Slides of guest lecture by Dr. Clint Korver, Partner, Ulu Ventures, at Stanford University's class Professional Decision Analysis (MS&E 352) on Feb 27, 2018

1. Page 1 Ó 2018 Ulu Ventures. All rights reserved.
Delivering Outstanding VC
Results with Decision Analysis
MS&E 352: Decision Analysis II: Professional Decision Analysis
February 27, 2018
Clint Korver:
clint@uluventures.com

2. Page 2 Ó 2018 Ulu Ventures. All rights reserved.

3. Page 3 Ó 2018 Ulu Ventures. All rights reserved.

4. Page 4 Ó 2018 Ulu Ventures. All rights reserved.
Venture decisions are structurally difficult.
Challenges
Uncertainty
Ego
Biases

5. Page 5 Ó 2018 Ulu Ventures. All rights reserved.
Decision best practices can help.
Challenges Best Practices
Uncertainty Decision Analysis
Ego Learning
Biases Diversity

6. Page 6 Ó 2018 Ulu Ventures. All rights reserved.
Investments are the most noticeable VC decision, but
they are only the “tip” of the iceberg.
Decision Hierarchy
• Stage
• Sector
• Fund Size
• Geography
• LP Expectations
• Brand Promise to Ent’s
• Size (# of investments)
• Reserves ($’s held for follow-ons)
• Mix (stage, sector, geo, timing, risk)
• Initial investment decisions
• Follow-on investment decisions
Strategy
Portfolio
Construction
Investments
• Seed
• Enterprise IT
• $60m
• Silicon Valley / Stanford
• Top tier performance
• Seed to series A partner
Ulu Ventures
• 60+
• Small
• n/a
• 10x
PWMOIC

7. Page 7 Ó 2018 Ulu Ventures. All rights reserved.
INVESTMENT DECISIONS

8. Page 8 Ó 2018 Ulu Ventures. All rights reserved.
Ulu follows a disciplined decision making process.
1. Sort Qualitatively 2. Create Market Map 3. Assess Risks
4. Quantify Uncertainties 5. Perform Sensitivity
Analysis
6. Calculate Risk/Return
Team
Mkt
Fit TAMCust
Segment
Unit
Sales
Price
• Market
• Product
• Team
• Financial
High
Base
Low
No
No
Early
Stage
Success
Cross
Chasm

9. Page 9 Ó 2018 Ulu Ventures. All rights reserved.
Idea: Cheaper loans for students from low risk schools
Founding team: 5 Stanford grads & 1 U Michigan
Referral: Stanford Angels & Entrepreneurs
Met: September 2011
Case study

10. Page 10 Ó 2018 Ulu Ventures. All rights reserved.
Ulu’s filtering criteria
• Integrity
• Domain expertise
• Non-Consensus
• Meaningful problem
• Differentiated solution
• Large addressable mkt
Large Market
Opportunity
Compelling
Team
• Seed Stage
• Enterprise IT
• Stanford / Silicon
Valley
Strategic
Fit

11. Page 11 Ó 2018 Ulu Ventures. All rights reserved.
Life stage risk assessment
Early
Stage
Success
Market
Product
Financial
Working Product
Core Tech Team
Mass Market
Share
Differentiation
Barriers
to Entry
Proprietary
ArchitectureSwitching
Costs
Substitutes
Team
Paying Visionary Customers
Compelling Reasons to Buy
Viable Business Model
Sufficient Runway
Capable CEO
Team Experience
100%
90%
100%
100%
90%
Cross
Chasm
Market
Product
Team
Financial
90%
70%
80%
45%
90%
Healthy Gross Margins
Sufficient Runway
Crit Mass Pragmatic Cust’s
Proven Value Prop
Predictable Alumni Sales Cycle
Whole Product
Complete Team
Healthy Team Dynamics
Mass
Market
Success
Team
Market
Product
Financial
Proven in Mult Niches
Marquee Customers
No Adverse Gov’t Regs
Scalable Product
Product Dev Continuity
Healthy Net Margins
Execution Track Record
Board of Directors
No Blow Ups
50%
80%
80%
26%
80%

