Company X is seeking funding to commercialize and market a patented widget process that increases effectiveness by 60% and decreases costs by 40% compared to existing solutions. The technology platform utilizes a patented process that drives faster, better, and cheaper products and services while being backward compatible with legacy systems. An analysis of the target market identified approximately 120 potential customer companies with annual widget purchases between $1-12 million per company, representing a billion dollar market opportunity for growth.

1. 2010 Innotech VC Pitch
By Roydean Osman, May 2010

2. Highlights
Highlights
1. Funding ECO System
2. Arts & Craft of Valuation
3. Venture Capital Evaluation Process
4. Preparing for VC Elavator Pitch!
Interactive Session / Q&As

3. Highlights - Key Take Aways
 Highlights methodologies used by venture capitalists and professional investors to
estimate the value of a company
 Understanding of how equity proportions are allocated to investors
 Analyzing a startup financing and utilization requirement
 Benefits of partnering with VCs:
O are active investors and bring more to the deal than just money,
o spend a large amount of time,
o reputation capital,
o access to skilled managers,
o industry contacts, network,
o and other resources.
 Basic understanding of how to position your business to a VC.
 Preparation for a VC elevator pitch!

4. Funding ECO System
Growth
& Profit
Maturity
Expansion
Growth
Seed
Pre Seed
Funding Needs
Other Grants, Project Financiers, Institutional &
SME Loans & Commercial Banks, Foreign Investors,
MDEC
Incubators, Venture Capitals, Public Funds,
Government Private Equity, Credit Merger &
Incentives, Angels Guarantee Corporation, Acquisitions,
Cradle & Corp Investors Leasing & Factoring Merchant Banks
Providers, Govt. Agencies
Point
Zero
Time

5. Funding ECO System
Innovation
Ideas Invention Incubation Start-Up Growth Liquidity
Process
Risks
Venture Capital Funds
Capital

6. Arts & Craft of Valuation
 Differences between the entrepreneur‘s/ private investor‘s finance and
corporate finance
Entrepreneur‘s / Private Investor‘s Finance
 More volatile
 Imperfect
 Less accessible than corporate capital markets
 Obtain source of capital differently
 Companies are younger, more dynamic
 Environment are more rapidly changing and uncertain
 Liquidity & timing are everything
Corporate Finance
 Arena of public companies compete in well-established capital
markets
 Have access almost to everything

7. Arts & Craft of Valuation
 In the VC eyes, determination of a company‘s value is elusive and it‘s more
arts than science
 So, what‘s a start-up company worth ?
 It all depends!
 Very imperfect market capitalization unlike public companies
where market capitalization is readily determined.
 Entrepreneurial valuation are cash, time and risk.

8. Arts & Craft of Valuation
 Some Valuation Methodologies Used by Investors
Net Present Value  Adjusted Present Value
Comparables  First Chicago Method
Real Options  DCF
Turkish Bazaar  Golden Handcuff
Venture Capital Method

9. Venture Capital Evaluation Process
Industry Structure & Analysis
Buy Side : Private Equity, Venture Capital, Angels,
High Net Worth, Investment Bank, Institution
Industry & Market
Economy
Of
Mg mt C lear C J Scales
T eam E xit o V
S trateg y m C
Sector Players p o
e s Knowledge
S trong T arg et
O rg .
t Transfer
S trong Market
S truc t. i
Value
P ropos it t
ion i
B
S ound v Shareholders
u
B iz . e Value
Company Insight O ps .
P lan Model
s
S ound i
A
Mktg . n
Business Plan P lan
d
e
v Financial
S tg c . s
a Returns
R oap S uff. s
Due Diligence Map F unding n
t
a
P ric ing g
Model e Scalability

10. Venture Capital Evaluation Process
First Hand Assessment
Market Attractiveness :
• Size of Market
EXPECTED RETURN
• Market Need
• Market Growth Potential
• Access To Market
Product Differentiation :
• Uniqueness of Product
• Technical Skills
• Profit Margins
• Patentability of Product
VC
Check
Points Managerial Capabilities :
• Management Skills
• Marketing Skills
• Financial Skills
• References of Entrepreneurs
PERCIEVED RISK
Resistance to Environmental
Threat:
•Protection from Competition
• Protection of Obsolescence
• Protection against Downside
Risk
• Resistance to Economic
Cycles

11. Venture Capital Evaluation Process
To Do List
List the most important points about your company.
Strong management team.
Patents and unique technology or model.
Use of Proceeds
Attractiveness of the venture for investment.
Market trends, market growth rates.
Size of the target market.

