Viewgraph No. 1 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures An Opinionated Introduction To Venture Capital in Europe Andrea Capitanio Alice Ventures E:mail

Viewgraph No. 2 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Private Equity & Venture Capital >

Viewgraph No. 3 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Early Investments Lifecycle concept M&S Plan V0.1 P&O Plan V0.1 Eng. SpecsPrototype Plan V1 AlfaBetaV1 Plan V1 Res. & Develop. Marketing & Sales Prod. & Ops Plan V2 CUSTOMERS V1.1 Seed (< 1 mil)Early Stages ( mil)Expansion/ ( 10+ mil) development AngelsIncubatorsAcceleratorsVenture CapitalPrivate Equity & Merchant Banks Start-up

Viewgraph No. 4 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Advisor to MB Venture Capital MB Venture Capital Fund I – 150 mil under management –Focus on Early stages investments (start-up to first round) in the EU and Israel Bio-tech, Media and Info-tech Financing from 1 to 10 mil ( mil operations on average) –12 investments in SE, BE, UK, IT, … The Team –Edoardo Lecaldano (Media and Infotech), John Gonzales (Biotech), Sergio Saibene (Infotech and Telecom), Andrea Capitanio (Infotech and Telecom) –the Polytechnic of Milan and the Bocconi Business School of Milan MB VC Fund I investors: FIAT, Pirelli, Mediobanca, Generali, Montedison, Informatica,...

Viewgraph No. 5 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures What Venture Capitalists do... Sift through thousands of (good and bad) investment propositions Identify a few valid initiatives and finance them –in exchange for private equity (usually a minority stake) –structure the deal Support the entrepreneurs in succeeding. E.g.: –providing financial advice –in headhunting and setting up advisory boards –in contacting customers, channels, … –in steering and positioning the company –in managing PRs activities –in managing IP and legal issues Look after value creation –further round of financing –merger and acquisition, IPO, …

Viewgraph No. 6 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Venture Capital in the EU (FY2000) Funds raised in the EU: 48 bil –UK 37%, Fr 16%, DE 13%,... –High Tech early-stage: 8.6 bil –High Tech expansion/development: 6.6 bil Source: Annual Survey of Pan European Private Equity & Venture Capital Activity, European Private Equity & VC Association

Viewgraph No. 7 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Venture Capital in the EU (FY2000) Investments made: 34.9 bil (over 13000) –UK 38%, FR 15%, DE 14%, … –11bil (31.5%) in 5448 High Tech deals Source: Annual Survey of Pan European Private Equity & Venture Capital Activity, European Private Equity & VC Association

Viewgraph No. 8 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Venture Capital in the EU (FY2000) Average deal size 2.7m ( 2.2m in 1999) – 3.4 mil per financing ( 18.5 in the US*) * Source: Financial Times, July 16 th 2001 Source: Annual Survey of Pan European Private Equity & Venture Capital Activity, European Private Equity & VC Association

Viewgraph No. 9 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Venture Capital in the EU (FY2000) Divestments made: 9.1 bil – 3bil in 1308 trade sale operations – 1.3bil in 1001 public offerings 249 IPO & 682 sales of quoted equity –689mil in 896 write-offs –1.4bil in 316 sales to other VCs or financial institutions 37 Tech. IPOs up to June 1st., 2001 –Raised 1253 mil mil of Orange IPO Source: Annual Survey of Pan European Private Equity & Venture Capital Activity, European Private Equity & VC Association

Viewgraph No. 10 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Venture Capital in the EU (FY2000) What does a VC asks for –VC investors stake 2% have 1 - 9% 38% have % 21% have % 39% have 50+ % Source: The Economic Impact of Venture Capital in Europe (EVCA and Coopers & Lybrand)

Viewgraph No. 11 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Most Appreciated VCs Contributions Financial Advice 44% Corporate Strategy & Direction 43% Sounding board for ideas 41% Challenging status quo 32% Contacts or market information 26% Management recruitment 10% Marketing strategy 7% Money only 12% Source: The Economic Impact of Venture Capital in Europe (EVCA and Coopers & Lybrand)

Viewgraph No. 12 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures The Financing Lifecycle Approach –Elevators Pitch and Info Memo Presentation –Placement Memo Business plan –Meetings Negotiation –Term Sheet (or Letter of Intent) Verification and Validation –Due diligence Closing & Financing Value Creation Exit

Viewgraph No. 13 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures How to approach a venture capitalist The Business Plan A Team A Presentation and an Elevators Pitch –be ready !! References An NDA (if required) Quick Check: Do You Need a VC ?

Viewgraph No. 14 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures The Business Plan A Product/Service description –Pros and cons of the solution –Market needs it satisfies –Barriers to Competition Business Model –Market Analysis (strategic and tactical) Competitors –Execution Plan Marketing and Sales Plan Research and Development Plan Operations Plan Team Financials –Valuation Model & Placement Terms –Income Statement, Balance Sheet & Cash Flow 3 years minimum, quarterly breakdown 1st year in monthly breakdown

Viewgraph No. 15 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures The Business Plan: Suggestions Be sure you sell a need to have not a nice to have solution. Be Focused. Assess your competition (present and future) Be concise and speak the truth Be complete and clear in your analysis –state ALL your assumptions –do not hide cons Have details ready if requested Validate, validate, validate …

Viewgraph No. 16 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures The Term Sheet The parties Securities to be issued Amount of financing & disbursement schedule Pre-financing valuation Option plan & earn-out Use of proceeds Liquidation Preference Protective Provisions, Voting Rights and BoD participation Anti-dilution Lock-ups Tag along and drag along Exclusivity Reporting...

