This document discusses various topics related to accessing financing for small and medium enterprises, including intellectual property valuation, investment readiness, sources of startup capital, and government programs to support innovation and business growth. It provides an overview of investment readiness programs, grants for research and development, loan funds, and the types of initiatives governments and economic development organizations implement to improve SME access to financing on both the demand and supply sides. Case studies of financing approaches in the Rhone-Alpes region of France and Wales, UK are also presented.

1. Dr. Guriqbal Singh Jaiya
Director
Small and Medium-Sized Enterprises Division
World Intellectual Property Organization
www.wipo.int/sme
The Relevance of IP for
Acquiring/Securing Financing:
Making Intangibles More
Tangible

2. Managing IP Assets -Denise Raybould,
Associate, BDO Kendalls

3. Stages of Technology Transfer:
From Research Support to Economic Growth
Research
Support
Inventions
Disclosure
Patents
Licenses
Startups
New Products
Higher Standard of living
Economic
Growth
More in Tax
Revenues
Federal State
Corporate Endowment
New Jobs

4. IS A COMPANY READY?
• Business plan?
• Stage of development of the company
• Type of investment?
• Valuation?
• Management team ready?
• Has the management team enough time and energy
to raise funds?
• Is the team shaped to talk to investors?
• Does the company know where to go?

5. Positioning for a Capital Injection
Strategy
•Business model
•Resourcing
•Target investors
PEOPLE
TECHNOLOGY
MARKET
Valuation / Building value
Capital Injection

6. Add value before raising capital
►Documentation and Presentation
►Government grants
►Intellectual Property Protection
►R&D Partners
►In principle agreements
►Licences
►Customers

7. The “Ask and Offer”
►Financial Projections
►Business and IP valuation
►Critical negotiating tools
►Justifies assumptions
►Forces in depth research
►Forces decision making
►Makes you strong and confident

8. SOURCES OF START-UP CAPITAL (USA)
PERSONAL SAVINGS (78,5%)
BANK LOANS (14,4%)
FAMILY MEMBERS (12,9%)
EMPLOYEES / PARTNERS (12,45)
FRIENDS (9,0%)
VENTURE CAPITALISTS (6,3%)
MORTGAGED PROPERTY (4,0%)
GOVERNMENT LOANS (1,1%)
OTHERS (3,9%)

9. Other ways of raising money
through IP
►Licensing
►Sale
►Auctions
►Donation
►Grants

10. Methods of Valuing
►Market Approach
►Cost Approach
►Income Approach

11. Market Approach
►What are others paying for a
similar IP? What is the market
value?
►Extensive knowledge of
comparable data required

12. Cost Approach
►Economic principle of
substitution
►Reproduction cost (Exact
replica)
►Replacement cost (Different
form or appearance)

13. Income Approach
 Present value of future income
stream
►Future Income Stream (Economic
Income)
►Duration (Life: Legal, contractual,
judicial, physical, technological,
functional, analytical, economic)
►Risk (Uncertainty of receiving expected
income; interest rates and investment
climate)

14. IP Due Diligence
►In order to obtain financing whether
debt or equity those who are providing
the financing will need to be satisfied
as to whether the company is worthy
of it.
►Important to be “investor ready”.
That is show that you have taken all
possible steps to identify, protect and
manage your IP assets.

15. START-UP CAPITAL
►25% start with less than $5,000
►50% start with less than $25,000
►75% start with less than $75,000
►Less than 5 % with $ 1,000,000 or
more

16. The Paradox of Access to Finance
►Banks
►Venture Capitalists have money
►Stock Exchange
But argue that there aren’t enough good
projects
What is a good project?

17. A Good Project!
A good project is a project presenting in the
eyes of an investor:
► acceptable risk profile
► a good perspective of return
this means:
► access to market = innovation
► profits

18. Source of High Risks Money
Which are today these sources ? we may regroup these in 3 major
groups:
 Business Angels: we are basically talking here about rich private individuals who are
ready to invest much needed “seed capital” at a very early stage of development of a
company, i.e. for new and speculative projects. Their role is extremely important, when we
talk about raising money between USD 0.5 and 2 million.
 Venture capital investors: these are usually private equity funds managed by
professionals. They seek to identify and finance the rapid growth of high potential young
firms that embrace innovative products, processes or technologies. This way, they
generate substantial rewards from successfully overtaking existing business paradigms.
Note that very often, traditional finance institutions do invest a small part of their funds
into alternative investments such as these V.C. funds.
 Last but not least, Governments: The first computers, the first commercial jet planes
were built in the U.S.A. as funded by DoD contracts. The U.S.A and Europe have set up
specific programs to promote new science and technology businesses. These are key
tools in helping scientists to engage into new business ventures.
N.B: A business environment – laws, taxes, etc… – which encourages private and
commercial investors to invest into risk taking ventures is an absolute prerequisite.

