Presentation for SURGE Accelerator Class 2 describing how Venture Capitalists evaluate opportunities.

1. “3-5-7 RULE” MEETS “RACING TO
100”
A Back of the Envelope Calculation on Whether a
VC Invests or Not…And Other Tidbits
Alex Tang
SURGE Accelerator Mentor
March 7, 2013

2. QUICK SNAPSHOT
1
Hi! JUST A QUICK FEW THINGS ABOUT ME…
• Former Vice President of Programs and Finance at Clean Energy Trust
• More than 10 years commercialization and venture capital experience
• Co-Founder of Invention Bridge a technology commercialization company
• MBA (University of Chicago); M.S., B.S. Mechanical Engineering (University of Illinois at Urbana-
Champaign)
• Some other career highlights:
• Argonne Venture Accelerator Consortium – Department of Energy EIR2 Grant
• Private equity experience with McNally Capital and MVC Capital
• Senior Manager at STAX, a consulting firm performing due diligence on private equity and
venture capital deals in North America and China.
• Early Stage Venture Capital experience with Open Prairie Ventures where we spun out
technologies from University of Illinois at Urbana-Champaign, University of Illinois at Chicago,
and University of Wisconsin Madison
• Other info:
• Mentor at SURGE Accelerator
• Catalyst Cleantech Advisor to Wisconsin Alumni Research Foundation (WARF)
• Serves on the Entrepreneurial Committee of the Association for Corporate Growth Chicago and
former Board of Director and Co-Chair of the Venture Capital/Cleantech Committee
• Serves on the Advisory Council on Job Creation for the Treasurer’s Office of the State of Illinois
• Member of the Asian American Alternative Investment Managers Association
• Former IT/Cleantech Kauffman Fellows Finalist

3. HOW DOES A VC EVALUATE ME?
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MANAGEMENT TEAM
• Credibility
• What is Needed to be Successful?
WHAT PROBLEM ARE YOU SOLVING THAT PEOPLE ARE WILLING TO PAY FOR
COMPETITIVE LANDSCAPE
• 800 lb gorillas
• Partnership Opportunities
BUSINESS MODEL
• Go to Market Approach
• Unit Economics
• Recurring Revenue Streams
EXIT STRATEGY
• IPO vs. M&A
IP PROTECTION
Each VC evaluates investment opportunities their own way,
but there are some common themes.

4. RISK IS THE NAME OF THE GAME
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Technology Concept
Execution Policy
Field Data/Pilot Testing and Signed Customers Reduces Risk For All.

5. THE VENTURE CAPITAL ECOSYSTEM
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LIMITED PARTNERS (LPs)
• Typically Pension Funds,
Endowments, High Net Worth
Investors
• Return on Investment metric are
Internal Rate of Return (IRR) and
Cash on Cash Return (CoC)
GENERAL PARTNERS (GPs)
• Partners who are entrusted to invest
LP’s money and to return capital at a
future point in time.
• Manage investment pool called Fund I,
Fund II, Fund III, etc.
PORTFOLIO COMPANIES
• Entrepreneurs you back

6. “3-5-7 RULE” FOR LIMITED PARTNERS
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RISK
REWARD
VENTURE
CAPITAL
7x
GROWTH
EQUITY
5x
BUYOUTS
3x
“Today, if a venture capital firm or buyout shop can consistently return 3x CoC or
more to pension funds, they will continue to re-up every time.” - Dan Howell, Senior
Managing Director, Mesirow Financial

7. RACE TO 100
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WHAT IS IT?
• It is a phrase I mention often when mentoring entrepreneurs
based on prior VC investment experiences.
• Gauge the difficulty and time needed for a startup company to
generate $100M in sales.
WHY?
• Number where companies become attractive to larger
corporations as an acquisition target.
• Size to go public….Sarbanes-Oxley is a $2M annual expense
(and growing) for reporting.
Wait….I thought venture guys want to see billion dollar ideas and 20x exits????

8. $100 M IN 5 YEARS? NO PROBLEM!
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“SOFTWARE ON MY MIND”
Source: http://www.ipo-dashboards.com/wordpress/2009/08/how-long-does-it-take-to-build-a-technology-empire/ Based on 100 top public Software
companies Q1 2009
VC’s like to exit in this range…if not sooner

9. WHAT ARE THE PUBLIC MARKET COMPS?
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Source: Baird’s Energy Technology Monthly, February 2013.

10. “3-5-7” RULE MEETS “RACE TO 100”
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KEY TAKEAWAY:
• If I am only going to get $33M back, the
most I can invest is $4.75M in order to
achieve a 7x CoC exit.
FOLLOW ON QUESTIONS:
• What is the company peak cash need?
$5M, $10M, $100M?
• Peak cash need is the total
amount of cash needed to
generate a self sustaining
business.
• What is considered a show
stopper?
• What is the financing strategy and
number of rounds of funding is needed?
• Tranche
• Multi-round

11. Alex Tang
alex.d.tang@gmail.com
@alexdtang
QUESTIONS?