VENTURE CAPITAL FUNDING PRESENTATION BY CHANDRA SHEKHAR REDDY KUNDUR DIRECTOR APIDC-VENTURE CAPITAL LIMITED Compiled by Augustin Amaladas M.com.,AICWA.,B.ED.,AICWA

VC FUNDING OF BIOTECH/ BIOTECH-PHARMA VENTURES 1. VC “UNDEFINED” 2. VC DEFINED 3. VC CRITERIA FOR INVESTMENT 4. ENTREPRENEURS’ CRITERIA FOR VC 5. RISKS OF A VENTURE 6. UNIQUE NATURE OF BIOTECH VENTURES 7. SOME USEFUL HINTS

WHAT IS VC FUNDING? IS IT JUST THE STORY OF THE MAN WITH THE IDEA AND THE MAN WITH THE MONEY?

VC FUNDING IS NOT JUST ABOUT … FIRST GENERATION ENTREPRENEURS … TECHNOCRATS … HIGH TECHNOLOGY … FIRST TIME TECHNOLOGIES … SEED CAPITAL AT SOFT TERMS

… FIRST GENERATION ENTREPRENEURS

… TECHNOCRATS

… HIGH TECHNOLOGY

… FIRST TIME TECHNOLOGIES

… SEED CAPITAL AT SOFT TERMS

WHAT VC FUNDING IS … IT IS THE BUSINESS OF EMPLOYING CAPITAL ‘PATIENTLY ’ TO ‘MAXIMISE RETURNS’ WHILE MANAGING RISKS IN A RELATIVELY HIGH-RISK VENTURE VERSUS SIMPLY ‘MINIMISING RISKS’ FOR A SURER FIXED RETURN

VC FUNDING IS … DIFFERENT FROM OTHER TYPES OF FUNDING IN THE: - SELECTION OF INVESTMENT - STRUCTURING OF INVESTMENT - ACTIVITY FOLLOWING INVESTMENT - EXITING FROM INVESTMENT

SELECTION OF INVESTMENT BY THE VC WILL SPAN ... PROMOTERS WITH SIGNIFICANT & PROVEN BUSINESS TRACK RECORD, WHO WILL DEVELOP NEW TECHNOLOGIES &/OR BUILD NEW BUSINESSES TO PROMOTERS WHO ARE TECHNOLOGY SAVVY, HAVE DEVELOPED INNOVATIVE TECHNOLOGIES TO A SIGNIFICANT EXTENT, BUT HAVE NO RELEVANT BUSINESS TRACK RECORD

VCs WILL, IN STRUCTURING THEIR INVESTMENT, FAVOUR EQUITY Vs DEBT UNLISED EQUITY Vs LISTED EQUITY LONG-TERM Vs SHORT-TERM INVESTMENT NO SECURITY Vs FULL SECURITY SHARINING UPSIDE POTENTIAL Vs FIXED INCOME

EQUITY Vs DEBT

UNLISED EQUITY Vs LISTED EQUITY

LONG-TERM Vs SHORT-TERM INVESTMENT

NO SECURITY Vs FULL SECURITY

SHARINING UPSIDE POTENTIAL Vs FIXED INCOME

IN THE POST- INVESTMENT STAGE, VCs WILL ADD VALUE Vs ONLY MONITORING AND RELYING ON COLLATERAL RECOVERY HELP WITH FINANCIAL, MARKETING, TECHNICAL & PERSONNEL LINKAGES PROVIDE INCENTIVES FOR BETTER PERFORMANCE Vs PENALTIES FOR LACK OF IT MONITOR CLOSELY THROUGH BOARD REPRESENTATION PLUS CONTINUAL CONTACT