19. Government First: U.S.A.
The U.S. example – the Small Business Innovation Research program
 SBIR awards take the form of contracts for the development of technologies required
by agencies of the US Government. They provide 100% of the funding needed plus a
small profit element. The “norm” is USD 850 K for each project. Small business can win
and run multiple projects in parallel. The SBIR analysis below is done for the UK
Government in an attempt to copy and adapt it:

20. Government First: U.S.A.
The U.S. example – the Small Business Innovation Research program
 Established in 1982, it is the World’s largest seed capital program for science and
technology business.
The law stipulates that 2.5% of all federal agencies’ external R&D research must be done
through SBIR. Furthermore, the US has established a very large set of policies to favor
small US businesses in government procurement.

21. Government First: The European Union
The first program in Europe: COST – an international framework for
European Co-operation in the field of Basic Scientific and Technical
Research ( www.cost.esf.org )
 Established in 1971, COST allows the co-ordination of nationally funded research by
maximising European synergy and raising the level of scientific interaction at the scale of
Europe. Its budget for the period of 2002-2006 was of 1.5 Billion Euro.
 COST Actions cover
basic and pre-
competitive research.
Ukraine as a Non-
COST country took
part in 15 actions.
 From March 2006,
Ukraine initiated
consultation to discuss
potential full
membership.

22. Government First: The European Union
 The primary goal of EUREKA has always been to raise the productivity and
competitiveness of European industry and national economies through its ‘bottom-up’
approach to technological innovation. Since its inception in 1985, substantial public and
private funding has been mobilized to support the research and development carried out
within the EUREKA framework.
 Through its flexible and decentralized Network, EUREKA offers project partners rapid
access to a wealth of knowledge, skills and expertise across Europe and facilitates access
to national public and private funding schemes.
 The internationally recognized EUREKA label adds value to a project and gives
participants a competitive edge in their dealings with financial, technical and commercial
partners.
 Through a EUREKA project, partners develop new technologies for which they agree the
Intellectual Property Rights and build partnerships to penetrate new markets.
 Ukraine was granted full membership on 9 June 2006. Currently a total of 15 projects
have been developed with Ukrainian participants for a total of 1.1 M. Euro.
EUREKA – an international framework for European Co-
operation in the field of Marketable Scientific and
Technical Research ( www.eureka.be )

23. Public Interventions
Mix of non-financial and
financial support services
This means that intermediaries have to
(1) provide value-added services; and
(2) become more professional

24. Finding Innovation Funding Innovation
25 April 2007
Access to finance for West Midlands
SMEs
Patrick Palmer – Head of Access to
Finance at Advantage West
Midlands

25. What sort of initiatives are there?
►Demand side initiatives
Provision of better information of what is available;
Investment Readiness programmes.
►Supply side initiatives
Grants to support Research and Development and
certain “Proof of Concept” activity;
The Research and Development Tax Credit;
Grants for capital investment in certain areas;
A range of venture capital funds;
Encouragement of Business Angel activity;
Small Firms Loan Guarantee Scheme;
Community Development Finance Institutions.

26. Demand Side Actions
►Better information
www.westmidlandsfinance.com;
►Investment Readiness
programmes
Route to Investment (R2i);
CONNECT / InvoRed.

27. R2i
►Provided through the Business Link network and
funded by Advantage West Midlands and the ERDF
►Comprising four stages:
Increasing Awareness of funding sources;
Education of businesses in funders’ requirements;
Developing applications and businesses to ensure
they are “investment ready” (Complex
Development);
Post Investment Support.
►Access through Business Link West Midlands
Telephone 0845 113 1234
website www.businesslinkwm.co.uk

28. A tailored programme delivered across the West
Midlands that helps technology based businesses
from pre-incorporation to 2nd or 3rd stage funding:
•Get ‘Investor-ready’;
•Understand finance options ;
•Make the pitch;
•Find investment
•Flexible programme with 2 streams
Green Stream - Fast-track grooming for later stage companies
InvoRed
Amber Stream – for early stage companies

29. Supply Side Actions - Grants
►DTI Grants operated by AWM –
Selective Finance for Investment in
England and Grant for Research and
Development
►Grants available through Business Link
– Diversification, Accelerate
►Mercia Spinner, Technology Transfer
Fund

30. Grant for Research and Development
►Grant is available under four categories:
Micro projects;
Research projects;
Development projects;
Exceptional development projects.
• Grant is only available to SMEs;
• Available throughout the West Midlands;
• AWM have secured ERDF money to
support this grant scheme.