12. Venture Capital Evaluation Process
The Investment Process
Deal Due Diligence Investment
Deal Terms Decision &
Sources Go/No-Go
Screening Evaluation Continues Conclusion
Market Entry
Commercialization &
Biz Plans Products /Services Entrepreneur Business/ Conditional Approval
Kicks-In Concepts/Ideas Analysis Venture Termsheet
Analysis Analysis
• Who are they? • Deal Structure
Biz Plans •This is a go/no go • Vision, Mission of •Proposed to
negotiations
Source stage • What background? Company? invest and to
• Deal
Internally •Fit into VC •Credentials? • Core business? obtain
instruments –
/Externally investment criteria? •Do they have • Biz Model? Investment
grant / equity /
•Initial •
previous operating & What is the go to Committee
debt
Market/Value profit responsibility?market strategy ? Approval
• Tailoring high
Chain Analysis • Depth of business • Financial Forecast
impact business
•Competitive venture industry •Fund Utilization
milestones with
Technology knowledge
fund
Analysis •Characteristic?
disbursement
•Value Proposition?

13. Venture Capital Evaluation Process
What are you worth????
Leadership
(CEO)
Ability to implement project
VC Cash
is most important
Implementation
(CMO, CTO,
CFO)
Idea
Idea has limited value

14. Venture Capital Evaluation Process
Negotiate with VCs !!!!
VC Maximum Value
$
Company Value Negotiating Space
Entrepreneur Minimum Value
PE Multiples
Seed Early Expansion Mezzanine
1 to 2x 2 to 3x 4 to 5x 20 – 50x

15. Venture Capital Evaluation Process
VC Roles
 Strategy Development
 Active board membership
 Attract outside expertise and know-
how
 Attract later round investors
 Attract other stakeholders,
management
 Provide contacts, access to info,
people, institutions

16. Venture Capital Evaluation Process
Venture Capital Method
1. Identify the company’s forecasted net income within n years up to exit year. Estimate
normally based on sales and margin projections.
2. Assign appropriate P/E ratios to the company based on current multiples for companies
within similar economic characteristics.
3. Derived at a Terminal Value . E.g. Terminal Value (t) = Net Income x P/E ratio.
4. Terminal Value can be discounted. Normally VCs discount rates range from 30% - 80% due
to the risks involved in the type of investments.
Required Investment
Ownership (%) =
Required Total Terminal Value
Ownership Required (%)
New Shares =
1 – Ownership Required x old shares

17. Venture Capital Evaluation Process
Venture Capital Method
Post-money valuation: The valuation of the company
immediately after a round of investment is closed.
Pre-money valuation: The valuation of the company just
before closing a new round of investment, including the value of
the idea, the intellectual property, the assembled management
team, and the opportunity.
Terminal value: The valuation of the company at exit; that is,
the proceeds of the sale of the company via a merger or
acquisition or an initial public offering and at which time the
investors' ownership can be liquidated.
ROIn: The cash-on-cash return on investment expected for
such an investment in the year of the harvest, or exit. This ROI is
commonly expressed as a multiple of invested cash—that is, 10x,
for example—regardless of the time since investment (n years).
If the terminal value of a company seeking seed/start-up capital
is estimated to be $60 million and we assume the stage of the
company is appropriate for investors to expect 30x ROI in year of
harvest, then the post-money valuation of this company can be
estimated at $2 million. If the required investment is $0.5 million,
then the pre-money valuation would be $1.5 million.

18. Venture Capital Evaluation Process
Financial Engineering
 To overcome valuation or incentive issues, VC’s will engage in ‘financial
engineering’
Debt
Preferred Shares
Preferred Convertible Securities
Mixed Debt and Equity
Ratchets or Clawbacks (Downside for Investor, Upside for
Entrepreneur)
Liquidation preferences
Fundamentally challenges notion of pre-money value, as values and
returns become contingent on future events

19. Venture Capital Evaluation Process
Exit Strategy
Exit
Universities
US Incubation
Collaborations Private
Sale
ICT
US US VCs
Partners
Non-ICT
IPO
Liquidity
UK access
• AIMS Liquidity
access
M&A Dubai Liquidity • Investors
access
Singapore Liquidity • SESDAQ
Liquidation access • CATALYST
Malaysia

20. Venture Capital Evaluation Process
VC End Game
Managed Risk
 Fewer losses than perceived
 Return for success is substantial
 Close partnership and supervision
 Staged financing
Window on Technologies and New Businesses
High Potential Return
 Lower initial valuations
 Opportunities for leverage
 Higher upside potential
Creates Jobs and Provides Economic Development