12. Page 12 Ó 2018 Ulu Ventures. All rights reserved.
Life stage success probabilities
0.3
0.2
0.5
0.26
0.74
No
0.45
0.550.9
0.1
Market Share
3%
5%
2%
30%
50%
10%
100%
No
Early
Stage
Success
Cross
Chasm
Mass
Market
Niche
Only
Challenger
Market Leader
Also Ran
60% chance of failure
40% chance of success

13. Page 13 Ó 2018 Ulu Ventures. All rights reserved.
Key drivers of value
ROI
Enterprise
Exit Value
Exit
Multiple
Ownership
%
Dilution
Revenue
Investment
Amount
Valuation &
Terms
Market
Share
Total
Addressable
Market
Adjacent
Markets
Earnings
Net Margin
Alumni
Acquisition
Costs
A Tier TAM
(<1%)
B Tier TAM
(1 – 1.5%)
Tuition
Growth
A Loans
Addressable
$ (< 1%)
Gross
Margin
A Loan
Footprint $
A Loans
Addressable
%
Origination
Fees
Velocity of
Capital
Spread
Base Spread
Community
Experience
Delta
Gain on
Sales
Alumni
Participation
(% dollars)
B’s Converted
to A’s
Social
Thesis
Delta
Coupon vs
<1%
B Loan
Footprint $
B Loans
Addressable $
B Loans
Addressable %
Int’l TAM
Int’l Loans
($B)
Addressable
%
Loan
Spread
Capital
Needs
Value
Decision
Uncertainty
Calculation
Influence
Key
Evocative

14. Page 14 Ó 2018 Ulu Ventures. All rights reserved.
Tablet Adoption in Higher Education
by 2015
Ranges structure intuition
Precisely Wrong Approximately Right
High 30%
Base 10%
Low 3%
Market share | achieve mass market success
10%

15. Page 15 Ó 2018 Ulu Ventures. All rights reserved.
Sensitivity analysis focuses due
diligence
Probability Weighted MOIC
0 10 20 30 40 50
Base Value
Base Value = 17x
Mass Market Share 3% 30% 10%
Exit Multiple (Earnings) 5 20 10
Dilution 80% 50% 67%
Gain on Sales 2% 9% 6%
Conversion of B to A 0% 100% 30%
Int'l Addressable 0% 50% 25%
Net Margin 35% 65% 50%
Adjacent Markets 10% 80% 40%
Tuition Growth 0% 10% 5%
Int'l Loan Footpring $B 10 50 30
A Addressable 40% 100% 80%
Pre-money Valuation ($M) 5 3 4
Niche Market Share 3% 15% 5%
Velocity of Capital turns/yr 0 3 1
B Addressable as B 0% 40% 10%

16. Page 16 Ó 2018 Ulu Ventures. All rights reserved.
SoFi passed Ulu’s 10x probability weighted
multiple on invested capital (PWMOIC) threshold.
0.3
0.2
0.5
0.26
0.74
No
0.45
0.550.9
0.1
Market Share
3%
5%
2%
10%
50%
10%
100%
No
Early
Stage
Success
Cross
Chasm
Mass
Market
Niche
Only
Challenger
Market Leader
Also Ran
5.2
2.6
10.4
$3012
$9035
$904
Enterprise
Exit Value
($M) PWMOIC
2.4$75
$0
$0
0
0
$535
$1606
$161
Revenue
($M)
$27
$0
$0
20.5PWMOIC:
164
49
492
MOIC
8
0
0

17. Page 17 Ó 2018 Ulu Ventures. All rights reserved.
Ulu invested
Raised over $2B
$547M Revenue, $126M Profit in 2017* – WSJ 2.9.18
$3B in refinancing / quarter*
Last financing valued company at > $4B
What happened
*Wall Street Journal: February 2, 2018.