31. Grant for Research and Development
Type of grant Employee
numbers
Grant as %
of eligible
expenditure
Grant
range
Micro (small
development
projects)
< 10 50% £2,500 -
£20,000
Research < 50 60% - 65% £20,000 -
£75,000
Development < 250 35% - 40% £20,000 -
£200,000
Exceptional
development
< 250 Up to 35% £200,000 -
£500,000

32. Grant for Research and Development
Key criteria are:
►Technologically innovative;
►Technical risks and R & D challenge;
►Commercial potential and market need;
►Exploitation prospects;
►Management and project team abilities;
►Commercial and financial viability;
►Intellectual property secure;
►Additionality;
►Wider aspects – sustainability and design
considerations.

33. Technology Transfer Fund
►Available in the Central Technology Belt,
but extending its area of activity;
►Provides proof of concept funding (ranging
from £5k - £25k) for new start-ups and
existing SMEs;
►Currently confined to medical technologies
and advanced materials technologies;
►Delivered by Birmingham Research and
Development Ltd with AWM and ERDF
funding

34. Supply side actions
Small Firms Loan Guarantee Scheme
►Provides Government guarantees on loans from
private sector providers to small firms under 5
years old with viable business proposals but
insufficient security for conventional finance;
►Loans may range from £5,000 to £250,000 and for
periods from 2 to 10 years;
►Guarantee is for 75% of the loan;
►Operated through commercial banks and
administered by the Small Business Service;
►“Small” = less than 200 employees, turnover less
than £5 million (non-manufacturing £3 million)

35. Supply side actions - Loan Funds/
Community Development Finance Institutions (CDFIs)
Source Range Location
Princes Trust -18-30yrs £250-£5k Region
Halal Fund –non interest based £7.5k -£35k Region
Arrow Fund £1k -7.5k B’ham & Solihull
Aston Reinvestment Trust £2k-50k B’ham&NSolihull
3b Up to £20k B’ham & Black
Country
Black Country Enterprise Loan Fund Up to 5k Black Country
Black Country Reinvestment Society Up to £50k Black Country
Impetus – Marches Rural Reinvestment
Trust
Up to £50k Rural Marches
North Staffordshire Risk Capital Fund £10-50k North Staffs
Michelin Development Fund £5k+ Stoke-on-Trent
Coventry&Warwickshire Reinvestment
Trust
Up to 50k Coventry& Warks

36. Regional Financial and Equity Value Chain
Infrastructure:
business angels
networks, incubators, etc.
Intermediaries:
advice, investment
readiness, tutorship
Human capital:
professional fund
managers, state
aids experts
Entrepreneur’s
own resources
and
reinvestment
capacities
Equity VC
FFF
Pre-seed
University spin off
IPO
Business
Angels
Corporate
Venturing,
Seed
capital
FFF : Family, Friends, Founders; BA : Business angels; VC : Venture capital; IPO : Initial Public Offering
- Grants - Loans
- Micro-credits - Loans on trust
- Guarantees - Reimbursable advance
- Proof of concept
Prerequisites
Mezzanine
Public
funding
Risk taking investors:
private, public
- Banks - Factoring
- Guarantees - Micro-credits
- Leasing - Export credits
Private
funding