ADD VALUE Vs ONLY MONITORING AND RELYING ON COLLATERAL RECOVERY

HELP WITH FINANCIAL, MARKETING, TECHNICAL & PERSONNEL LINKAGES

PROVIDE INCENTIVES FOR BETTER PERFORMANCE Vs PENALTIES FOR LACK OF IT

MONITOR CLOSELY THROUGH BOARD REPRESENTATION PLUS CONTINUAL CONTACT

VC WILL LOOK FOR EXITING FROM INVESTMENT THROUGH... - IPO - THIRD PARTY ACQUSITION - BUYBACK BY ENTREPRENEUR

WHAT VCs WILL LOOK FOR IN INVESTEE COMPANIES - 1 PROMOTER’S INTEGRITY, RELEVANT EXPERIENCE, DRIVE LEVEL UNIQUENESS OF THEIR IDEA FOCUS ON/COMMITMENT TO THEIR IDEA HIGH ENTRY BARRIERS COMPETITIVE ADVANTAGES GOOD MARKET SIZE & GROWTH RATES ACCEPTABLE GEOGRAPHIC LOCATION APPROPRIATE STAGE OF INVESTMENT

PROMOTER’S INTEGRITY, RELEVANT EXPERIENCE, DRIVE LEVEL

UNIQUENESS OF THEIR IDEA

FOCUS ON/COMMITMENT TO THEIR IDEA

HIGH ENTRY BARRIERS

COMPETITIVE ADVANTAGES

GOOD MARKET SIZE & GROWTH RATES

ACCEPTABLE GEOGRAPHIC LOCATION

APPROPRIATE STAGE OF INVESTMENT

WHAT VCs WILL LOOK FOR IN INVESTEE COMPANIES - 2 COMPANY Vs OTHER ENTITIES UNLISTED Vs LISTED ACCEPTABLE % OF EQUITY ACCEPTABLE SIZE OF INVESTMENT NUMBER OF YEARS THAT INVESTMENT MUST BE HELD TYPE OF FINANCIAL INSTRUMENTS ALLOWED DESIRED RATE OF RETURN

COMPANY Vs OTHER ENTITIES

UNLISTED Vs LISTED

ACCEPTABLE % OF EQUITY

ACCEPTABLE SIZE OF INVESTMENT

NUMBER OF YEARS THAT INVESTMENT MUST BE HELD

TYPE OF FINANCIAL INSTRUMENTS ALLOWED

DESIRED RATE OF RETURN

CRITERIA INVESTEE CO SHOULD LOOK FOR IN THE VC RESPONSIVENESS SUPPORT Vs INTERFERENCE Or INDIFFERENCE UNDERSTANDING OF YOUR INDUSTRY/ SECTOR ABILITY & WILLINGNESS TO ADD VALUE ALIGNMENT OF THEIR EXIT OBJECTIVE WITH YOURS

RESPONSIVENESS

SUPPORT Vs INTERFERENCE Or INDIFFERENCE

UNDERSTANDING OF YOUR INDUSTRY/ SECTOR

ABILITY & WILLINGNESS TO ADD VALUE

ALIGNMENT OF THEIR EXIT OBJECTIVE WITH YOURS

RISKS IN VENTURES FINANCE PEOPLE RESEARCH & DEVELOPMENT IMPLEMENTATION PRODUCTION REGULATORY MARKETING EXIT

FINANCE

PEOPLE

RESEARCH & DEVELOPMENT

IMPLEMENTATION

PRODUCTION

REGULATORY

MARKETING

EXIT

THESE RISKS ARE PRONOUNCED IN BIOTECH/BIOTECH-PHARMA INDS… LONGER LEAD TIMES MOSTLY NASCENT TECHNOLOGIES FAST EVOLVING TECHNOLOGIES HIGH CAPITAL REQUIREMENT HIGHLY REGULATED … … … NET, PHARMA/BIOTECH VENTURES ARE SIGNIFICANTLY RISKIER!!!

LONGER LEAD TIMES

MOSTLY NASCENT TECHNOLOGIES

FAST EVOLVING TECHNOLOGIES

HIGH CAPITAL REQUIREMENT

HIGHLY REGULATED

… … … NET, PHARMA/BIOTECH VENTURES ARE SIGNIFICANTLY RISKIER!!!

