Presented at UC Berkeley Haas School of Business class in New Venture Finance by Robert Ackerman Managing Director and Founder of Allegis Capital - http://www.allegiscapital.com/

1. Corporate Strategic Investors
Background & Considerations for
Entrepreneurs
Prof. Robert R. Ackerman, Jr.
Haas – MBA 295D
New Venture Finance
© Allegis Capital

2. Corporate Venture Capital….
The Pace of Innovation “Accelerates & Globalizes”
Corporate Innovation Models MUST Respond
Critical to achieve More with Less
Margin Pressures erase R & D “luxuries”
Focus shifts to “nearer term” returns/results
The Imperatives are Clear & Compelling
Significant Shift in Value Creation to Small – Efficient Innovators
Company Size 1981 1989 1999 2005
< 1000 employees 4.4 % 9.2% 22.5% 24.1%
1,000 – 4,999 6.1 % 7.6 % 13.6% 15.5%
5,000 – 9,999 5.8 % 5.5% 9.0% 8.0%
10,000 – 24,999 13.1% 10.0% 13.6% 14.8%
25,000 + 70.7% 67.7% 41.3% 37.6%
Sources: National Science Foundation, Science Resource Studies, Survey of Industrial Research Development, 1991, 1999, 2001, 2006.
© Allegis Capital 2

3. Corporate Venture Capital…
Dramatic Increase in Corporate Venturing a Natural Response
Leveraging Brand/Market Knowledge/Distribution against Aggressive Innovation
Key to Sustainable Competitive Advantage &
Must be Sustainable to be Viable & Effective
Unfortunately…. A History of Starts and Stops
15.7%
16,506
Calculated
Percentage of 15.0%
Dollars Coming 8,107
from CVCs 12.1%
4,916 8.3% 7.7%
8.1% 8.8% 6.5% 6.6% 6.6% 7.3% 7.3% 8.4% 8.6%
Total CVC 5.2% 6.2% 6.5% 1,934 1,285 1,493 1,527 1,945 2,442 2222 1428 1972 1852
1,706
Investment $M 414 700 969
‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ’11Q3
The Challenge: Impedance Mismatch
Corporations Driven by Short Term Results & Low Risk Tolerance
Venture Innovation is Inherently Volatile – Failure is a FACT!
Lemons Ripen Fast – Success Takes Time
© Allegis Capital 3

4. The Challenges…
The “Easier” Ones
People – Finding, Holding, Compensating the “Right” People
Respected Corporate Navigators
Trust Agents – Inside & OUTSIDE the Corporation
Standard Rotation of Staff can be a Killer
This is a Relationship & Experience Driven Business
Strategic Engagement & Shared Ownership
Sustainable “C” Level Support
Engaging Key Power Brokers in the Process
R & D can see the Venture Process as Competitive
Line of Business Management MUST be Champions
THE CFO Hates This Idea
Financial Volatility – Lack of Predictability
Being Seen as a Value-Added Partner by the VC Community
Stability, Transparency, Reliability, Consistency
© Allegis Capital 4

5. The Big Challenge…
Alignment of:
Capital Deployment
Tolerance for Volatility (& Risk)
Stage of Investment
Ability to Derive Strategic Value
Ability to Deliver Strategic Value
Balancing Risk/Reward
Building a Network of Trusted & Active Co-Investors
Need to See “The Best” Deal Flow
Engaging with Start-ups
The Key to Long Term Sustainability
© Allegis Capital 5

6. Engaging with Start-ups…
Apply Corporate Leverage Where & When it Can Drive Value
Watch Companies Develop
Get to Know the Team and Understand their Objectives
Develop a Shared Strategic Vision
Participate in Value Being Created through Partnership
and Shared Equity
Understand the Company is Focused on Execution
Corporate Partner should add Significant Value
Corporate Partner must align its interests with Company
“DO NO HARM”
© Allegis Capital 6

7. From the Start-Up’s Perspective…
Corporate Partner is focused on “Its Needs”
Strategic Leverage is often the Primary Objective
Financial Returns (Start-up Success) is a Secondary Objective
Timing of Engagement is Critical
Engage when you are Ready and Corporate can DELIVER Value
Premature Engagement can be a Resource Sink - Distraction
Ensure you Identify Shared Objectives/Milestones
Both Sides Need to Resource Collaborative Effort
It will take Longer and More Resource then you Think
Closing the “Deal” is Just the Beginning
You Never Stop Selling – Working the Deal
Focus on Making you Partnership a “Win” for Partner
Short Attention Spans – Priorities Shift – Personnel Change
© Allegis Capital 7

8. From the Start-Up’s Perspective…
Be Realistic about a Corporate Partner’s Abilities
Branding – Can Support Market Acceptance
Distribution – Can Facilitate Customer Reach / Acceptance
Scaling – Can Accelerate Growth
Support – Lowering the Costs of Customer Support
Ensure Alignment of Interests
In Order for you to Win – Someone(s) in the Partner will need to Win
Tie Incentives to Performance (Pay for Performance - / Not Intentions)
Two Partners are Better than One
No Single Point of Strategic Failure – Competitive Pressures
Avoid the Perception of Being Captive to one Strategic Partner
Governance
Avoid Conflicts of Interest (Board, Acquisition, Excessive Control)
© Allegis Capital 8

9. Summary…
Corporate Venturing is Here to Stay
Key to Sustainable Competitive Innovation
Properly Structured Corporate Partnerships = Competitive Adv.
Accelerate Growth
Lower Costs
Competitive Barriers to Entry
Improve Probability of Success
Alignment & Management Essential to Success
Performance Driven Milestones & Compensation Structures
You Will Have to Drive and Manage the Relationship – 100% of the Time
Don’t Give Away the Milk – Sell the Cow!
There is NO “Free Lunch” in Strategic Partnerships
© Allegis Capital 9

10. Things to Think About…
What do you want from the Strategic Partnership?
“Must” Haves vs. “Would like to” Haves
How will you measure “Success” – Key Performance Metrics?
Seek Alignment with Strategic Partner
What does the Strategic Partner Want?
How can you deliver will maintaining your “freedom of movement”?
How will the partner Measure Success internally?
How can you directly contribute/effect achievement?
Implementation
How will you Resource the Partnership (No Free Lunch)?
How will you extract the value driving the Partnership?
What is your Plan B?
What if the Partnership does not Work?
If you need to – how do you move out of – or past – the Partnership?
© Allegis Capital 10

11. Questions?
Prof. Robert R. Ackerman, Jr.
Haas – MBA 295D
New Venture Finance
© Allegis Capital