Yoav Leitersdof: Early Stage Venture Investments

Web.Start Zagreb May 2008

BIO SNAPSHOT – YOAV ANDREW LEITERSDORF

Managing partner of YL Ventures

European & Israeli early stage tech VC w/Silicon Valley presence

Unique medium-size exit strategy to known acquirers

Founded, grew and successfully sold 3 tech businesses

Movota (London) – Cofounder, MD & CEO (exit Bertelsmann ‘05)

ExchangePath (New York) – Cofounder & CTO (exit CMGI ‘99)

PcEntertainer Magazine (Tel Aviv) – Founder & CEO (exit ‘93)

VC Associate at Draper Fisher Jurvetson

15 yrs coding, engineering & telecom experience

MBA ( Columbia University ); studied at IMD , Switzerland

MOVOTA LTD. – 18 MONTHS FROM INVESTMENT TO EXIT

Company founded : London, March 2004

Capital : $1MM from founders and several investors

Business : Mobile software for TV broadcasters & producers

Product : Mobile games synchronized with TV game shows

Customers : BBC, RTL, SBS, Endemol, FremantleMedia…

Months 1-6 : invention, product development, prototyping

Months 7-12 : proof of concept deployments with the BBC

Months 13-18 : minor revenues, expansion, exit negotiations

Acquired : Bertelsmann AG, September 2005

MOVOTA LTD. – PRODUCTS AND CUSTOMERS

EXCHANGEPATH LTD. – 2.8 YEARS FROM INVESTMENT TO EXIT

Company founded : New York, January 1997

Capital : $3MM from angel investors

Business : Person-to-person & micro online payment system

Product : Online payments for data & auction items

Customers : MasterCard International, Hoovers, 20 others

Consumers : 25,000 accounts

Revenues : Minor, product in Beta (pre-breakeven)

Acquired : CMGI, September 1999, $25MM

PROBLEMS WITH TODAY’S EARLY-STAGE VENTURE CAPITAL

Funds are too large ; entrepreneurs are too frugal!

VCs look for billion-Euro exits ; founders want to make 1 st million

Average time-to-exit: 5.8 years ; investors in VC get impatient

Multiple rounds of VC investment; founders get diluted to <5%

1-2 portfolio companies win; another 8-9 completely lose

Funds launched in 1999 & 2000 have negative returns

At 2008, the IPO window is still closed to all but a few

Is early stage venture capital in trouble? Is there another way?

EARLY EXITS APPEALING TO FOUNDERS – LESS CAPITAL AND DILUTION REQUIRED Microsoft , Google , Yahoo! & AOL acquired 57 companies Q1 ’07 to Q1 ‘08 (inc.), vast majority of which are valued at under $100MM or “value undisclosed” Motivation for the founders? Lower probability of $200MM exit owning 5%-10% of the company in 5-7 yrs Higher probability of $50MM exit owning 40%-60% of the company in 2-3 yrs OPTION A OPTION B * Note YL Ventures typically invests 1 year after the start Founders’ Share = $15MM Founders’ Share = $25MM Date Company Acquirer Price Funding Comments 17 Apr ‘08 Sphere AOL Undisc $4MM 3 years* start to exit 28 Feb ‘08 Yadata (Israel) Microsoft $25MM $2.5MM 1.5 years* start to exit 5 Feb ‘08 Foxytunes (Israel) Yahoo! $40MM <$1MM 3 years* start to exit 4 Feb ‘08 Goowy AOL Undisc <$1MM 4 years* start to exit 12 Dec '07 Multimap (UK) Microsoft $50MM $6MM $25MM went to founder 9 Dec ‘05 Del.icio.us Yahoo! $30MM Undisc 2 years* start to exit 20 Mar ‘05 Flickr Yahoo! $40MM <$1MM 3 years* start to exit

INTRODUCING: THE YL VENTURES ( “Y LV ” ) WAY

Seek good valuation opportunities that YLV can improve quickly, with low burn, to maximise near-term exit value

Back start-ups suited as corporate divisions rather than standalones

Stage-invest to fund 24 months of burn-rate through to acquisition

Guide company strategy and provide access to customers & partners

In parallel, introduce qualified, pre-identified acquirers for speedy, successful (IRR/x) sale

Time (and capital) Enterprise Value 5+ Years ~24 Months Hyper Growth Venture Chasm Home Run 1-2 per Portfolio Most YLV deals exit here Some YLV exits YLV investment

YLV EXIT STRATEGY Start Early Exit Aptly

Manage companies towards accelerated exits

Identify potential acquirers prior to investing using strategic fit

Iteratively fine-tune company strategy to acquirer tastes

Recruiting customers/partners that can later be acquirers

Exit ‘sweet spot’ is $20MM-$80MM, with potential for more

Acquirer motivation: technology, products & management

Valuation basis: revenue potential, not revenue history

1-2 portfolio companies will take longer and exit at over $200MM

Earn Out Period Sourcing & Negotiations Q-1 t 0 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q-2 Risk Control Stage Expansion Stage – deployments, US presence, more features Management Earn Out – acquirer synergies, revenue growth Bridge Funding Stage $ Invested: $500K-$1MM $500K- $1M $500K $ Exit: $20MM-$80MM

YLV SOURCING STRATEGY

Internet, telecom (mobile) & digital media software

Europe & Israel (70% cheaper than Silicon Valley)

Deep tech intellectual property

Technological expertise & unquestionable ethics

R&D is complete and product ready for deployment

Bootstrapped operations / low burn rate

The fund can establish a clear M&A exit route

Sectors Geography Technology Management R&D Finances Exit Blog scanning : primary deal sourcing strategy (monthly funnel routine) The firm’s researchers scan blogs and databases Associate and analyst filter 100’s of opportunities Managing Partner authorizes sending ‘ radar emails’ out to several companies Interested companies submit documentation Best prospects invited to a meeting Best of the best start due diligence

SUMMARY