37. Regions and Access to Finance
Case Study of the Rhône-Alpes (France)
Source: RHONE-ALPES CREATION
PROJECTS
High-tech
(strong potential)
INDUSTRY AND
INDUSTRIAL SERVICES
(product- or process-based
innovation)
SMALL INDUSTRIES
(CAPACITY SUBCONTRACTING)
SERVICES AND TRADE
(traditional, moderately innovative activities)
MICRO BUSINESSES TRADE
CRAFTS
TRAINING – ADVICE- SUPPORT
Incubators CREALYS
GRENOBLE
INNOEXPERT
(CCI Lyon)
BUSINESS
CENTRE
(EM Lyon)
BUSINESS
INCUBATORS
(NOVACITES
FRAC CREATION)
Business
development and
reception service
(CCI)
Sponsorship
Local platforms
Entreprendre en France
Banks + Comité Sofaris
CCI + professionals
Chartered accountants
(ATEN)
« 3 hours – 3 days »
FINANCING
« Venture Capital » (National or International)
(Sudinnova, Siparex Venture, Banexi, Partech)
« Seed capital » - National (thematic)
(I Source, Emertec, BioAm,…)
- Regional
(Amorçage Rhône Alpes)
« Business development venture capital »
Rhône-Alpes Création
Banque Pop., Crédit Agricole
Rhône-Dauphiné Développement
DEVELOPMENT TYPES
« Réseau Entreprendre »
(Loans on trust + Sponsorship)
« ARJE » (Regional repayable short-term
loans for new businesses—1-5 years)
« P.C.E. »
(BDPME loans)
« Mille et Un Talents »
(Regional grants)
ANVAR
L
O
C
A
L
F
U
N
D
I
N
G
R
E
Q
U
I
R
E
M
E
N
T
S
S
C
A
L
E
« Local platforms »
(Loans on trust)
Local initiative platform
ADIE
Business
Angels
€300,000
+
€300,000
to
€45,000
€45,000
to
€15,000
€15,000
to
€7,500
Sup. de Co. Grenoble

38. Case Study Wales (United Kingdom)
The region of Wales (UK) re-organised all its financial services around
a single organisation called Finance Wales (www.financewales.co.uk)
to provide the following financial services and products:
► Community loans amounting to US$ 10.000 to US$ 100.000 for
the social economy
► Xenos: its business angels network
► Spinout: unsecured loans without interest of up to US$ 50.000 for
university spinouts
► Venture capital: up to US$ 1.500.000 per financial pool and US$
3.000.000 in total
► Mezzanine: US$ 20.000 to US$ 800.000
► Loans: from micro-credit of US$ 2000 to US$ 20.000 to loans of
up to US$ 1.200.000

39. Roadmap to Financing Options
Sweat equity
Science for Hire
Debt
Equity
Profit
Founders
On Spec
Corporations
Federal
Family, friends
Personal credit
banks
Fed,State loans
Referral network
Accountants
Attorneys
Successful entrepreneurs, etc
Business angels
Licensing
Partnerships
IP sale
Venture Capital
Investment banker
Corporations

40. Financing Options as a Function of
Application & Resources Required
$
REQUIRED
A lot
A little
Few Many
•Spin-off
•Joint venture
•Equity investment
•Joint R&D
•Licensing
•Strategic alliance
•Equity investment
•Bootstrap
•Angel investment
•Debt financing
•Partnerships
•Licensing
•Angel investment
APPLICATIONS

41. THE ENTERPRISE FINANCING PROCESS
Financing
needs
Financing stage
High
Risk
Low
Risk
Growth
SEED
Entrepeneur;
Fam
ily,
Friends
Seed
Capital
Business
Angels
Bank
Loans
Equity
STAR T-UP PH ASE EARLY GROWTH EXPANSION
Form
al
Venture
capital
Public sector aid
MARKET
GAP
I.P.O
MARKET
GAP
GUARANTIES

42. THE ENTERPRISE FINANCING PROCESS
Corporate Fund
and
Venture Capital
Idea Start-Up Market introduction Growth Maturity
Innovation
Seed Capital
Funds and
Public
funding
Commercial and Savings Banks
Time
Efforts
made by
financiers
Risk
Cash flow
Transfer
Private
Investors
and
Business
Angels

43. THE ENTERPRISE FINANCING PROCESS
R&D Start-up
Early
growth
Accelerating
growth
Sustaining
growth
Maturity
growth
Proof of
Concept
Funding
Seed
Corn
First
Round
Second
Round
Development
Capital
Replacement
Capital
MBO / MBI
Development
Capital
Founders, family and friends
Public Sector
Business angels
Venture capital funds
Corporate venturing
Public listing / IPO
Source of
Funding
Type of
Funding
Stage in
Cycle

44. Investment Continuum
Angel market addresses the $500K
investment gap between love money
and serious money
High
Low
Seed Start-Up Early Growth Established
Level of
Investment
Risk
Assumed by
Investor
Founder, friends
and family
Business Angels
Venture Capitalists
Commercial banks
Equity Markets
Corporate VC
* “Angel Investing”
Osnabrugge & Robinson

45. VENTURE CAPITAL (Formal & Informal)
► Institutional operators (formal venture capital)
► Private subjects
► Banks
► Insurance
► Corporate venture capital
► Non-institutional operators
(informal venture capital)
► Business Angels

