CVG - May 10 Presentation on Endowment and Foundation Venture Investing

Endowment and Foundation Venture Investing Anlyan Center Auditorium Yale University New Haven, Connecticut May 10, 2012 www.cvg.org

Welcome Welcome Gregg Lallier Partner Updike, Kelly & Spellacy www.cvg.org

CVG Sponsors Deal Lead B Round www.cvg.org

Our Sponsors A Round Venture Capital Sponsors Professional Service Firms www.cvg.org

Legislative Update 2012 Gregg Lallier Partner Updike, Kelly & Spellacy www.cvg.org

CVG Panel Moderator Stephen Bloch General Partner Canaan Partners www.cvg.org

About Canaan Partners » 20 year old global firm with offices in Silicon Valley | New York Corridor | India | Israel » $3 Billion assets under management across 8 funds » Technology + Healthcare focused » Early-stage investments (Series A/B) » 122 successful exits » 164 years investing experience » 142 years operating experience » 4 former CEOs » 3 MDs and 2 PhDs www.cvg.org

Canaan IX • $600 M closed January 2012 • Diversification strategy – 1/3 Healthcare, 2/3 Technology – 75% U.S., 25% India & Israel • Primarily early-stage focus >75% of investments • Lead or co-lead >90% of transactions www.cvg.org

Business Models Business Approach • How we find interesting opportunities – Network, network, network – Repeat entrepreneurs in 20% of our companies – Constant marketing to entrepreneurs in various forums • What we look for in start-up companies – Large market opportunities – Teams that can execute and that have a track record – Highly-differentiated technologies • Team-oriented assessment process – 1st and 2nd for each investment opportunity – ALL investments go through the same process – Weekly, monthly, and quarterly discussions of all investments www.cvg.org

Facts and Figures Venture Capital Investors Private & Public Pension Funds, 42% Finance & Insurance, 25% Corporations Endowments & Operating Funds Foundations, 21% (not pension), 2% Individuals & Families, 10% Source: 2004 NVCA Yearbook prepared by Thomson Financial using 2003 data www.cvg.org

Facts and Figures Active Private VC-backed companies* United States Europe Israel n= n= n= n = 2968 2877 2890 2750 199 n= 110 230 2606 207 n = 183 2419 663 863 203 884 978 798 803 n= 695 n= 1603 n = 722 183 1384 n= 705 711 1375 n= 707 158 189 1176 1247 554 468 162 298 171 n= 395 361 414 822 87 1,282 1,184 358 358 1,058 918 328 302 994 859 275 295 561 594 472 186 n= n= n= n= 369 376 247 n= n= 160 183 164 117 87 69 IT Healthcare Product Other s and Services *Private and independent VC-backed companies that received at least one round of financing in the prior six years Source: Dow Jones VentureSource www.cvg.org

Facts and Figures Healthcare: Number of VC-backed Companies * United States Europe Israel n= n= n= n= n= 722 711 695 704 705 48 65 49 73 64 n= 554 280 61 288 285 277 290 n= n= 358 n= n= 356 n= 52 225 65 48 327 295 55 49 53 49 274 45 64 118 110 73 n= 46 109 186 15 97 16 94 61 9 11 342 318 309 10 298 297 76 222 207 215 192 6 n= 158 175 n= n= 99 50 n= n= n= 49 45 28 25 20 Biophar Healthcare Medical Medical ma Services Devices & Softwa Equipment re & IS *Private and independent VC-backed companies that received at least one round of financing in the prior six years. Source: Dow Jones VentureSource www.cvg.org

Facts and Figures Cumulative Capital Invested* United States Europe Israel $34B $30B $31B $30B $3.9B $1.3B $2.9B $4.6B $5.3B $25B $6.7B $2.4B $14B $24B $8.2B $3.0B $9.0B $8.2B $10.1B $8.2B $8.6B $8.1B $7.7B $6.0B $14.3B $7.9B $7.1B $6.4B $11.5B $5.6B $3.0B $6.4B $9.2B $7.1B $8.2B $6.8B $0.9B $1.9B $3.9B $$1.6B $4.0B $2.0B $2.0B $1.6B $1.8B $$1.4B $2.0B $2.2B $1.7B $1.3B $2.2B $1.0B $1.1B $1.1B $0.7B $0.8B $1B $0.4B $0.6B $0.4B IT Healthcare Product Other s and Services *Private and independent VC-backed companies that received at least one round of financing in the prior six years Source: Dow Jones VentureSource www.cvg.org

Facts and Figures Healthcare: Cumulative Capital Invested* United States Europe Israel $10.1B $0.3B $9.0B $0.4B $8.6B $0.4B $8.1B $3,.7B $7.6B $0.4B $0.4B $3.0B $3.3B $2.5B $6.0B $0.4B $2.9B $0.4B $0.8B $0.4B $1.4B $2.5B $0.4B $5.7B $0.4B $4.9B $4.5B $3.9B $3.8B $2.0B $2.1B $0.3B $0.4B $1.6B $1.8B $2.6B $0.4B $1.3B $0.4B $1.2B $0.3B $1.6B $1.5B $1.1B $0.4B $0.9B $1.3B $0.8B $0.2B $0.2B $0.2B $0.1B $0.2B $0.1B Biophar Healthcare Medical Medical ma Services Devices & Softwa Equipment re & IS *Private and independent VC-backed companies that received at least one round of financing in the prior six years. Source: Dow Jones VentureSource www.cvg.org