21. Prepare for the VC elavator pitch!
Business Model needs to be clear !
INFRASTRUCTURE OFFER CUSTOMER
PARTNER CUSTOMER
NETWORK RELATIONSHIP
CORE VALUE TARGET
CAPABILITIES PROPOSITION CUSTOMER
VALUE DISTRIBUTION
CONFIGURATION CHANNEL
COST FINANCE REVENUE
STRUCTURE STREAMS

22. Prepare for the VC elavator pitch!
Key points for building up your presentation
 Since a VC elavator pitch is not an Investment Committee Presentation, it is
recommend that we use the ―KISSS‖ concept of presenting as VCs‘ time are
precious. ….and so are yours. 9-12 slides ONLY!
 Elavator pitch should be around 5 to 15 minutes maximum including Q& A. VCs
not asking you any question may reflect they are less interested. Get them excited!
The more they ask; the more clearer the picture of the business and the bigger
window of chances might open for you to get funded.
 What ever you present, please do not claim ―You are the first in the world to..‖
unless you have hard evidence of the first patenter. Lets not put a booster on your
invention or services as VCs also looks at other factors, experience and market
leadership.
 Less words in your presentation but more facts, figures, graphs and statistics of
your potential customers , market sizes, technology platforms,etc.
 When the time is up, the time is UP. Do not extend and try your luck. You can
meet them again on the floor.
NOTE: KISSS = ― Keep It Short and Simple Stupid. ―

23. Prepare for the VC elavator pitch!
Slide 1
Company X
E.g tag line/moto:” Vision for the Future”
Investor Presentation
This is a sample template of
an Investor Presentation (IP).
If you‘re looking for funding,
you should have one,
[Date] because sooner or later you‘ll
have to make a presentation.

24. Prepare for the VC elavator pitch!
Slide 2
Objective
Seeking to raise RM x million to fund
commercialization, marketing and working capital
activities.
Please specify your objective
of this presentation. You have
limited time. VCs have limited
time. If you let them know
earlier your intention, they will
have a clear mind of how
much to be raised in
parallel with the evaluation of
your business proposition.

25. Prepare for the VC elavator pitch!
Slide 3
Business Proposition
 Company X. provides [service or product] to [customers, market
segment] helping them to [value proposition which must be better or
cheaper by at least 25%] compared to solutions available today.
General Rule: Four bullet points to a page, no
more than four words to a bullet point , clearly
explain your business proposition.
Explain, when was your company established,
what does it do and what is the value
proposition for your (product/services) to a
target market.

26. Prepare for the VC elavator pitch!
Slide 4
The Product/ Services
Faster, better and / or cheaper – by
 Patented widget process at least 25% to have reasonable a
chance against established
competitors. Emphasize what the
 Increases effectiveness by 60% benefits are here, and save the 90-
slide technical discussion on how it is
 Decreases cost by 40% accomplished for later due diligence.
 Backward compatible with legacy systems
 Strong expansion opportunities into additional markets
[X, Y and Z] in the future
A single product idea may not be the
basis of a sustainable company in the
long-run. If you have other markets that
you can expand into in the future, say
so.

27. Prepare for the VC elavator pitch!
Slide 5
Technology Platform
Your invention and creation are meant to be
showcased. Please do not keep it to
yourself. If VCs are to put money in your
company, you should at least be able to
explain a high level overview of your
technology platform and how it drives your
products/ services. Explain it in figure or
diagram forms, with a KISSS concept. The
more you confuse the VC , the chances
your are not GETTING funded is bigger.

28. Prepare for the VC elavator pitch!
One of the most important section in your pitch is
this slide. Please understand and give full Slide 6
attention of the market. If you are not aware of
the market, chances for creating value in your
business is slow will hit a stumbling block. Show
you have knowledge of the market. Do not under
estimate the VCs understanding as they‘ve
evaluate tons of business plans, communicated
with industry players and for them to invest, they
The Market
know the market.
 Forrester says that ―…‗billions and billions‘ of widgets in our industry
will be sold, and growth will be infinite—forever.‖
 We‘ve surveyed 20 companies in-depth, which are in our target
market. Summary results: You also have to do a ―bottom
up‖ market analysis, actually
doing a survey of potential
 Approx. 120 such companies in our market clients, or a thorough
 Company sales revenues from $10-70 million, co.‘s mostlymarket will tell The
segmentation breakdown.
―bottom up‖
profitableyou
how many potential clients are
 Annual widget purchases/co.: $1-12 million, median $3 million to you.
actually relevant
 Growth of widget purchases: about 17%/year for last three years
 Market in volatile phase currently, due to technology change
 Total Market potential: $350 million (based on ―bottom up‖ analysis)

29. Prepare for the VC elavator pitch!
Slide 7
Competition
 Ukr-Maf Inc.: Have developed ―personalized incentive
plan‖ that supports aggressive sales force strategy, but
product quality is poor.
 NokEric Inc.: Have developed 3G-based widget sales
concept, with very high quality, but can only be delivered
through MMS
Explain to them your competitor
if you have any. VCs won‘t
blindly believe if you don‘t have
any. At least your competitors
might be niche and segmentize.
Explain how you plan to enter
the market with the big boys or
regional or global.

