Mario M. Rosati. Partner Wilson Sonsini Goodrich & Rosati

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1 Mario M. Rosati Partner Wilson Sonsini Goodrich & Rosati Adjunct Professor UC Berkeley Haas School of Business Guest Lecturer UC Berkeley School of Law (Boalt Hall) Managing Partner WS Investments

2 Lessons to be learned from the Silicon Valley experience 2

3 Focus on Venture Capital What is it? How does it work? Recent trends Responses to those trends 3

4 What I think a company based outside the United States might do to access U.S. venture capital

5 Wrap up with an informal lunch here and conversation

6 Silicon Valley: A Great Success Job creation More than 10,000 companies headquartered in Silicon Valley Employ more than 1.1 million people Wealth creation Top 150 publicly traded Silicon Valley companies have an aggregate market capitalization of over $1.4 trillion 6

1 million people Wealth creation Top 150 publicly traded Silicon

7 What is Silicon Valley? Geographic area: Counties of Santa Clara, San Mateo, San Francisco, Alameda Much more 7

8 A recipe, a process, a machine that, based on entrepreneurship and innovation, builds companies that create jobs and wealth 8

9 Composed of a Combination of Intangibles A huge brain trust A focus on technological excellence A risk-taking culture A developed enabling infrastructure 9

10 Although based in Northern California it is global in influence and operation 10

11 How did this Silicon Valley thing come to be? 11

12 Universities Vibrant Sources of Technologists and Technologies University of California, Berkeley Stanford University of California, San Francisco Commercialization of intellectual property vs. pure research Liberal licensing policies Partnering with the technology industry Entrepreneurship study programs 12

Commercialization of intellectual property vs.

13 Forward looking corporations Hewlett Packard Intel Apple Google Oracle Finance much of the nations research and development effort Breeding ground for the startup company management Strategic alliances Source of capital Possible paths to liquidity 13

development effort Breeding ground for the startup company

14 Entrepreneurial Culture Merit based Lineage, race, sex, personality: irrelevant Success oriented Making a lot of money is acceptable Equity vs. cash compensation Cheap stock ( founders stock ) Tax favored options 14

15 Government Support and Assistance Research and development Direct grants Small Business Innovations Research (SBIR) program Indirectly Government contracts Tax credits Capital Small Business Administration (SBA) Small Business Investment Company (SBIC) Capital market credibility Securities Exchange Commission (SEC) Sarbanes-Oxley 15

credits Capital Small Business Administration (SBA) Small Business Investment

16 Capital Private equity Venture capital Public equity NYSE NASDAQ 16

17 Venture Capital what it is and how it works 17

18 Large sources of capital managed by experienced investors who act as general partners of the venture capital firms 18

19 Generally organized as limited partnerships Approximately: 800 firms 2,000 funds Employing 7,500 professionals $200 billion under management Investing approximately $25 billion per year 19

20 The V.C. Limited Partnership LIMITED PARTNERS $ GENERAL PARTNERS 20

21 General Partners Organize the fund Raise the money Find deals Make investments Monitor the investment and help build the business Secure liquidity 21

22 The V.C. Limited Partnership WEALTHY INDIVIDUALS & FAMILIES UNIVERSITIES CORPORATE PENSION FUNDS $ $ $ LIMITED PARTNERS $ GENERAL PARTNERS 22

23 The V.C. Limited Partnership PUBLIC PENSION FUNDS CORPORATE PENSION FUNDS UNIVERSITIES $ $ $ GATE KEEPERS WEALTHY INDIVIDUALS & FAMILIES $ LIMITED PARTNERS $ GENERAL PARTNERS Management Company, LLC INVESTING PROFESSIONALS (GENERAL PARTNERS) 23

24 Fund Size Committed V.C. Limited Partnership 24

25 To Access Capital We Must Understand What Motivates the Investor 25

26 General Partner Compensation Fee Carried Interest 26

27 Track Record Returns Period over which these returns have been delivered 27

28 Fund Life Stated Investment Life 28

29 Multiple Funds 29

30 Multiple Time Return on Investment (ROI) 30

31 Rate of Return Calculations Multiple of Original Investment Years 2X 3X 4X 5X 6X 7X 8X 9X 10X 1 100% 200% 300% 400% 500% 600% 700% 800% 900% 2 41% 73% 100% 124% 145% 165% 183% 200% 216% 3 26% 44% 59% 71% 82% 91% 100% 108% 115% 4 19% 32% 41% 50% 57% 63% 68% 73% 78% 5 15% 25% 32% 38% 43% 48% 52% 55% 58% 6 12% 20% 26% 31% 35% 38% 41% 44% 47% 7 10% 17% 22% 26% 29% 32% 35% 37% 39% 8 9% 15% 19% 22% 25% 28% 30% 32% 33% 9 8% 13% 17% 20% 22% 24% 26% 28% 29% 10 7% 12% 15% 17% 20% 21% 23% 25% 26% 31

