3. Jeffrey P. Bodle, Moderator
Partner, Morgan, Lewis & Bockius LLP
Rob Weber
Managing Director, Antiphony
Thaddeus Squire
Artistic Executive Director, Peregrine Arts
Alan Kraus
Sr. Director, Investment Group at Ben Franklin Technology Partners
Kevin Dow
Deputy Commerce Director
Neighborhood and Business Services,
City of Philadelphia
7. US VC Investments
What goes up…
* 2009 data includes Q1 & Q2 data.
Source: PWC MoneyTree™ Survey, 2009
8. Philadelphia VC Investments
Mirror the US with more deals per dollars
* 2009 data includes Q1 & Q2 data.
Source: PricewaterhouseCoopers/Thomson Venture Economics/
National Venture Capital Association MoneyTree™ Survey, 2009
12. It’s a great time to be an investor (with
cash)
Entrepreneurs have to do more with less, or pay the price in equity.
Source: Thomson VentureXpert, 2008 NOTE: No data available for Q1-2, 2009
13. VC’s abandoning then returning (in
cycles) to Seed Stage investments
Source: Thomson VentureXpert, September 30, 2009 (YTD)
14. The Funding Gap
Investors continues to move later stage
Equity Capital for Entrepreneurs
Stage Pre-Seed Seed/Start-Up Early Later
Source Founders Angel/Angel Alliances Venture Funds
$25K $100K $2, 000K $5, 000K
Demand
Supply
Funding Secondary
Gap Funding
Gap
Source: Jeffrey E. Sohl, Center for Venture Research, 2003
15. Why?
NOT because they don’t do early stage deals
NOT because of poor ROI
BUT BECAUSE
They have too much money to invest and
Need to move to harvest quicker
AND NOW
Entrepreneurs are doing more with less
Investors coming back to realize the bigger (riskier) returns
are in earlier stage companies
16. Angels & Venture Capital
100× more angels invested 68% of the funds in
14× more ventures than VC’s (in 2008)
Angels Activity (2008)1 Venture Capital Activity2
260,500 active angels 2,276 active funds
Invested approximately $19.2 Invested approximately
billion in 55,480 ventures $28.08billion in 3,929 deals
Additional comments
Additional comments
Avg $7.15MM/deal
Average per deal $346K
Lower valuations and cautious
investing
Not abandoning seed/start-up
investments;, but moving later
stage 1 Center for Venture Research, 2009
2 Thomson VentureXpert,
More larger, formal alliances and
later stage investments
17. Sector Analysis
Sector Angel1 VC2
Software 13% 18%
Health/Med Dev 16% 14%
Biotech 11% 17%
Industrial/Energy 8% 10%
Retail 12% 1%
Media 7% 6%
Retail and Media mainly due to a continued
interest in social networking ventures
1 Center for Venture Research, 2008
2 Price Waterhouse Coopers/MoneyTree, 2009
18. The Truth About Angels
Invest close to home
Cashed-out entrepreneurs
Value-added
Patient Capital (?)
Invest as part of group/syndicate
Regional Networks
Angels and companies seeking angel funding more diverse
16.5% women angels; 15.75% woman-owned ventures sought funding
(9.5% conversion)
Number of women seeking investment is low; conversion is comparable.
3.6% minority angels; 3.7% minority-owned ventures sought funding
(11.3% conversion)
Source: Center for Venture Research, Q1-2 2007
19. Angels still investing first, but…
63% ( ) new, first sequence investments
45% ( ) Seed/Start-up, 40% ( ) Post-seed/Start-up, with
more, 14% ( ), moving to Expansion Stage.
Increase in Post Seed/Start-up results from aggregation of
angels (groups, clubs, funds)
The Funding Gap grows a bit smaller…
Source: Center for Venture Research, Q1-2 2007
20. Evolution of Angels
Individual Angels Angel Groups/Clubs Angel Funds
Typically Same as Individual Same as Angel
entrepreneurs who Angels, plus: Groups, plus
have cashed out Process to recruit, Formal fund, usually
Contribute: “scrub” and present set up as LLCs
Patient capital opportunities to Angels Invest as a fund,
Knowledge although Angels direct
and the investment
experience strategy
Mentoring
21. More and more, ALL high-tech
investors are looking for…
Visionary leader & capable team
“We can hire execution”
Market leadership
Emerging growth markets with sizable potential
Fundamental, compelling technology advantage
Defensible competitive position
Capital-efficient business plan
Moderate capital requirements
Clear return on investment leverage
Easily financed post-seed
Risks mitigated in incubation stage
23. US dominates, but Venture Capital is
becoming a global phenomenon
http://www.deloitte.com/dtt/article/0,1002,cid=213801,00.html
24. While technology innovation and entrepreneurship have largely
been a U.S. phenomenon, other countries are quietly excelling in
areas that are critical to the future of venture capital investment.
We are operating in a global economy and venture capitalists will
follow the best technologies. Those countries that can marry the
innovation and entrepreneurial work ethic as the U.S. has done
will become formidable economic competitors in the 21st century.