SO, WHAT DO WE DO WITH THESE RISKS - EXAMINE THEM CAREFULLY - QUANTIFY THEM, WHERE POSSIBLE - MANAGE THEM - OFFSET BY COMMENSURATE RETURNS

SOME USEFUL HINTS: 1 THINK A GREAT DEAL ABOUT THE BUSINESS CONVINCE YOURSELF THAT THE BUSINESS IS RIGHT ENSURE COMFORT WITH - GESTATION PERIOD - CAPITAL REQUIREMENT ENSURE ABILITY TO KEEP PACE WITH TECHNOLOGY CHANGES CHANGE AVOID HERD MENTALITY

THINK A GREAT DEAL ABOUT THE BUSINESS

CONVINCE YOURSELF THAT THE BUSINESS IS RIGHT

ENSURE COMFORT WITH

- GESTATION PERIOD

- CAPITAL REQUIREMENT

ENSURE ABILITY TO KEEP PACE WITH TECHNOLOGY CHANGES

CHANGE AVOID HERD MENTALITY

SOME USEFUL HINTS: 2 DISPLAY A PROFESSIONAL APPROACH AT EVERY STEP TEST EVERY ASSUMPTION IN THE BIZ PLAN LEARN FROM SIMILAR MODELS IN INDIA AND ABROAD SEE HOW YOU COULD BE DIFFERENT AND BETTER AT EVERY STEP BE SURE OF SALES PROJECTIONS AND ACHIEVEMENT OF TARGETS

DISPLAY A PROFESSIONAL APPROACH AT EVERY STEP

TEST EVERY ASSUMPTION IN THE BIZ PLAN

LEARN FROM SIMILAR MODELS IN INDIA AND ABROAD

SEE HOW YOU COULD BE DIFFERENT AND BETTER AT EVERY STEP

BE SURE OF SALES PROJECTIONS AND ACHIEVEMENT OF TARGETS

SOME USEFUL HINTS: 3 ENSURE COHERENCE AND SYNERGIES IN THE TEAM CHECK THE VC TEAM BACKGROUND AND PAST PROJECTS UNDERSTAND CLEARLY THE TERMS OF VC FUNDING & THEIR IMPLICATIONS DO NOT SIGN THE TERM SHEET BLINDLY UNDERSTAND POST-INVESTMENT APPROACH OF THE VC FOLLOW A WIN-WIN APPROACH

ENSURE COHERENCE AND SYNERGIES IN THE TEAM

CHECK THE VC TEAM BACKGROUND AND PAST PROJECTS

UNDERSTAND CLEARLY THE TERMS OF VC FUNDING & THEIR IMPLICATIONS

DO NOT SIGN THE TERM SHEET BLINDLY

UNDERSTAND POST-INVESTMENT APPROACH OF THE VC

FOLLOW A WIN-WIN APPROACH

THE APIDC VENTUREAST BIOTECHNOLOGY FUND… FUND SIZE: RS. 45 CRORES MINIMUM FUND WILL INVEST IN EARLY-STAGE BIOTECH, BIOTECH-PHARMA VENTURES AVERAGE SIZE OF INVESTMENT: RS. 4 CR AP GOVERNMENT LEAD INVESTOR FUND MANAGER HAS EXTENSIVE INDO-US CROSS BOREDER EDUCATION, WORK EXPERIENCE, ENTREPREURSHIP, NETWORKING & VC TRACK RECORD

FUND SIZE: RS. 45 CRORES MINIMUM

FUND WILL INVEST IN EARLY-STAGE BIOTECH, BIOTECH-PHARMA VENTURES

AVERAGE SIZE OF INVESTMENT: RS. 4 CR

AP GOVERNMENT LEAD INVESTOR

FUND MANAGER HAS EXTENSIVE INDO-US CROSS BOREDER EDUCATION, WORK EXPERIENCE, ENTREPREURSHIP, NETWORKING & VC TRACK RECORD

THANK YOU

APIDC-VENTURE CAPITAL LIMITED 1102, Babukhan Estate, Basheerbagh, Hyderabad-500001, Tel.No.91-40-3299951 & 6510491 Fax No.91-40-3297449 E-mail: apidcvcl@hd1.vsnl.net.in