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Securing Early Stage Capital

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  • 1. Securing Early Stage FundingDavid Berry, MD PhDPartner, Flagship Ventures
  • 2. Overview  How does VC work?  A snapshot of venture capital: then and now  How to raise money  Examples in raising money: – Friends and family – Venture capital – Large scale financing 2Confidential and Proprietary
  • 3. A Primer on Venture Capital  Venture capital firms are managed by a General Partner  The General Partner invests funds from Limited Partners  Funds have a ten year life with a limited number of extensions  The General Partner receives is compensated by a management fee and carry – Management fees cover salary and expenses – Carry is a percent of the profits – Most partnerships have to pay back the LPs and the fees before the General Partner can share in the profits  Incentives vary based on fund size and number of partners – Small funds are typically driven by carry only – Large funds can be driven by fees 3Confidential and Proprietary
  • 4. How Venture Capital Works  The General Partner invest from the fund into a number of companies defined by the strategy  Typically, subsequent rounds are required after an investment by a given VC – Existing investors are driven to increase share price and reduce dilution – VCs are motivated to ‘enhance’ the fundraise – The single biggest value of a VC is reducing the cost of capital  Venture capitalists only make a profit upon an IPO or M&A  Fund life may influence exit behavior 4Confidential and Proprietary
  • 5. Understanding the VC Incentives  2 and 20 – Management fees provide for salaries (2% per year) – After the LPs are repaid, 20% of profits (the carry) are split by the GP in a pre- defined manner  VCs are eager to return the fund  VCs are eager to get disproportionate returns  Strategies define the motivation – Spray and pray – Targeted bets – Portfolio plays  Venture capitalists bet on people, trends, IP, and the potential to ‘create value’ 5Confidential and Proprietary
  • 6. Venture Capital: A Major Economic Engine 6Confidential and Proprietary
  • 7. Venture Capital is Not Evenly Distributed 7Confidential and Proprietary
  • 8. What Happens to Venture Backed Companies  Remember: Entrepreneurs Build Companies…VCs just fund them 8Confidential and Proprietary
  • 9. The Venture Industry Is Now in Challenging Times Vintage Year Mean Return (%) 1999 -1.79 2000 -1.83 2001 0.38 2002 0.83 2003 3.20 2004 3.19 2005 -0.46 2006 -1.74 2007 -0.95 2008 2.20 2009 2.17 9Confidential and Proprietary
  • 10. Snapshot on venture backed M&A  Acquisition volume has decreased, and remains down – Transactions over last 10 years are reduced compared to the 90’s boom – Volume has been decreasing on a quarterly basis since 2007  The average age to acquisition has increased, and remains high M&A Transactions since 2000 Time from Equity financing to M&A 8 534 507 524 526 491 460 $98.3 440 6.6 $100 410 421 450 6.1 385 6.0 6 5.4 5.5 5.1 $75 298 $61.1 4.6 300 4 3.7 $50 $37.7 2.8 $27.7 $31.5 2.5 $26.9 150 $24.0 2.1 $25 $19.0 $17.7 2 $12.1 $14.0 $0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q- 0 3Q10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q- Amount Paid ($B) Number of Transactions 3Q10 Source: Dow Jones VentureSource Source: Dow Jones VentureSource 10Confidential and Proprietary
  • 11. IPOs in a mixed environment  IPOs have returned – 2010 activity is the highest since 2007 – Data is trending higher  IPOs have an evolving character – Higher valuation – Flat/less money raised IPOs since 2000 IPO sizes since 2000 205 $500 200 $350 $25 $395 $300 $400 $383 $367 $20 $19.0 150 $250 $309 $300 $275 $284 $200 $15 $229 100 $226 $227 79 $202 $200 $150 67 $166 $10 56 44 $7.5 $80 $75 $80 $100 50 $76 $5.0 32 $56 $65 $56 $5 $100 $51 $50 $52 $54 23 20 23 $3.7 $2.3 $50 7 8 $2.3 $1.7 $1.6 $1.5 $0 0 $0 $0 $0.6 $0.9 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q- 3Q10 3Q10 Amount Raised ($B) Venture-Backed IPOs Median Pre-Valuation at IPO ($M) Median Amount Raised at IPO ($M) Source: Dow Jones VentureSource Source: Dow Jones VentureSource 11Confidential and Proprietary
  • 12. IPO exits are taking longer  The amount of time to IPO has consistently risen  The amount of equity financing prior to IPO is markedly increased  The increase in median valuation does not compensate for the increased time and money prior to IPOs Time from equity financing to IPO Money raised prior to IPO 10 8.7 8.8 $75 $73 $72 7.9 8 $65 6.8 $57 $58 6.2 $55 $55 $51 6 5.7 5.7 5.7 $48 $50 $44 $43 4.6 4 3.6 3.1 $25 2 $0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q- 3Q10 3Q10 Source: Dow Jones VentureSource Source: Dow Jones VentureSource 12Confidential and Proprietary
  • 13. The ecosystem is responding  Entrepreneurs are responding to the changes  Firms are focusing their efforts $85.5 $80 $60 $42.5 $40.1 $40 $31.2 $28.7 $28.6 $19.0 $18.9 $20 $13.5 $10.4 $9.2 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q- 3Q10 13Confidential and Proprietary