46. FORMAL AND INFORMAL EQUITY PROVIDERS
* Source: van Osnabrugge, 1998, p.2
Personnel
Firms funded
Due diligence
Investment's
location
Contracts used
Monitoring ex-post
Exiting the firm
Rates of return
Business Angels
Entrepreneurs
Small, early stage
Minimal
Of concern
Simple
Active 'hands-on'
Of lesser concern
Of lesser concern
Formal venture
capital
Investors
Large, mature
Extensive
Not important
Comprehensive
Strategic
Highly important
Highly important

47. FORMAL AND INFORMAL EQUITY PROVIDERS
VC
– Easy to find via directories
– Your request is only one among
many hundred a VC receives
– Can often via syndication
provide large investment
– Thorough and formal due
diligence and investment process
– Exit route very important
BA
– Difficult to find
– Request often strong personal
involvement
– Limited amount to invest
– Investment decisions often
quick and less formal
– Syndication more and more
usual
– Exit route less in focus

48. BUSINESS ANGEL (BA) - Definition
“A Business Angel is a middle aged male with
reasonable net income, personal net worth, previous
start up experience, who makes one investment a
year, usually close to home or office, prefers to invest
in high technology and manufacturing ventures with
an expectation to sell out in three to five years time”.
(Kelly and Hay, 1996)
”Business angels (informal investors, independent
investors) are investors who provide risk capital
directly to new and growing businesses in which they
have no prior connection”.
(Harrison and Mason, 1996)

49. BUSINESS ANGEL (BA)
• male, rarely female
• successful experience as an entrepreneur or manager
• high net worth individual and / or sophisticated investor
• have a declared propensity to invest and to risk in a start-up
firm
• invest their own money (around 50K – 250K euro) (part of their
cash capital: 20 - 30 %)
• Seeking profit, but also fun (seeking minimum 20% return)
• are willing to share their managerial skills and their enterprise
background
• often invest in their region of residence
• make one investment a year
• prefer high-technology and manufacturing
• take a minor participation – medium term investment
• are willing to wait for an exit for 3-5 years
Attitudes, behaviour and characteristics:

50. ANGEL’S – Success Stories
Company name Angel Investor Business Investment Value at Exit
Apple Computer (Name Witheld) Computer
hardware
$91.000 $154 million
Amazon.com Thomas Alberg Online
bookshop
$100.000 $26 million
Blue Rhino Andrew
Filipowski
Propane
cylinder
replacements
$500.000 $24 million
Lifeminders.com Frans Kok Internet e-mail
reminder
service
$100.000 $3 million
Body Shop Ian McGlinn Body care
products
£4.000 £42 million
ML Laboratories Kevin Leech Kidney
medical
treatment
£50.000 £71 million
Matcon Ivan Semenenko Bulk
containers
£15.000 £2.5 million
Source: partially adapted from unpublished data provided by Amis Ventures in 1999

51. ANGEL STRATEGY
• New products or technological improved products in an
existing market
• A product or service that can be taken to market without
further development (i.e., past the initial concept stage)
• Creation of new markets
• Company’s growth should be expected to be higher than
market growth
• Increase of market share against competitors
• Superiority regarding competitors
High-growth start-ups: new businesses that are likely
to see sales grow to around € 1M and employment to
between 10 and 20 people in early years and export
oriented.
Key selection criteria of risk capital investors (generally):

52. ANGEL DUE DILIGENCE PROCESS
Technology
Technology development
Product development
Process development
Product supply
Deliveries
Market
Marketing
Sales
PR
Competitors
IPR
Organization
Recruitment
Board
Network of service suppliers
Office
Economy / Finance
Cash forecast
Finance activities
Cost estimate
Budget

53. Angel Motivations
► Altruistic - willing to provide:
 Advice - financial and management
 Contacts - broad range to assist in development of venture
 Hands-on Involvement - at basic level, if required
 Governance - Board of Directors / Advisors
 Credibility - sends good signals to customers, partners &
investors
► Pragmatic
 Will hand off involvement to next level of investors …
 Therefore will use same criteria as VC to evaluate opportunity
 57% of companies with angel investment achieve VC
funding
 10% of companies with no angels achieve VC funding
Dr. Allan Riding, Carleton University research on Ottawa angels

54. Types of Business Angels
► Professional
 Doctors, lawyers, accountants
► Micromanagement
 Very hands on with lots of
experience, but may be toxic
► Enthusiast
 Usually retired, investing is a
hobby, little value add
► Corporate
 Retired senior managers
looking to support their
investments or create a new
senior job for themselves
► Entrepreneurial
 Most active, successful
entrepreneurs looking to
diversify portfolio or expand
current business
“Millions of years of evolution, and
that’s the latest model?!?”