32 The Winners Subsidize the Losers 32

33 Rate of Return Calculations Multiple of Original Investment Years 2X 3X 4X 5X 6X 7X 8X 9X 10X 1 100% 200% 300% 400% 500% 600% 700% 800% 900% 2 41% 73% 100% 124% 145% 165% 183% 200% 216% 3 26% 44% 59% 71% 82% 91% 100% 108% 115% 4 19% 32% 41% 50% 57% 63% 68% 73% 78% 5 15% 25% 32% 38% 43% 48% 52% 55% 58% 6 12% 20% 26% 31% 35% 38% 41% 44% 47% 7 10% 17% 22% 26% 29% 32% 35% 37% 39% 8 9% 15% 19% 22% 25% 28% 30% 32% 33% 9 8% 13% 17% 20% 22% 24% 26% 28% 29% 10 7% 12% 15% 17% 20% 21% 23% 25% 26% 33

34 Rate of Return Calculations Multiple of Original Investment Years 2X 3X 4X 5X 6X 7X 8X 9X 10X 1 100% 200% 300% 400% 500% 600% 700% 800% 900% 2 41% 73% 100% 124% 145% 165% 183% 200% 216% 3 26% 44% 59% 71% 82% 91% 100% 108% 115% 4 19% 32% 41% 50% 57% 63% 68% 73% 78% 5 15% 25% 32% 38% 43% 48% 52% 55% 58% 6 12% 20% 26% 31% 35% 38% 41% 44% 47% 7 10% 17% 22% 26% 29% 32% 35% 37% 39% 8 9% 15% 19% 22% 25% 28% 30% 32% 33% 9 8% 13% 17% 20% 22% 24% 26% 28% 29% 10 7% 12% 15% 17% 20% 21% 23% 25% 26% 34

35 Venture Capital Trends More money in established funds More money being invested in later rounds 35

36 Impact on Seed Financings Less VC money going into seed financings A vacuum exists Alternative sources of financing required 36

37 Founders Bootstrap Banks Friends and Family Government SBA SBIR Angels Corporations Alternative Sources of Financing 37

38 The Liquidity Event Merger Initial Public Offering (IPO) 38

39 Respected public markets 39

40 Developed Law The Delaware experience Lawyers Law firms 40

41 Uniform Accounting Systems Accountants Accounting firms 41

42 In Summary A Silicon Valley Experience Requires: A technology focus Highly educated technologists Entrepreneurial mentality Government support and assistance Sources of private capital A respected public market A developed infrastructure 42

43 My thoughts on a non-u.s. based company successfully securing U.S. venture capital

44 What s required Credible Team: education employment history Product: technology based 44

45 Intellectual property protected patent patent application if owned by another entity (university, other corporation) a comprehensive license 45

46 Paying customers show a market revenues 46

47 Global Ambitions a product that will sell in more than one country or region and the desire to sell the product in multiple countries and regions 47

48 A U.S. presence can be a sales office located in a venture capital center: Silicon Valley (Northern California) Boston New York Area a wholly owned subsidiary, preferably a Delaware corporation 48

49 It will help to have knowledgeable and well known advisors A board of advisors A well known law firm A respected accounting firm A bank that specializes in representing startup corporations and venture capital firms 49

50 These advisors can provide valuable introductions to those that can make your venture a success i.e. sources of capital, additional team members, corporate partners and potential customers.

51 For copies of this presentation, please contact Kristen Roccaforte at (650) or

Seed Funding and Venture Capital Course Certificate Program. Greg Horowitt, Managing Director, T2 Venture Capital Kauffman Fellow, Class XV

Seed Funding and Venture Capital Course Certificate Program Greg Horowitt, Managing Director, T2 Venture Capital Kauffman Fellow, Class XV Overview Introduction to Venture Capital Instruction provided