Viewgraph No. 17 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures How does a VC think IRR (Internal Rate of Return) –Companys Current and Future Valuation Comparables (P/E,P/S,…), Number of, DCF, … –Whats The Best Strategy To Create Value Which are the achievable milestones and whats the financing needed ? When is the break-even expected ? With which margins and revenues. –Exit Strategy Trade sale, IPO, N th +1 round of financing,.. Minimizing Risks –Diluting the investment –Liquidation Preference rights

Viewgraph No. 18 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures A possible valuation scenario Company X. Quoted on Stock Exchange Z. Valuation 100mil, Sales 50 mil, Earnings 5 mil. P/E = 100/5 = 20, P/S = 100/50 = 2. Company Y. Acquired for 20 mil with sales of 10 mil. P/S = 20/10 = 2. Your UnwiredCo plan forecasts 30 mil in sales and 5 mil in earnings in Its buss. model is similar to X and Y. –Lower Valuation of UnwiredCo in 2006 using P/S of 2 is 30*2 = 60mil –Higher Valuation in 2006 using P/E of 20 is 5*20 = 100 mil Present Post-Money 1 valuation (discount-rate 2 of 50%) is between 60/(150%) 5years = 8mil and 100/(150%) 5years = 13.3mil The UnwiredCo requires a 4 mil financing round. The Pre-Money valuation is between 8-4=4mil and = 9.3mil. An agreement is reached at a pre-money valuation of 6mil. hence the Investor will obtain a 4 / (6 + 4) = 40% stake in the company. 1 Valuation of the company after the investment. 2 Target Annualized Return of Investment

Viewgraph No. 19 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures European Private Equity Funds Formed Net IRRs to Investors Investment Horizon Return as of 31-Dec-2000 IRR: Internal Rate of Return. Rate of discount which equates the present value of the cash outflows associated with an investment with the sum of the present value of the cash inflows accruing from it and the present value of the valuation of the unrealized portfolio. Source: Annual Survey of Pan European Private Equity & Venture Capital Activity, European Private Equity & VC Association

Viewgraph No. 20 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures What to look for in a VC People you LIKE ! –Trustworthy & Collaborative Can bring value, not money only ! –Do not have to be experts in the sector but have to understand the business. –Good network of contacts. Ask for references

Viewgraph No. 21 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures The Wireless Market UMTS –July WestLB Panmure UMTS Report estimates German UMTS users to pass the 2mils threshold (3% of total) in 2002 and reach 51.6mil (60%) in –Oct UMTS Forum Report 9 estimates 32 mils Mobile Multimedia Users in West Europe in 2005 and 90 mils in 2010 –Recent (May 01 ?). Durlacher UMTS Report mils in the EU in 2003 and 32 mils in Layoffs –Ericsson announced 3300 layoffs and ceasing production in two EU plants. –Nokia has announced 3/400 layoffs. –Motorola has announced another 4K layoffs (adding to the 18K already announced) Handsets –Projections for handset sales in 2001 in the EU have came down from 600 to 450 mil.

Viewgraph No. 22 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures The Wireless Market Sectors Content –Producers and Providers Services –(Virtual) Mobile Network Operators –Application providers (WASP) & Portals Applications –End-user applications –Platforms and frameworks Optimization Tools and Techniques Enabling Technologies –Access, Core & Home Networks –Mobile Terminals

Viewgraph No. 23 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures M-commerce Smart Messaging, m-advertising m-CRM, m-SFM,... Smart Messaging, m-advertising m-CRM, m-SFM,... Streaming & MultiMedia Mobile Terminal Radio Network Core Network Home Network Enabling Technologies Optimization Application Increasing Entry Barriers Smart Antennas & Radios, … xG Stacks, ICs,.. Smart Antennas & Radios, … xG Stacks, ICs,.. Enterprise Network M-commerce Increasing Competition Hybrid Networks & Multi Access Network Data Compression and Optimization Data Compression and Optimization Location Based Services MExEs

Viewgraph No. 24 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Conclusions Always engage your brain before doing anything –your BP deserve more care than your best publication Do your homework –assess your competition and the market Push the envelope but … Be aware of your limits –partner with others to define the BP –do not be too greedy Do frequent reality checks –talk to other experts, prospective buyers & channels, VCs –compare to other similar initiatives Be committed –the start-up must be your only thought until the IPO

Viewgraph No. 25 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Good Luck and … I hope to be hearing from you soon ! Andrea Capitanio - Alice Ventures Phone: S-mail: Piazzale Baracca 1, Milano, 20123, Italy

Viewgraph No. 26 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Abstract Mobile communications are rapidly becoming the preferred mean of personal remote interaction in today's society and besides the hype surrounding the quantum leaps in the cellular networks genealogy - 2G, 2.5G, 3G, 4G,.. - the continuously improving wireless infrastructure is likely to generate a ground fertile for significant business opportunities but also clouded with aggressive competitors. The Private Equity capitals market provides capital to enterprises not quoted on a stock market in exchange for an equity participation. Venture Capital (VC) is, strictly speaking, a sub-class of Private Equity and is characterized by investments made for the purpose of developing, launching, and expanding the commercialization of new products or services. Venture Capital has long been a necessary lubricant in the success stories of high-tech business initiatives and a key ally for technologists turned entrepreneurs. The presentation will provide an introduction to the world of Venture Capital, and will address issues related to how VC can positively impact the lifecycle of high-tech startups and support a business initiative in its early days. Markets statistics will be used to extrapolate what to expect from a VC and an opinionated speaker will provide some practical suggestions on how a technologist turned entrepreneur should prepare, present his/her plan, select the right VC and pursue his/her goals. Some specific considerations will be made addressing the peculiarities of the capital market for business initiatives insisting in the wireless mobile communications world.