  • 14. How To Raise Money  3 Rules: – Give yourself options – Create scarcity – Raise money when you don’t need to 14Confidential and Proprietary
  • 15. Give Yourself Options  Options give you flexibility in any negotiation  Allows you to better match with your goals  Flexibility is essential to create options  Be creative and aggressive 15Confidential and Proprietary
  • 16. Example 1: Wellstone Filters  Based on the development on dialdehyde starches as effective binders of AGEs – Removes 96% carcinogens – Removes 94% tar – Removes 10% nicotine  Initially commercialized to remove carcinogens from cigarettes  Funded by angel investment, brought public within 12 months 16Confidential and Proprietary
  • 17. Create Scarcity  People want what they cant have  Investors need to be compelled to have something  If they feel they can get something at any time, they will wait  Only 3 in 1000 deals a VC sees get funded—scarcity and essentialness are differentiating 17Confidential and Proprietary
  • 18. LS9: Building a better biofuel High-quality, low-cost drop-in fuels and sustainable chemicals for large and growing markets Any Most Unique Drop-in renewable efficient one-step infrastructure feedstock conversion process compatibilityConfidential and & Confidential Proprietary Proprietary - 18 -
  • 19. Fatty Acid Biosynthesis:The Best Route to Hydrocarbons Metabolic Modeling Fatty Acid Biosynthesis  Preferred pathway  90% energetic efficiency  Commercial productivity  Well characterized  Structurally diverse  Immiscible Carboxylic Hydrocarbon chain acidConfidential and & Confidential Proprietary Proprietary - 19 -
  • 20. Synthetic Pathways Enable One Step ConversionsConfidential and & Confidential Proprietary Proprietary - 20 -
  • 21. Clear Path to Commercialization Product Revenue Break Ground on Commercial Plant Increasing Value Demonstration Scale Production Pilot Plant Success 2009 2010 2012 2013 and beyondConfidential and & Confidential Proprietary Proprietary - 21 -
  • 22. Joule Unlimited™ or fresh water Solar Fuels and Chemicals Without LimitsTM of infrastructure-compatible renewable fuels© 2010 Joule Biotechnologies, Inc., Proprietary and Confidential 22 www.joulebio.com
  • 23. Channeling the Power of Photosynthesis to Produce Fuels O2 CO2 Waste CO2 Solar Fuel Water O2 Water Nature’s Way Joule’s Way Sunlight, CO2, and water make Harnessing nature to produce trees grow and produce O2 fuels© 2010 Joule Biotechnologies, Inc., Proprietary and Confidential 23 www.joulebio.com
  • 24. Integrating Synthetic Biology with Bioreactor Design Joule’s Proprietary Organism PRODUCT Waste CO2 SolarConverter Waste CO2 Joule Production Facility© 2010 Joule Biotechnologies, Inc., Proprietary and Confidential 24 www.joulebio.com
  • 25. Towards Future of Unlimited Reserves Joule’s current Pilot Plant, Leander, TX Joule’s New Mexico 1000 Acre SunSprings Diesel Plant (in process)© 2010 Joule Biotechnologies, Inc., Proprietary and Confidential 25 www.joulebio.com
  • 26. Raise Money When You Don’t Need To  Give your self options  Give yourself leverage  Give your self time  Give yourself opportunity 26Confidential and Proprietary
  • 27. © 2011 Essentient, Inc. Proprietary and Confidential 2011 Essentient, Inc., Proprietary and Confidential 27 www.essentientinc.com www.essentientinc.com
  • 28. Securing an Essential Nutrient Supply is THE MostImportant Challenge for 21st Century Health• The current infrastructure is an enormous resource drain – Agriculture covers >40% of all land – Produces >30% greenhouse gases – Responsible for over 75% of fresh water use – The single greatest driver of land degradation, ground water depletion, habitat destruction, and biodiversity loss• Yet it cannot sustainably provide nutrition – ~1 billion people are chronically undernourished – Another 2 billion people are poorly nourished – The ‘properly’ nourished often have an inappropriate nutrient balance leading to the major causes of developed world mortality: cancer, heart disease, diabetes• Nutrition and food security has been lacking needed innovation© 2011 Essentient, Inc., Proprietary and Confidential 28 www.essentientinc.com
  • 29. Essentient’s Nutrient Proteins will Transform Global NutritionNo requirement for arable land No dependency on fresh water Minimized GHG emissions Nutrition tailored to needs Reliable, predictable supply At ultra-low costs © 2011 Essentient, Inc., Proprietary and Confidential 29 www.essentientinc.com
  • 30. Summary  Raising money is about matching your offer to funder needs  Venture capital is a potent source of capital, but not the only one  Raise money from venture capitalists requires creating the sense of need  There is no one way to get there  Once you get investment, interests are generally aligned 30Confidential and Proprietary
  • 31. Thank you! 3

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