The Bad News… Healthcare VC Fundraising Down Sharply Amount Raised ($M) # Funds $200,000 236 222 $150,000$ Raised (in millions) 145 $100,000 $50,000 62 38 $- 2006 2007 2008 2009 2010 Data from Thomson Reuters www.cvg.org

The Good News…Healthcare VC Investments Holding Steady Biotechnology Medical Devices and Equipment Healthcare Services 2000 1800 152 100 147 114 1600 93 1400 671 717 630 677Number of Investments 1200 608 1000 800 600 1067 1004 1051 998 895 400 200 0 2006 2007 2008 2009 2010 Data from Thomson Reuters www.cvg.org

Five Year Liquidity: IPO Market Rebounding Biotech Medical Devices & Equipment Healthcare Services Total Amt 35 $3,000 1 30 $2,500 10 25 $2,000 Total $ Raised (in millions) 10Number of IPOs 20 $1,500 15 1 3 $1,000 10 21 17 12 $500 5 1 2 3 0 1 $- 2006 2007 2008 2009 2010 Data from Thomson Reuters www.cvg.org

Five Year Liquidity: M&A Activity Increasing Biotech Medical Devices & Equipment Healthcare Services Total Amt 70 $9,000 $8,000 60 12 9 $7,000 50 5 $6,000 Total $ Value (in millions) 21Number of Deals 40 21 4 $5,000 23 3 30 $4,000 19 14 $3,000 20 32 $2,000 29 24 10 19 19 $1,000 0 $- 2006 2007 2008 2009 2010 Data from Thomson Reuters www.cvg.org

Introduction Panelist Lynne Garner President and Trustee The Donaghue Foundation www.cvg.org

Who is Donaghue • Who is Donaghue, our grant programs, and what we need help with • Impact investing from our perspective • How can entrepreneurs help Donaghue and similar foundations • Final thoughts www.cvg.org

The Patrick and Catherine WeldonDonaghue Medical Research Foundation • Private foundation; Current assets $62M • >$83M in grants • Investments: – 2.8 cash – 58.7 equities – 33.1 fixed income – 2.4 real estate – 2.8 commodities • No alternatives www.cvg.org

Donaghue’s purpose “to provide financial assistance for research in the fields of cancer, health disease and/or other medical research to promote medical knowledge which will be of practical benefit tothe preservation, maintenance, and improvement of human life” www.cvg.org

Grant Programs www.cvg.org

Ex: Program for Research Leadership • Team-based award – team often includes someone from outside academic community • 4 years - $220,000 each year • 3 components to application: research, knowledge uptake, team-building • Non-researcher on review committee to “kick the knowledge uptake tires” www.cvg.org

New grant program – R3 • $30K-$50K for 18 month • Purchase consultation to bridge from research to users – Market analysis, focus group of potential users – Graphic design & digitizing intervention materials – Programming for use in HER – Develop prototype • Applications would not get a research-methods review • Open to former Donaghue grantees www.cvg.org

Beyond Grant Programs www.cvg.org

Opportunities to gain expertise Social marketing Effective communications Sharyn Sutton PhD, AARP Foundation Chip Heath, PhD Stanford University Venture capital investment Scaling up evidence -based programs Guy Fish, MD, Fletcher Spaght Ventures Peggy Hill, MS, National Replication office, Nurse-Family partnership www.cvg.org

Grantees with specific “after the grant”projects Donaghue grant-7 yrs, $3M Donaghue grant-4 yrs, $.9M Study interventions reduced falls through risk factor Faith-based weight loss intervention program identification, and changing provider, health care developed organization and patient practices by/for African -American women effective in producing modest, sustained outcomes Donaghue grant-5 yrs, $1.2M Donaghue grant-2 yrs. $245K Study primary care based Use of medical simulation to improve leadership & physician interventions teamwork in addressing patient safety issues improved asthma management & reduced medical cost s for high risk children www.cvg.org

Initiatives to advance the scale-up field,contribute to community building Funders Forum Scale up conference Generate discussion/action by funders of health Participate in collaborative, multi-stakeholder interventions efforts Commissioned white papers Think Tank support Survey of university technology Academic researchers & community- transfer offices based physicians discuss collaborating to Improve patient care Scale-up of evidence- based community Health programs Market receptivity to adopting interventions www.cvg.org

Impact Investing Mission-related investing Program-related investing www.cvg.org

IRS rules for private foundations • Restrictions on self-dealing • Must annually distribute 5% for charitable purposes • Limit on their holdings in private businesses • Investments must not jeopardize charitable purpose • Expenditures must further charitable purpose www.cvg.org

