. No Man’s Land: Reaccelerate to Escape Velocity Outside Help? Liquidity Timing Alternatives No Later • MRR Line of Credit: 4-12x MRR, expensive and may include warrants; default risk • Venture Debt: 4-12x MRR, quick underwriting, no operating covenants; more expensive; may include warrants; default risk

44. No Man’s Land : Full Exit Now Liquidity Timing Alternatives Now • Strategic M&A: Value synergies, potentially care less about economics if strategic, product or talent value; may require 1-3 years stay • Lower Mid-Market Private Equity: Can buy up to 100%; no requirements to stay

45. Revenue EBITDA No Man’s Land + Private Equity: Get to Profitable Growth Illustrative Company $10M ARR 30% growth -20% EBITDA Initial Exit Sell majority to private equity for initial $20M to cap table

46. Revenue EBITDA No Man’s Land + Private Equity: Get to Profitable Growth Illustrative Company $10M ARR 30% growth -20% EBITDA Initial Exit Sell majority to private equity for initial $20M to cap table 3x sales & +40% margin Focus on right-sizing metrics (CAC, churn) and costs (FTEs, rent)

47. Revenue EBITDA No Man’s Land + Private Equity: Get to Profitable Growth Illustrative Company $10M ARR 30% growth -20% EBITDA Initial Exit Sell majority to private equity for initial $20M to cap table 3x sales & +40% margin Focus on right-sizing metrics (CAC, churn) and costs (FTEs, rent) Full Exit 4 Years Later $30M ARR 40% growth 20% EBITDA 6x sale to strategic $110M to founders in 3 years

48. Change is Possible

49. A Real Life Efficient Machine From The Turn/River Portfolio Bootstrapped Security SaaS 8 Years In • $3M ARR • Growth slowed to 30% • Founders wanted to de-risk with significant liquidity, then double down on growth • Mission focused: help secure the web in a meaningful way, felt like job wasn’t done Note: Not Actual Picture of Founders.

50. • Provided Early Liquidity: $7M in cash to founders for significant minority • Provided operating resources to drive profitable growth: We worked together to build the team and optimize pricing, sales & marketing, doubling growth to 70% • Bought by large strategic 3 years later, resulting in another $43M to founders, for a total of $50M • Access to their security product went up 100x+, delivering on their Mission to secure the web How We Helped These Founders By Quarter Actual Turn/River Ops Results

51. Let’s Make a Dent in the Universe Together 3 Years Later • 5x Revenue • 70% Growth • 100x Customer Reach • $50M Founder Liquidity • Eliminated risk of getting zero return early • Their SaaS is now a foundational part of internet infrastructure Where They Were • $3M Revenue • 30% and slowing growth • Founders: Equity rich but cash poor 8 years in • Mission: Secure the web with their software

52. Real Turn/River Portfolio Co • Helped grow sales $3M $15M • $85M Valuation at Strategic Exit • 50% Founder Owned • $50M to Founder, including $7M initial liquidity from T/R Real Public SaaS Co • $100M Revenue • $700M Valuation at IPO • 4% Founder Owned • $30M to Founder Let’s Make a Dent in the Universe Together … Differently Than Silicon Valley

53. THANK YOU

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