Role of Investors in Entrepreneurial Ecosystem Lessons from Silicon Valley Naeem Zafar Faculty member, University of California, Berkeley

San Francisco Bay Area & Silicon Valley 2Naeem Zafar (c) all rights reserved

Thousands of Great Companies Naeem Zafar (c) all rights reserved3

4 All rights reserved © Naeem Zafar History of the Valley 1960s semiconductors 1980s1990s2000s1970s Personal Computers Internet Wireless, Web 2.0. Green, Orchards 2010s Mobility, social, Big data

Attitude of Collaboration Good ideas emerge as people interact, discuss & refine concepts Naeem Zafar (c) all rights reserved5

Shared Reward Divide rewards generously Naeem Zafar (c) all rights reserved6

Protection of IP Strong protection of IP (intellectual Property) encourages innovation Naeem Zafar (c) all rights reserved7

Critical Mass Engineers Lawyers Marketing & sales people Experienced managers Investors Naeem Zafar (c) all rights reserved8

Failure Celebrated! Culture values people who failed in a venture! – Some one else has paid tuition for their learning! Naeem Zafar (c) all rights reserved9

Culture of Innovation & Entrepreneurship 1.Collaboration 2.Shared reward 3.Protection of intellectual property 4.Critical mass of talent & infrastructure 5.Culture of accepting failure Naeem Zafar (c) all rights reserved10

How Do You Create a Silicon valley in Turkiye? Naeem Zafar (c) all rights reserved11

Mentorship Eco-system of Entrepreneurship & Innovation All rights reserved © Naeem Zafar12 Access to funding Favorable Public Policy Entrepreneurship education

13 Funding Needs homework Bootstrap Or Angel Prod DevDeploymentproliferationPrototype Series ASeries BSeries C F&F ~6 mo. ~6 to 12 mo. ~6 to 18 mo. ~12 to 18 mo. $10K to $50K$50K to $2M $2M - $10M$5M - $20M$10M - $50M

Raising Capital is Hard! Sources: – Friends, family and fools – Angels – Venture capitalists – Strategic investors You! Domain, You Traction, Exit! Channels, products, technology

Angel Investing People who can afford to put a portion of their wealth in startup companies – For superior returns – For staying engaged in the domain they love with doing heavy lifting! – Portfolio approach 6 to 10 investments with diversity Naeem Zafar (c) all rights reserved15

Angel Investment is Hot! VCs invest $20B a year in ~3,000 deals per year 10x bigger than VCs Angels are investing between $20B and $30B in ~30K deals per year  10x bigger than VCs ~2/3 rd of all IPOs never took VC money (only Angels invested)

Demystifying Venture Capitalists Firms with partners who have financial & operating experience Invest other people’s money in high risk, high reward ideas Nurture & guide them to an exit

VC Business Model Capital from Limited Partners Partnership managed over a ~10 years by General Partners Money returned to LP as companies exit (merger, IPO) Fund Keeps 2% per year of fund size as management fees + 20% of profit (carry)

Raise Money in Chunks 19 time Valuation Risk: tech, team, market Risk: team, market Risk: team, execution Risk: mkt size seed Series A Series B Series C

Becoming an Angel Investor 1.Deal flow 2.Screening for good deals 3.Due diligence process 4.Term sheet – offer to invest 5.Closing (legal issuance of shares) 6.Role of an Angel investor 7.Exit – helping company achieve liquidity Naeem Zafar (c) all rights reserved20

Median Angel Round ~$680K Naeem Zafar (c) all rights reserved21 Source Halo Report 2013

Median Valuation $2.5M Naeem Zafar (c) all rights reserved22 Source Halo Report 2013

Angel Investment Pays Naeem Zafar (c) all rights reserved23

Angel Investment is Lucrative: 2.6X Naeem Zafar (c) all rights reserved24

Rise of Angel Groups Dividing the work of evaluating and monitoring investments – Standardized processes & term sheets – Better deal flow - quality and quantity – Diversify your angel portfolio, reducing risk Naeem Zafar (c) all rights reserved25

Rise of Angel Groups Angel groups – The Angel’s Forum – The Band – Sand Hill Angels – Keiretsu Forum Naeem Zafar (c) all rights reserved26

Angel Groups Stay current on new ideas, technology, trends – Networking with a successful peer group – Build your investment skills – Support your community by mentoring entrepreneurs Individual angels may remain anonymous – Pooling capital to raise sufficient money – Connections to venture capital firms Naeem Zafar (c) all rights reserved27

Angel Group Deals Distributed Naeem Zafar (c) all rights reserved28

Most Active Angel Groups Naeem Zafar (c) all rights reserved29

To Become An Angel Investor Start a chapter of Keiretsu Forum – 26 chapters, 1000 members, 3 continents You get: – Deal flow, method, forms, network, education Naeem Zafar (c) all rights reserved30

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The Process of Angel Investing Educate yourself Set aside a portion of your money (~10%) – That you can afford to lose Select a thesis/premise/method Meet a lot of entrepreneurs – Get to know them & their business – if chemistry is right, invest small chunks if you can see how follow on money will follow Build a portfolio of companies Use convertible debt or agree on valuation Naeem Zafar (c) all rights reserved33

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Summary Investors play a huge role in the entrepreneurial ecosystem A popular & just way to make money since early days of civilization Fun, frustrating, lucrative, never-boring! Naeem Zafar (c) all rights reserved35