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  1. 1. Venture Banking Presentation Comerica Bank Technology & Life Sciences Division July 12, 2002
  2. 2. Agenda <ul><li>Venture Banking </li></ul><ul><ul><li>Product & Service Offerings </li></ul></ul><ul><ul><li>Benefits to the Venture Investor </li></ul></ul><ul><ul><li>Typical Financing Terms </li></ul></ul><ul><ul><li>Intellectual Property </li></ul></ul><ul><li>Comerica Technology & Life Sciences </li></ul><ul><ul><li>The Environs: Market Observations </li></ul></ul><ul><ul><li>Loan Structures </li></ul></ul><ul><ul><li>Portfolio Management </li></ul></ul>
  3. 3. <ul><li>PART I </li></ul><ul><li>Venture Banking </li></ul>
  4. 4. Venture Banking <ul><li>Provide traditional banking products and services to venture sponsored technology companies throughout their life cycle. </li></ul><ul><ul><li>Term loans & lines of credit </li></ul></ul><ul><ul><li>Bridge loans </li></ul></ul><ul><ul><li>Treasury and Investment management </li></ul></ul><ul><ul><li>Equity Investments </li></ul></ul><ul><ul><li>Trust, 401(k), etc. </li></ul></ul><ul><ul><li>International Banking </li></ul></ul>
  5. 5. Venture Investor Benefits <ul><li>Relevance to the venture investor </li></ul><ul><ul><li>The use of financial leverage enhances the equity return </li></ul></ul><ul><ul><li>Reduces the overall cost of capital </li></ul></ul><ul><ul><li>Debt is the appropriate vehicle for financing both short and long term assets </li></ul></ul><ul><ul><li>Trusted party to manage a portfolio company’s cash (i.e., the venture investment) </li></ul></ul>
  6. 6. Typical Financing Terms <ul><ul><li>Loan amounts can range from 20% – 30% of equity capital investment </li></ul></ul><ul><ul><li>Blanket lien on all assets </li></ul></ul><ul><ul><li>Fee (1% +/-), Rate (P + 3% +/-) & Warrants (  1% of capitalization) </li></ul></ul><ul><ul><li>Covenants </li></ul></ul><ul><ul><ul><li>The obvious goal is to protect the bank </li></ul></ul></ul><ul><ul><ul><li>The implicit achievement is communication & alignment of interests with investors </li></ul></ul></ul>
  7. 7. Risk Profile <ul><li>We are aggressive with top-tier venture investors (institutional investors, dedicated funds, uncalled capital) </li></ul><ul><li>Until there is cash flow or financeable balance sheet assets, the primary source of repayment is the next equity round </li></ul><ul><li>The concern is almost always the timing and certainty of the next round of equity </li></ul><ul><ul><li>As such, we must have an open and highly communicative relationship with the venture investors </li></ul></ul>
  8. 8. Intellectual Property <ul><li>The inherent value of the enterprise </li></ul><ul><li>Without a lien on IP, the bank is unsecured in AR (in a revenue licensing model) </li></ul><ul><ul><li>Court precedent est. by Avalon and Peregrine Entertainment cases in which court ruled that lender was unsecured w/out filing on IP (at state and federal level) </li></ul></ul><ul><ul><li>Without a perfected security interest, it is equity risk </li></ul></ul><ul><li>We are not practiced nor competent sellers of IP – all we hope to do is recover 100% of loan </li></ul>
  9. 9. PART II Comerica Technology & Life Sciences
  10. 10. Imperial/Comerica Merger <ul><li>Completed January 29, 2001 </li></ul><ul><li>Allows us to compete upstream with Chase, Fleet, et al </li></ul><ul><li>Balance Sheet: move from $7 bln. to $50 bln. </li></ul><ul><li>More comprehensive branch banking network </li></ul><ul><li>Imperial management team continues to lead the Technology & Life Sciences Division </li></ul><ul><li>Bottom line: Larger financings, portfolio companies are better served AND investors continue to deal with the people they know </li></ul>
  11. 11. Imperial/Comerica Merger (Cont’d.) 1.55% ROA 21.37% ROE .87% Charge-Offs $6.5 Billion Total Assets Imperial 9/30/2000
  12. 12. Imperial/Comerica Merger (Cont’d.) 1.72% 1.55% ROA 17.84% 21.37% ROE .58% .87% Charge-Offs $50.2 Billion $6.5 Billion Total Assets Comerica 3/31/2002 Imperial 9/30/2000
  13. 13. Market Observations <ul><li>The market for venture debt/banking is consolidating </li></ul><ul><li>PNC, Chase, Fleet out of the business </li></ul><ul><li>Dominated by Comerica and SVB </li></ul><ul><li>Comdisco bankrupt, Sand Hill Capital AWOL </li></ul><ul><li>TransAmerica, Heller Venture Finance and Western Tech marginal players </li></ul>
  14. 14. Market Observations (Cont’d.) <ul><li>Comerica is a ‘relationship’ oriented institution </li></ul><ul><ul><li>Comerica TLS risk tolerance is ~ $25MM+ </li></ul></ul><ul><li>A progressive, fast growing venture sponsored company can outgrow a smaller bank relationship ~ post SERIES B </li></ul><ul><li>Comerica represents a long-term banking partnership for technology companies </li></ul>
  15. 15. Recent Actions <ul><li>VC Backed Software Firm </li></ul><ul><ul><li>$23MM line of credit & equipment financing </li></ul></ul><ul><li>Network Hardware Manufacturer </li></ul><ul><ul><li>$7.5MM line of credit & term debt </li></ul></ul><ul><li>Cable/Telecomm Company </li></ul><ul><ul><li>$5.0MM revolving line of credit </li></ul></ul><ul><li>Venture Backed- B2B Enterprise </li></ul><ul><ul><li>$4.5MM line of credit </li></ul></ul><ul><li>VC Backed Web Hosting Provider </li></ul><ul><ul><li>$7.0MM equipment financing </li></ul></ul>
  16. 16. Loan Structures <ul><li>We continue to provide very competitive terms </li></ul><ul><li>We are very aggressive with companies backed by Top Tier VC firms- i.e. track record, adequate fund reserves, </li></ul><ul><li>We do want some semblance of structure & covenants at a reasonable price </li></ul><ul><li>There is no “no covenant” financing (read the fine print) </li></ul>
  17. 17. Portfolio Management <ul><li>Without board representation, active communication with the venture investors is a must </li></ul><ul><li>Focus on SOLVENCY date, not out-of-cash date </li></ul>
  18. 18. <ul><li>Questions </li></ul>