Tim Looney Director North Texas Angel Network

1. Tim Looney Director North Texas Angel Network Web of Deserved Trust

2. 2012 Activity • 60 Angels & family offices and growing • Many investment opportunities from high-profile networks of Members • Tasteful fees for members and applicants • 65% of members wrote at least 1 check into applicant company cap table in 2012

3. 5 Companies 63 checks $2.75MM • Dental Device • Social Networking • Pharma delivery system • Medical software • Consumer Product • Average check $43,000 • Most are $25,000 – some much larger • Assorted smaller investments

4. Member Opportunities Jim Fontaine, Director October 2012 Quality Due Diligence is the cornerstone of successful Angel Investing and meeting ROI goals. Member Opportunities in the Due Diligence Process

5. NTAN Results – Chicken-n-EggQuality Deals drives Funding drives more Quality Deals Quality Deals Active High-Quality Members Active High-Quality Members Funded Deals (Reputation) GOAL: Excellent IRR – Make Money

6. Five Opportunities to be an Active NTAN Member • Attendance– Monthly NTAN meetings (screening) • DueDiligence– Due Diligence team participation • Check Writing – Investment in NTAN funded Company • Deal Sourcing – Finding, Incubating, and bringing investment opportunity to NTAN • Board Member – Represent NTAN Investors in a Portfolio Company.

7. Participation Goals for NTAN Members • Attendance – Attend at least half (50% +) of the Regular Monthly NTAN meetings. • DueDiligence– Participate as a team member in at least one (1) due diligence efforts per year • Check Writing – Invest once or twice a year (2 or 3 checks in 2-year period) in an NTAN funded Company. • Recommend new members participate but wait 6–12 mos to make first investment. • Deal Sourcing – Bring at least one deal to the screening process every two years (1+ deal / 2 year period) • Board Member – Represent NTAN Investors in Portfolio Company as a Board member – join one Board over a 5-Year period

8. Excellent IRRs of 30-50% Requires Consistent Investment Practices Across a Portfolio Source: Robert E. Wiltbank, Ph.D.

9. Excellent IRRs of 30-50% Requires Consistent Investment Practices Across a Portfolio Source: Robert E. Wiltbank, Ph.D. AVERAGE Results – we want to achieve “One Bar to the Right”

10. Excellent IRRs of 30-50% Requires Consistent Investment Practices Across a Portfolio Source: Robert E. Wiltbank, Ph.D.

11. Excellent IRRs of 30-50% Requires Consistent Investment Practices Across a Portfolio Source: Robert E. Wiltbank, Ph.D. Homework (due diligence) Involvement (board member)

12. ROI on Due Diligence Participation is Undeniable Survey: Participation In Due Diligence 539 angels, 3,097 investments, 1,137 exits 4% IRR LowParticipation 54% IRR HighParticipation Angel Investment Source: Dr. Robert E Wiltbank

13. Opportunities to Build a PortfolioPotential 5-Year Investment Opportunities via NTAN • NTAN-Lead Investments: 3 – 6 per year • Due Diligence: Full NTAN Due Diligence • Terms: Negotiated by NTAN • Board: NTAN Board representation (1 – 2 out of 5 Brd seats) • Example: Natural Dental Implants, TangoTab, Meals to Live, PerioSciences • Syndicated Deals / Follow-On Rounds: 3 – 4 per year • ATAN or other funding sources – NTAN part of a larger round • Due Diligence: Partial Due Diligence – piggy-back off existing due diligence • Terms: Typically already negotiated and set • Board: Possible NTAN Board representation • Example: Savara, Ikonopedia, • Structured Deals: 1 – 2 per year • Due Diligence: Partial / individual Due Diligence • Terms: Preset • Board: No Board representation • Example: Ovation Partners - Credit Opportunity Fund ('COF’) 2011: 20 NTAN-Lead potential deals were presented to NTAN, 4 were Funded

14. Steps to Building a 5-Year Portfolio via Disciplined Investing • Determine your Angel Money – • Amount devoted to Angel Investing. Example 5% of your net worth • Define your personal Investment Unit size • Example: 5% of your Net Worth. ÷ (3 – 5) years • Be consistent on your investments criteria and Investment Unit size • Don’t become emotional over any investment – its just business • Attempt some level of risk diversification • lower-risk-lower-return with higher-risk-higher-return investments • Perform consistent and disciplined Due Diligence • Stay Involved with the Company after the investment

15. Example Investment Strategy • Total investment bag of money: $200K • Write two ($25K) checks per year, for 4 years • ROI begins in Year-4 (assume 33% annual ROI) • Reinvest returns (tax excluded) • Could grow $200K to 1.4M over 10-year period

16. GOAL: Typical Member 5-Year Activity Five Years from Now YOU will have . . . . . . witnessed 35-60 NTAN investments by NTAN (NTAN-Lead, Syndicated, Follow-on, and Structured deals) . . . personally Invested in 8-12 diversified Angle investments . . . participated in 5-8 Due Diligence processes . . . been Diligence Team Lead on 2 deals . . . joined the Board of 1 NTAN portfolio company

17. It All Starts with High Quality Due Diligence8 Pieces of the Due Diligence Pie Opportunity Sales & Marketing Competition  Technology – (including product and operations) Financial Legal & Structure Management The Deal – (Term sheet, Valuation and Exit)

18. NTAN Due Diligence Tools • Existing Tools • Thought starters – questions to ask • Example presentations • Example process flow – email chains • Fill-in-the-blank rating of 7 DD categories • New Tools Under Development • Drop Box for DD materials • DD Team Lead – Mentor / Coaches available • Fill-in-the-blank presentation formats • Unified scoring sheet • Due Diligence 101 classes

19. NTAN Due Diligence: 5-Point Rating Scale

20. Steps in the Due Diligence Process • A Deal generates enough interest from members to take the next step • Quickly identify the Fundamental Deal Factors • Most important action in DD is knowing when to plug-the-plug • Your time is too valuable to be wasted on diligencinga mediocre deal • Better to err the side of killing a good deal vs. investing in a bad deal • Work the Fundamental Deal Factors to conclusion • Go or No-Go in investment

21. Steps in the Due Diligence Process • Introductory meeting with Chuck starts DD process • Screening & Monthly meetings – elimination of suspect opportunities • Kick Off meeting / Conference call • Team formation – DD leader volunteers or is recruited • Division of DD tasks between team members • Division of tasks, updates, status of assignments • Identifying the Fundamental Factors driving the deal • Red flag alerts • Main portion of Due Diligence is typically 8 weeks • Another month to wrap up final terms and paperwork

22. Uncle Fred Wants You . . . • Everyone in this room . . . . . . has participated some form of DD in their past . . . has the skills to contribute to the DD process • Take a baby-step and begin by taking a subordinate role • Involvement does not obligate you to an investment • Looking for help with in the refinement of the • DD Tools • DD Process • DD Education

23. Idealized Vision for NTAN • Seamless-Web-of-Deserved-Trust between NTAN members • Leveraging the experience, expertise and strengths of fellow NTAN members • You bring in a good opportunity and I’ll find one too . . . • You lead due diligence on this deal, and I’ll do the next . . . • You represent my interest on the Board of Company A and I’ll watch your interest in Company B • We are all sourcing, diligence, investing and providing active Board governance until deals (Company’s) reach their prime time to exit