“Should a private foundation bemore than a private investmentcompany that uses some of itsexcess cash flow for charitablepurposes?”Luther Ragin, F.B. Heron Foundation

Mission Related Investing – the 95% • Most foundations invest in fund of funds • Questions regarding MRIs (esp. for single-fund investments) – How does the investment align with mission? – Structure of investment and level of risk? – What due diligence is needed to evaluate? – What benchmarks are used to monitor? • Easier for you; harder for us www.cvg.org

Program Related Investing – the 5% • Provides grant with returns • Purpose of investment must advance charitable mission • Investment return cannot be primary purpose • Same questions as for MRIs • Easier (and more advantageous) for us; probably harder for you www.cvg.org

Considerations for both MRIs and PRIs • How does investment further the mission? • Is it an investment for income (95%) or a program (5%)? • Jeopardizing investment rule – risk may be too high and/or return too small • Cost of monitoring the investment • How does it fit with the foundation’s overall assets www.cvg.org

Emerging models • B corps - “Firms with benefits” The Economist 1/7/12 • Social Impact Exchange – creating capital markets to fund high-impact non-profit ventures • Social Impact Bonds – NYT Economix blog http://nyti.ms/gxBwqQ • MX.com – “a marketplace for healthcare innovations” www.cvg.org

Can entrepreneurs help us? • Significant capital & business expertise is required to launch evidence-based innovations • Assist in the challenge of monetizing social, clinical innovations • Partner in a more problem-solving philanthropic enterprise by promoting new paradigms, methods, rewards www.cvg.org

Final thoughts • Foundations have a social mission • Are challenged in getting their “products” sustainably implemented • Have limited resources to spend on seed-capital investing • If your innovation can help with a foundation’s social mission, you may have a match www.cvg.org

CVG Panelist Kevin Edwards Vice President of Finance and Chief Investment Officer The University of Connecticut Foundation Inc. www.cvg.org

The UConn Foundation - Organization • 501(c)(3) tax exempt corporation • Institutionally related foundation separate from University • Mission exclusively to provide private financial support to the University of Connecticut – Fundraising and stewardship – Asset management • Volunteer Board of Directors including ex-officio University representatives • Board delegates work to established committees – Investment Committee manages portfolios; recommends policy changes – Staff and outside consultants support and bring recommendations • Assets $387 million at December 31, 2011 – Endowment $320 million (includes all endowment supporting UConn) – Non-endowed and other $67 million • Sole Shareholder of UConn Research & Development Corp. – Tech transfer of University IP www.cvg.org

Long-term Pooled Investment Portfolio Asset Allocation at December 31, 2011 Equity-like risk TIPS 5% High yield debt 5% Natural resources 8% Global equities 26% Private capital 16% Real estate 7% Inflation Opportunistic 5% hedge, 14% Growth, 72% Lower risk hedged Risk minimizing, 14 strategies % Long/short equities 9% Global macro 3% Investment grade debt 5% Event driven 3% Relative value 6% Cash 2% Downside and inflation protection with growth to meet goals Diversified risk www.cvg.org

Venture Capital Program • ~25% of Private Capital program (3%-4% of total endowment) • Fund of Funds – Primary and Secondary • Diversification by vintage year and manager • International exposure increasing – 32% of latest fund outside US – China approximately half of non-US exposure • IT dominates with Life Sciences and Energy rising • Denominator effect still an issue www.cvg.org

Venture Capital Environment • Capital inflows to funds rose slightly in 2011 – late stage dominant • New fundraising flat year over year (2011 vs. 2010) • Investment rose: software, biotech, med. devices, alt. energy • Exits similar to 2005 – 2006; IPO’s down from 2010; M&A flat • Valuations highest since 2000 – driven by late stage • New company formation upward trending near 2006-2008 levels www.cvg.org

UConn Economic Development Programs UConn Research and Development Corp • Commercialize University IP • Tied into University Office of Economic Development • 100% focused on business formation – Work with faculty through proof of concept to full operations – Raise funding – Grants, Angel, Venture, Internal Fund – Identify entrepreneurs and management teams Knowledge Portal and Incubation Programs • Tech Knowledge Portal assists existing companies with tech issues • Incubators - infrastructure and support to help create businesses – Facilities – labs, office space – Access to faculty experts, research, student employees/interns www.cvg.org

Discussion www.cvg.org

Q&A www.cvg.org

Closing Liddy Karter Executive Director Crossroads Venture Group www.cvg.org

Upcoming Events Become a member at cvg.org/join-now and attend all these events free! 6/14: Business Process Outsourcing, Stamford 7/12: Corporate Venture Investing, Hartford 8/9: Summer Networking, New Haven 9/13: Tech Enabled Marketing Services, Stamford 10/11: Tech Transfer Summit, Hartford 11/8: Medical Devices, New Haven 12/6: Investment/Tech Community Holiday Party, Stamford 12/13: Digital Media, Stamford www.cvg.org

CVG - May 10 Presentation on Endowment and Foundation Venture Investing

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CVG - May 10 Presentation on Endowment and Foundation Venture Investing Presentation Transcript