55. Investing Approaches
Sprinkle and Sprout
Approach
- Investors make many
smaller investments
- Bet on management
- Follow-on investment in
successful sprouts
- Fewer than 25% of the
“sprinkled seeds” sprout
successfully *
* ONSET Ventures research
Heavy Lifting
Approach
- Investors make fewer,
larger investments
- Understand market
- Active involvement,
Advisory Board
- 75% of investees
succeed *

56. THE U.S. ENTREPRENEURSHIP
SUCCESS STORIES
► FIRST COMPANY WHICH ACHIEVED $ 100 MILLION SALES IN THE FIRST
YEAR:
COMPAQ INC.
► PRODUCT: PORTABLE PC’S
► HEADQUARTERS: HOUSTON, TEXAS
► FIRST COMPANY WHICH ACHIEVED $1 BILLION SALES IN THREE YEARS:
SUN MICROSYSTEMS INC.
► PRODUCT: WORKSTATIONS + SOFTWARE
► HEADQUARTERS: MOUNTAIN VIEW, CALIFORNIA
► FIRST COMPANY WHICH ACHIEVED $4 BILLION SALES AT INITIAL PUBLIC
OFFERING
NETSCAPE COMM. CORP. (BOUGHT BY AOL IN 1999)
► HEADQUARTERS: MOUNTAIN VIEW, CA www.home.netscape.com

57. Price/share
(in US $)
1995 Larry Page & Sergey Brin@Stanford University
1997 15 000 US $ creditcards
100 000 US $ B.A. Andy Bechtolstein (Sun Microsystems)
Patent OTL
0.06 fin 1998 960 000 US $ 3 B.A.
OTL receives2 % of the shares
0.50 mai 1999 25 000 000 US $ 2 V.C.
Kleiner Perkins (Sequoia)
2.34 2001 15 000 000 US $ of which Yahoo
85 août 2004 2 718 281 828 US $ I.P.O.
295 2005 4 000 000 000 US $ Capital increase
A Financial Chronology of Google.com
NB: turnover. 200 000 US $ 1999
8 000 000 000 US $ 2006 Source: Hervé Lebert

58. 58
Amgen: A Capital Venture
►World’s largest biotech company
►Founded 1980
 $19 million venture capital
investment
►2007 Financial Year
 $14.8 billion revenues
 $4.8 billion profit (before tax)
►Market capitalisation: $51 billion

59. 59
Venture Capital
►Invest in:
 Private companies with high growth potential
 Launch, early development, or expansion
 Management buy-outs and buy-ins
►Raise funds for investment from:
 Private and public pension funds
 Endowment funds
 Foundations, corporations, wealthy individuals
►Looking for >5-fold return on
investment within 5 years

60. 60
Venture Capital
►Profit and risk sharing (high risk – high
return)
►10 to 15% of portfolio will give very high
returns
►Detailed due diligence
►High level of hand holding
►Ownership and control of business shared
►Patient, flexible financing (5-7 years to exit)
►Highly selective financing – importance of
deal flow

61. 61
Exit Strategy
►Exit through the stock exchanges
(“IPO”)
►Sell to another VC
company/strategic investor
►Strategic mergers and acquisitions
►Issues in Exit :-
 Minimum return expected by VC
fund.
 Minimum equity size for public
issue

62. Venture Capital Drivers
Money
Limited Partners
Pension Funds
Individuals
Corporations
Ins Companies
Foreign Sources
Endowments
80% of capital
gains + principal
2.5% Annual Fee
General Partners
20% capital gains
IPOs and Mergers
Equity
Money
Entrepreneurs
Fund Providers Venture Capital Firms Portfolio Companies
Customer
(Revenue to VC firms)
Management
(SG&A)
Supplier
(Cost of Goods Sold)
Venture Capital is a money distribution business where
entrepreneurs compete for “shelf space” and where only 1 in 100
companies get funded!

63. What VCs are Looking for
Products
► A novel biological or chemical hypothesis
► A well understood mechanism of action
► Proof of principle
► Significant unmet need
► A strong IP position (both freedom to operate and
power to exclude)
► A strategy for partnering so that the risks
associated with the timing of FDA approval can be
passed on to someone else (although clear clinical
endpoints are a plus)