1. Michigan Business Brokers Association The Venture Capital Process December 8, 2015 Presented by TGap Ventures General Partner: Jack Ahrens

2. Michigan Business Brokers Association What is Venture Capital Equity Investors Rarely Debt Investors Build for the Future Need an Exit

3. Michigan Business Brokers Association VC Economics Look at 300-500 deals per year Invest in 2-3 per year (less than 1%) Each partnership will have about 10 deals 3-5 will become worthless About 50% will break even 10-15% provide the return We need to get 40-50% IRR

4. Michigan Business Brokers Association Most Good Deals Never Get VC The deal may be very good but not scaleable The cost to close a deal is so high ($25k-$40K) that it has to be a large financing to be practical VC’s are people and time constrained and need to be able to place large bets

5. Michigan Business Brokers Association VC Investment Philosophy Invest in good people. Invest collaboratively. Invest early through preferred or other equity instruments. Invest where formative assistance in building business infrastructure, management teams, and boards is welcome. Invest in products differentiated by defendable intellectual property or positioning. Invest where a financial exit or liquidity event is expected within 5- 7 years.

6. Michigan Business Brokers Association Key Factors Management Strengths and Weaknesses IP or Point of Differentiation Business Model and Scalability Financial Needs Exit Options

7. Michigan Business Brokers Association Is VC Right for You? Are you willing to bring on partners? Can you delegate authority to other management team members? Do you want to build a large business? Are you willing to give up control? Are you willing to sell your business?

8. Michigan Business Brokers Association Valuing a Venture Investment Art not a Science There is no correct answer The earlier the stage the more subjective Ranges from Gut feel to discounted cash flows Terms affect the valuation Common, Preferred, liquidation, warrants

9. Michigan Business Brokers Association Pricing inflection points for medical deals Concept Prototype Animal data Human safety data Human efficacy data FDA filing – 510K or PMA FDA approval

10. Michigan Business Brokers Association Pricing inflection points for Software deals Concept Beta site 1 st commercial order Repeat orders $1M in sales $10M in sales

11. Michigan Business Brokers Association The most important factors in obtaining a 1 st round Pick you partner (VC/investor that understands you business) Get it DONE! Terms of the deal PRICE

12. Michigan Business Brokers Association The Value of Venture Capital as an Investor Devil’s Advocate Future financing capability Contacts Industry People Customers Past experiences

13. Michigan Business Brokers Association Phase 1 – Get the VC’s Attention Good Executive Summary 3-5 pages Describe the need or current pain in the market Describe the product and why it is better Describe business model – how are you going to sell it and how are you going to make money Describe the Management and their backgrounds Include brief financial projections

14. Michigan Business Brokers Association VC Hot Buttons in an Executive Summary Pitfalls to avoid and things to include Spelling/grammar checking – it is standard with MS Word – use it Give address, contact name, number and email Be sure that financial data foots and is consistent Don’t be overly technical in product description Don’t use a lot of industry jargon or acronyms

15. Michigan Business Brokers Association First Meeting Short power point presentation Bring prototype if possible Try to draw VC into presentation with questions Bring at least 2 management people if possible Shows depth Let the expert answer the question Personalities are all different one is bound to click Ask for next steps LISTEN TO WHAT IS SAID

16. Michigan Business Brokers Association Financial Statements Only a starting point Make dynamic with detailed assumptions 1-2 years monthly with cash flows 2-3 years Quarterly

17. Michigan Business Brokers Association Things Not to do When Talking to VC’s Over represent the product development Claim to have all of the answers Exaggerate other VC interest levels Say that you have no competitors “First Mover” is not a reason to be successful Overstate the market size – use “addressable market”

18. Michigan Business Brokers Association Discussion & Questions Thank You