18. Page 18 Ó 2018 Ulu Ventures. All rights reserved.
Why we use decision analysis
Proven in analogous industries
Apply intuition intelligently to investment
Streamline due diligence
Avoid overpaying
Helps entrepreneurs build their business

19. Page 19 Ó 2018 Ulu Ventures. All rights reserved.
PORTFOLIO CONSTRUCTION

20. Page 20 Ó 2018 Ulu Ventures. All rights reserved.
Ulu’s portfolio is optimized for its particular strategy.
Decision Hierarchy
• Stage
• Sector
• Geography
• LP Expectations
• Entrepreneur Brand
Promise
• Size (# of investments)
• Reserves ($’s held for follow-ons)
• Mix (stage, sector, geo, timing, risk)
• Initial investment decisions
• Follow-on investment decisions
Strategy
Portfolio
Construction
Investments
• Seed
• Enterprise IT
• Silicon Valley / Stanford
• Top tier performance
• Seed to series A partner
Ulu Ventures
• 50+
• Small
• n/a
• 10x
PWMOIC

21. Page 21 Ó 2018 Ulu Ventures. All rights reserved.
Ulu’s portfolio construction approach is
fundamentally different than most early stage VCs.
Standard Approach
I can pick winners
Concentrated portfolio: 10 – 20
Large reserves to “double
down on winners”
Ulu’s Approach
No one can pick winners
Large portfolio: 50+
Small reserves: aggressively
buy ownership upfront
Differences driven by Ulu’s analysis of returns data.

22. Page 22 Ó 2018 Ulu Ventures. All rights reserved.
Unlike most asset classes, Early Stage VC Mean and
Median returns are dramatically different.
Mean Median
Early Stage VC 22% 5.6%
Late Stage VC 12% 10.7%
Burgiss Data 1983 – 2Q2017 US
Courtesy of Virdis Investments
Early Stage = Series B and earlier
Median Early Stage VC returns lousy
Mean Early Stage VC returns excellent due to outliers with huge multiples
- (Google, Facebook, LinkedIn, Uber, etc.)
Larger portfolios move expected returns from median to mean
Maximize $s in early stage – i.e. small reserves

23. Page 23 Ó 2018 Ulu Ventures. All rights reserved.
A bottoms up analysis of returns provides specific
validation for Ulu’s portfolio construction strategy.
1Cambridge Associates Research Note: The 15% Frontier. 2016. Based on data from 2004 – 2012.
2Horsley Bridge data as reported via A16Z blog post: https://a16z.com/2015/06/08/performance-data-and-the-babe-ruth-effect-in-venture-capital/
2.5%
Of venture deals generate
nearly 100% of industry profits1
4.5%
Of capital generates 60% of
fund profits in top tier funds2
Similar to Market Leader + Challenger probability from PWMOIC exercise
Every Ulu check has, on average, a 4.5% chance of outlier returns

24. Page 24 Ó 2018 Ulu Ventures. All rights reserved.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 10 20 30 40 50 60 70 80
Chance of at Least One Oultier
Portfolio Size (# of Investments)
Top Tier VC (4.5%)
Good VC (2%)
Ulu Fund II has a 90% chance of at least one outlier
with 50 investments (at a 4.5% outlier chance / investment).

25. Page 25 Ó 2018 Ulu Ventures. All rights reserved.
Consistent, strong performance across multiple
funds is the goal.
Investments
1 Fund
with
Outlier*
3 Funds
with
Outliers*
Ability to
Source
Ability to
Select
Ability to
Support
10 37% 5% A A A
50 90% 73% A A B
100 99% 97% A B C
50+ most effectively balances the issues for Ulu right now
With more resources, we will push closer to 100 investments
*Top Tier VC Odds

26. Page 26 Ó 2018 Ulu Ventures. All rights reserved.
Ulu’s reserve strategy of investing aggressively upfront
doubles ownership vs. “Doubling Down on Winners.”
Based on a $50 million model portfolio with 50 companies, 62% write offs and exits distributed between $25 million and $1.5 billion.
12.5%
8.9%
7.0%
6.1%
3.3% 3.3% 3.3% 3.3%
COMPANYOWNERSHIP
Investment / round ($k) Seed Series A Series B Series C Reserves
Fund
Mult
No Pro Rata 1,000 0 0 0 0% 6.6x
PR Through C 260 260 660 1,320 74% 3.4x

27. Page 27 Ó 2018 Ulu Ventures. All rights reserved.
WHAT’S NEXT?

28. Page 28 Ó 2018 Ulu Ventures. All rights reserved.
My Meaningful Purpose Map
DA in VC
LIVING IN
POSSIBILITY
LEADING BY EXAMPLE
ONVALUES
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