Mark Heesen, president of the NVCA
25. Global VC Survey Background
400 responses from VC
general partners
Assets under management
from <US$100MM to
>US$1BB
Multiple responses from
same firm allowed
Source: Deloitte NVCA Global Venture Capital Survey 2008
26. Countries ranked with the best
technologies by industry sector
TCom Semicon SW Biophar MedDev AltEnergy
US 1 1 1 1 1 1
UK 7 7 3 2 3 4
Japan 2 3 7 9 5 3
Germany 10 8 5 4 2 2
Israel 3 6 4 8 4 10
China 9 4 6 9 8 6
France 8 9 9 5 7 8
Canada 8 7 9 5
India 2 6
S. Korea 4 5
Switzerland 3 6
Sweden 6 9
Source: Deloitte NVCA Global Venture Capital Survey 2008
NOTE: Most are developed countries
27. Staying Current: Resources
http://www.thomson.com/financial/peconsult/fi_peconsult.jsp
www.venturexpert.com
http://wsbe.unh.edu/analysis-reports-0
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29. How Venture Capital Works
Fund Operations
Harvest Event
Fund Setup
Carried Interest Investment Decision
General Partner, Mgt Co
Advisory
Svcs Invest
Mgmt Fees Mgmt Svcs
Company #1
Distribution ($) $$$
Limited
Partners: Company #2
•Hi-Net Worth Individuals
LP Interest Venture Fund
•Institutions
•Companies
Limited Partnership
•Other VC Funds
$$$
Equity
(Commitment)
Information or services Company #n
Capital
Equity ownership
31. Alan Kraus
Sr. Director
Investment Group at Ben Franklin
Technology Partners
32. Ben Franklin Technology Partners
Of Southeastern Pennsylvania
Global Creative Economy Convergence
Summit October 5th, 2009
33. Ben Franklin Technology Partners
• Pennsylvania’s partners to drive technology based growth
• Marked 25th Anniversary 2008
• Nationally acknowledged model
-2008 Excellence In Economic Development Award:
International Economic Development Council
-2008 Technology-Led Economic Development Award:
U.S. Department of Commerce
• Part of a statewide network consisting of four regional
partners
34. Ben Franklin Technology Partners
of Southeastern Pennsylvania
Our Approach Capital…Knowledge…Networks
• Seed & grow new technology companies.
• Assist firms to develop & commercialize
new products.
• Develop and implement strategies &
partnerships that strengthen the
“infrastructure for innovation” across
the Greater Philadelphia tri-state region.
36. Capital
Money & Smarts at the Right Moment
Funding for Innovative Seed & Early Stage Technology Enterprises
Across Life Sciences, I.T. and Physical Sciences (with New Energy Programs)
• $ 43 Million committed in the southeastern Pennsylvania region 2001-2008
– $957 Million+ in follow-on capital raised by BFTP/SEP companies
– Approximately 120 active companies in Portfolio
• $75-500K investments - up to $750K lifetime
• Key Drivers Technology & Commercialization
• Milestone & Budget Based Allocation of Funds
• Funding accompanied by Comprehensive Business Services
• Frequently Viewed by Investors as vital “Seal of Approval”
36
37.
38. What is BFTP/SEP Looking For?
Some or all of the following:
– Venture experienced business management
– Active and diverse set of directors or advisors
– Meaningful differentiation/barrier to entry. Intellectual Property may be useful
but not necessarily required
– Sound business & scientific approach
– Leveraged sources of capital
• SBIR, FFF, Angel, Seed/Early Stage Venture Capital, Other state funding
sources. BFTP requires at least $1-$1 match, preferably in cash.
– Ability to achieve significant milestone(s) with BFTP/SEP dollars
– Long term sustainability & job creation
– Early or established companies (post proof of concept,
particularly in IT, often with beta customers &/or product sales)
39. BFTP Networking: Value Added
• Portfolio Development Services by Investment Group staff +
contracted portfolio managers & consultants
– Mentoring / Consulting
– Success Teams: peer-to-peer coaching
– Business Plan Development
– Business Development
– Capital Raising Strategy
– Capital Connects: presentations to venture/private investors
– Management / HR Strategy
– Introductions
• Customers
• Investors
• Management
• Partners
• Prospective Board Members
• Resource Providers
• Strategic Partners
– Board of Directors Development/Strategy/Coaching
– Advisory Board Development / Strategy
40. Advantages of BFTP/SEP Funding
• Position: BFTP/SEP funds fill a • Building Value: BFTP/SEP uses
critical, often missing gap in its networks, skills, resources
early-stage financing (including portfolio managers) to
accelerate company value creation
• Follow-on Investment:
BFTP/SEP investment often • Cost of Capital: BFTP/SEP
catalyzes additional infusions of investment terms are favorable
capital given high risk profile
• Patient Capital: BFTP/SEP will • Application Process: a valuable
not force the company to resource of feedback for
premature exit strategies entrepreneurs
41. The Investment Process
Investment Process Overview
• Five-Step Process
1. Submit an Executive Summary (non-confidential)
2. Submit an Application
3. Q&A with Technical Advisory Committee (Professors, Tech Professionals, Service
Providers)
4. Comprehensive Due Diligence Review by Outside Consultant
5. Presentation to Investment Advisory Committee (Regional Angels, VC’s and
Service Providers)
• Facts
– The Investment Process, if approved, takes 9 – 11 weeks from application due
date to final decision (up to 18 weeks for Life Science)
• Note: investment conditions possible
– Briefings offered across region ahead of each application date—Highly
Recommended. Can register at: www.sep.benfranklin.org/capital/brief.html
– 4 funding rounds per year, 3 for Life Science
• Due Date for round just passed. Next round due in mid-January for March 2010 decision.
– All BFTP/SEP staff and reviewers under signed
confidentiality agreements
42. BFTP Capital: Typical Structure of IT Deals
Particularly ideal for companies able to use capital to reach technical and
commercialization milestones that will lead directly to exit or significantly
reduce risk of next investment round. Some flexibility depending on company.
• Convertible Debt
• Stand-alone, detachable warrants, (usually at $0.01/share exercise price,
with the number of shares to be determined by next round’s price)*
• Lien on technology
– No personal guarantee!
• Non-voting board observation rights
* Terms subject to change without notice
46. Please complete the survey being
distributed by the volunteers.
Surveys may be returned to the
volunteers or at the Registration
Desk in Ballroom A.