30. Prepare for the VC elavator pitch!
Slide 8
Business model Business Model Drivers
drivers really refer to
features and abilities
that you have that
your competitors  Sustaining Competitive Advantage
either can‘t get or
won‘t develop  Ukr-Maf will self-destruct due to ‗legal enforcement‘
because it doesn‘t
meet their business  NokEric will ignore this market, because $40 million is table
model. Ukr-Maf crumbs for NokEric, but
can‘t get
respectability;  NokEric will continue to develop MMS-based widget sales, and
NokEric won‘t will move aggressively on our market with ‗remote sales‘ in
rework their systems
to serve this market 2004
niche.
 Critical Success Factors
 Unique, sophisticated CRM system to insure bid at appropriate
CSF‘s are what
you really have moment
to do well to win
in your target  R&D Dept. will reduce mfg. costs by 50% to insure
market. These competitiveness using patented ‗Shrink-O-Widget‘ technology.
are
―endogenous‖
factors—those
under your
control.

31. Prepare for the VC elavator pitch!
Slide 9
Key Risks
 Slow market uptake
 Key man risk: Ukr-Maf ―retaliation‖
 Failure of key internal initiatives (Shrink-O-Widget)
As a rule of thumb, you should
never have more than three key
risks, and you will not usually have
less than two. Thus, if you have 4
or more key risks, you don‘t have a
deal—go back to rethink your
concept. Incidentally, there are
thousands of minor.

32. Prepare for the VC elavator pitch!
Slide 10
The management team is crucial, and you want to
show a balanced, experienced team with good
credentials. Unfortunately, this is often hard for a
start-up to do. One approach is to assemble a
―virtual‖ team where some people are expected to
join if offered the job upon funding – sometimes Management Team
listed as ―to be hired.‖
 CEO: Buck Young, 28
 Buck has had a middle management job at NokEric, where they think pretty
well of him and he‘s had a chance to take a close look at the future of the
widgets market. He thinks he‘s smarter than everyone else, and therefore
expects a VC to finance his scheme.
 CTO: Ben Had, 54
 Ben has worked all over the place, most recently at Cistel. He‘s a real adult
with kids, salary, mortgage, the works. He worked with Buck a few years
ago, and Buck sure is a sharp kid—especially if he can convince a VC to
finance this project. The idea‘s great, well, as far as a CTO can tell. Ben
carries an ABC business card, but he hasn‘t quit his job at Cistel yet.
 CFO: Guy Big, 48
 Guy is a Senior Vice President at Goldman Sachs. Buck met him at a
cocktail party and asked if he could ―use Guy‘s name as a reference‖—which
he has. Buck reckons he‘d be pleased to let Guy know about his proposed
position—even offer him a job—if the VC finances the deal.

33. Prepare for the VC elavator pitch!
You don‘t need a whole lot of Slide 11
detail here. The VC is just trying
to answer the following questions:
1) How big does it get? 2) Does
the growth look manageable? 3)
Is the profitability within norms? 4)
How much cash does it need? Financial Highlights
Year 1 Year 2 Year 3 Year 4 Year 5
Revenues
Annual Growth -- 14% % % %
Pre-Tax Profits
Pct of Revenues (55)% (8%) 2% 12% 11%
Cash Investment (2.1) (0.9) -- -- --

34. Prepare for the VC elavator pitch!
Slide 12
You need to say
Funding Needs
how long the money
will last, and what is
expected to be
accomplished
during that period.
 Series A Funding: $3.0M
 Milestones to be achieved (24 months)
 Establish sales for initial product
 Sales run-rate of $3.5M by end of 18 months
Don‘t forget to
 Profitability by the end of 24 months include what the
investment is to
 Use of funds be used for. Be
reasonably
 Key management hires $400K specific. Don‘t
just say ―to run
 Other technical & support staff $500K the business,‖
but show that
 Product packaging & COGS $400K some thought
was put into
 Sales & marketing expense $950K determining the
amount being
 General operating expense $750K asked for.

35. Thank You !
roydean.osman@gmail.com