To Be or Not To Be: A Cincinnati Case Study NBIA - May, 2000 Patricia J. Snider BioVentures Development Partners, LLC

The Problem  Critical need of seed and early stage capital identified  Regional metropolitan study  Life Science Task Force  BIO/START lost two companies to other regions due to lack of local seed capital  Several tenant companies needing capital to fuel expansion

Types of Capital  Friends & family  Private investors  Venture capital  Seed  Traditional

To Be or Not To Be  Seed venture capital fund  Angel network  Informal approach  Formal approach –Individual –Team

Cincinnati Case Study  Situation analysis  Solution selected  Overview of decision-making factors

Feasibility Study  Input  Researched networks in other communities  “Seed Investing as a Team Sport” workshop  Advisory group (experienced venture capitalists)  Situation analysis  Deal flow  Local environment

Deal Flow  Life science  Pre-seed, seed & early stage  Gap: $1-3 million  Long product development cycle requiring multiple rounds and investors with deep pockets  Inexperienced management with need for investors who add value

Cincinnati Environment  Venture capital  $600 million under local management  Investment strategy of local vc firms –Not life science –Not seed stage  Not located on east or west coast  Private investors  Significant number of high net worth individuals  Mix of sophisticated and naïve individual investors but with limited experience in life science seed deals  ROI-oriented and risk averse  Deal flow: inadequate when limited to life science  Efficiency of local information networks  Innovest (annual state financial forum)  Greater Cincinnati Venture Association (monthly financial forum)  BIO/START’s extensive support network

Issue  Appropriate role for incubator  Indirect –Make introductions & referrals –Provide assistance to company –Champion deals  Direct –Catalyze –Organize –Manage fund  Limited incubator staff & financial resources  Time required to set up and manage angel network  Immediate need for tenant companies

Solution  BioVentures Development Fund  Technology Action Fund grant  Matching funds from potential institutional investors  Individual looking for new challenge

Fund Parameters  Size of fund: $45 million  $15 million private equity  Pursuing $30 million public funding (SBA)  Technology focus: life science  Pre-seed, seed, & early stage  Company formation activity  Interim management  Geographic focus: Midwest  Lead in local deals  Co-invest in others  Network of regional funds  Life of fund: 10 years

General Partner: BioVentures Development Partners, LLC  Managing Directors  Patricia J. Snider –Successful fund-raiser –Start-up and operating experience in life science industry –Extensive local & national networks –Founder of BIO/START & BioConcepts  Richard Levy, MD –Technology background –Start-up and operating experience –Angel investor –Advisor to local venture capital firms –Access to high net worth individuals  Experienced venture capital fund manager –5-10 years in venture firm –Currently at principal level –Life science or healthcare industry experience

Current Status  Funding for initial year obtained  Professional service providers retained  Legal structures filed  Steering committee established  Search for third partner underway  SBIC application being prepared  Legal documents being drafted  Operational issues being addressed  Lease for space  Furniture  Phones and internet hook-up  Employee benefit plans  Minimum close targeted for December

Deal Factors  Type of technology  Stage of development  Amount of funding needed  Overall funding strategy  Company management resources  Time available  Financial resources  Sophistication

Environmental Factors  Venture capital factors  Venture capital under local management  Investment strategy of local vc firms  Geographic distance from appropriate venture capital  Private investor factors  Availability of high net worth individuals  Sophistication of individual investors  Investment strategy of angels  ROI-only or civic orientation  Risk appetite  Adequacy of local deal flow  Efficiency of local information networks  Appropriate staff & financial resources available