Nebraska Summit on Entrepreneurship February 27, 2009

© Copyright 2009 by Ideation Partners, LLC2 Ideation Ventures  Serve the investors, managers, and directors of privately- held companies Managing and investing in private companies are specialized processes that require skills, perspective, and networks unlike any other management or investment endeavor Involve skills, networks, and perspectives that are specific to these infrequent occurrences Each situation is unique, complex, and dynamic  Founded February 2005 i·de·a·tion (I-de-'A-shen ) n. the process of forming and relating ideas

© Copyright 2009 by Ideation Partners, LLC3 Sources of Risk Capital  Subsidized Capital (low or high risk companies): Grants (SBIR, CDBG, Invest Nebraska, etc.)  Lower Risk Capital: Banks (depends on collateral and/or guarantees) 4F’s (friends, family, founders and “fools”) Angels (low risk focused)  Higher Risk Capital: Angels (high growth, high risk focused) Venture capital Strategic investors Private equity

© Copyright 2009 by Ideation Partners, LLC4 Why seek equity capital?  Capital necessary to fuel growth Reduced risk  Improved corporate governance, operational controls, financial discipline, etc.  Expanded network (funding, recruiting, sales, exit, etc.)  Additional advisor who shares vision of market opportunity

(C) Copyright 2008 by Ideation Partners, LLC5 “Smaller Piece of a Bigger Pie” Today Year 5 $4MM $8.3MM $19.2MM 100% of $8.3MM = $8.3MM 80% of $19.2MM = $15.3MM $1MM Retain 80% 20% growth 40% growth

© Copyright 2009 by Ideation Partners, LLC6 “Smaller Piece of a Pie” Today Year 5 $4MM $0 $19.2MM 100% of $0 = $0 80% of $19.2MM = $15.3MM $1MM Retain 80% 0% growth 40% growth

© Copyright 2009 by Ideation Partners, LLC7 Required Returns ProviderRangeDrivers Banksvaries ≈ 98% confidence in collection 4F’svariesgenerally not driven solely by economics Public Equities7%-15%risk premium over treasuries Mezzanine Debt15%-22%adds illiquidity and execution risk Private Equity25%-35%adds subordination risk Venture Capital5x-10x+adds technology and market risk Angel (High Risk)20x-30xadds prototype and management risk Strategicvariesdepends on strategic purpose

© Copyright 2009 by Ideation Partners, LLC8 General Recommendations  Bootstrap as long as possible… …but start capital raising well in advance of need  Do not use formulaic approach to materials… …put yourself in the shoes of an investor  Not all situations are a fit for high risk capital  Know the profile of your ideal investor  Do not place all your eggs in one basket (pursue multiple sources)  Get warm introduction whenever possible  Understand investors’ key criteria Management Competitive Positioning Market Opportunity Validation   Perceived Risk +  Potential Exit =  Dilution (or cost of capital)

© Copyright 2009 by Ideation Partners, LLC9 Questions John Gustafson Managing Director