1. Raising Money in Small Companies November 11, 2004 Dale H. Munk

2. Raising Money in Small Companies November 11, 2004 One Man’s View

3. Background -Farmer from Southern Idaho -Married, Five Children -MBA from the Other School in Utah -Business Locations Boston, San Diego and Provo -Focused on Small to Medium Sized Companies / Troubled

4. Money -Almost All Businesses Need It -You Need Much More than You Think -Bad Things Happen if You Can’t Get It -Survive or Capitalize on Opportunities

5. Three Primary Sources of Financing - Venture Capitalists -Angel Investors -Strategic Partners

6. Three Primary Sources of Financing -Venture Capitalists -Angel Investors -Strategic Partners

7. Dramatic Upheaval -First Quarter, ’00 the Zeneth-$29 Bil -Last Quarter-$5.9 Bil -Last Quarter at-Q4, 1998 Levels

8. Dramatic Upheaval -In Q1 2000, Invest in Any Crazy Idea -Today, Better Have a Great Plan -Startup Investments are Sparce -Old Deals are on Life Support

9. Vulture Capital -Waiting to Pick the Bones -Greed and Fear-Mostly Greed -Demand 50%-70% of the Company -Ruthless with Management

10. A Kinder, Gentler View -Providing Fuel for Ideas -Facilitate the Advancement of Technology -Take Big Risks / Should Get Big Rewards

11. Vulture Capital Scenario Local Current Example -Three Founders Raied $2 Mil from Friends and Family -Worked Like Dogs for Eight Years -Suffered -Went to VCs for Rescue

12. Vulture Capital Scenario Local Current Example -Took 60%, 25% and 25% in Three rounds -Founders Now Hold 1.2% But are at the Bottom of the Waterfall. Will Get Nothing -Lost Their Jobs to Boot

13. Qualify for Venture Capital If You Have -A Credible Management Team -A Large Market -A Great Idea With a Great Bus Plan -A Credible Exit Strategy

14. Qualify for Venture Capital If You Have -Ability to Provide 5-10 X Investment -Over 3-5 Years -Implying Ability to Create $50-100 Mil Valuation

15. How They Think? -Philosophy of 3 of 10 is Good Enough -A Few Losers, A Few Winners, A few Marginal -Parametric Technologies -It is About Managing Risk

16. Managing Risk -Take Controlling Position (50%-70%) -Invest in Seasoned Management -Conduct Extensive Due Diligence -Invest Small Amounts in Many Deals

17. Managing Risk -Insist on Preferred Stock, Liquidation Preferences, Anti-Dilution Provisions and Dividends -Require Board Seats -Seek Veto Power on Major Decisions -Get in Your face

18. Where Do They Get Their Money? -Wealthy Individuals -Insurance Companies -Pension Funds -Other VC Funds

19. Venture Capital -About 700 (1300) in the US -Industry Preference -Geographic Preference -Round / Class Preference

20. Venture Capital Questions?

21. Three Primary Sources of Financing -Venture Capitalists -Angel Investors -Strategic Partners

22. Angels -Wealthy Individuals -Diversifying Their Own Portfolios -Usually Not Part of Organized Group

23. Angels -More Hands Off than VCs -Less Sophisticated Risk Evaluation -Move More Quickly -Easier to Control

24. Angels -Pay Higher Price -Willing to Do Seed -Invest Smaller Amounts -Less Staying Power

25. Angels Questions?

26. Three Primary Sources of Financing -Venture Capitalists -Angel Investors -Strategic Partners

27. Strategic Partners -Investments Leverage Their Own Business Initiatives -ROI Not Measured by Money on Money

28. Strategic Partners -Cost of the Money is Lowest -Other Benefits: Validation, Testing, Marketing Help, Rollout -In Your Face for All the Right Reasons

29. Strategic Partners Questions?

30. Keys to Raising Money -Assemble a Good Management Team -Pursue a Good Idea / Test, Validate, Study it Out -Quadruple Best Cash Needs Estimates -Be Persistent-Hang In There

31. Raising Money in Small Companies March 2, 2004 Questions