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Developments in Startup Funding – Beyond VC

Developments in Startup Funding – Beyond VC. Jon Medved. Israeli High Tech Investment. A great decade gets even better. 2013 highest in a decade. Israeli VC share at 24%; at an all-time low. Source: IVC Quarterly Survey, Q3 2013, IVC Research Surveys 2010-2012. Trends: Israeli M&A.

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Developments in Startup Funding – Beyond VC

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  1. Developments in Startup Funding – Beyond VC Jon Medved

  2. Israeli High Tech Investment A great decade gets even better 2013 highest in a decade Israeli VC share at 24%; at an all-time low Source: IVC Quarterly Survey, Q3 2013, IVC Research Surveys 2010-2012

  3. Trends: Israeli M&A M&A of Israeli firms $ Billions # of Deals

  4. Trends: Israeli M&A Average M&A size increasing “…the average deal size has grown nearly 3½ times, from $32 million in 2008.” Wall Street Journal Israeli 2012 Tech Exits Top $5.5B Jan 7th, 2013 “Recently, we are seeing Israeli companies grow, and become world leaders in their areas. We are seeing companies with revenues of over $100 million. We did not see these in the past. They were being sold much earlier, often pre-revenue.” RubiSuliman PwC High-Tech Partner Millions of $ Source: PWC Israeli Exit Report 2012

  5. The role of angel investment – angels vs “crunch” # global startup financings – CB Insights 2013 • “[the crunch]… will result in over 1000 seeded startups being orphaned…” • CB Insights Blog • December 19, 2012 Seed deal explosion Series A funding • “Companies we never really got to know are simply starting to fade away…” • Pando Daily • November 2012

  6. The role of angel investment – angels vs “crunch” # global startup financings – CB Insights 2013 • “[the crunch]… will result in over 1000 seeded startups being orphaned…” • CB Insights Blog • December 19, 2012 Seed deal explosion Series A funding • “Companies we never really got to know are simply starting to fade away…” • Pando Daily • November 2012

  7. Market Disruption: Crowdsourcing in Finance • Massolution: Crowdfunding portals will raise $5.1 billion in 2013 – nearly double the amount raised in 2011 • Consumer Lending • Rewards-based • Donations • Venture Capital “Venture capital-type crowdfunding is the wild card for 2013. It could raise more than a billion dollars …” Source: Massolution Crowdfunding Industry Overview 2013 Source: Deloitte TMT Predictions 2013 “Let's get together: crowdfunding portals bring in the bucks”

  8. Israelis master the art of crowdfunding Crowdfunding as the new seed round Pressy: the standardization of crowdfunding your startup $700K raised on Kickstarter – November 2013 Israeli team that realized there is a rhyme and reason to getting funding on Kickstarter – even more so than going person to person to angels. Getting off the ground is a systematic process that can be “hacked”. Everything from the product focus to the customer pitch had been optimized so that they passed half a million dollars within the first day.

  9. Donation-based crowdfunding’s impact Crowdfunding as the new seed round Pebble: the big splash Kickstarter: $10.3M / May 2012 E-Paper Watch with deep smartphone integration Proved the ability for a great idea that major brands ignore to get off the ground via online donation crowdfunding Donation crowdfunding is a way to pre-sell and to prove the existence of a market

  10. Donation-based crowdfunding’s impact Crowdfunding as the new seed round Ouya & Star Citizen Ouya: $9M on Kickstarter August 2012 Star Citizen: $38M ongoing on multiple channels The multi-billion dollar video game industry is being turned on its head by the ability for small players to win the faith of video gaming audiences and fund development with pre-sales of their products. This has changed the hardware and software side of things.

  11. Donation-based crowdfunding’s impact Crowdfunding as the new seed round A campaign from an angel’s perspective: Team that knows how to market itself MVP or better has already launched Product in the hands of consumers Initial user-base is likely a “tribal” one – highly dedicated to the “cause” of the product and happy to give feedback. Seed

  12. Donation-based crowdfunding’s impact Crowdfunding as the new seed round Andreesen, Spark, Matrix Partners back Oculus Rift with $75M Series B… then Facebook acquires the company for $2B December 2013 … March 2014 After raising $2.4M from Kickstarter, Oculus Rift gets the attention of major investors Andreesen, KPCB, GE back crowdfunded NY Startup Quirky November 2013 Internet of things company first gets mass appeal via several high profile campaigns Now the deals are de-risked, venture capital steps in Naturally, this plays into the rise of equity crowdfunding platforms

  13. Crowdfunding from the general public coming to a town near you… How does Title III crowdfunding factor into things? Do these trends mean that the JOBS Act and Title III crowdfunding are about to unlock a major investment class?

  14. Crowdfunding from the general public coming to a town near you… How does Title III crowdfunding factor into things? Challenges as a startup Cost of raising is impractical – one estimate puts a $100K raise at almost $30K legal fees and other costs Restrictions on round size, who you can let in, and time frame can prevent effective follow-ons with bigger investors. Direct investment – nightmare cap tables Challenges as an investor Direct investment means no manager, disorganized control of the investment What happens when your company hits the limitations of the Title III funding and can’t raise an additional round? What about board representation?

  15. Crowdfunding from the general public coming to a town near you… How does Title III crowdfunding factor into things? Does the future of this type of raise indicate a path to a “mini” IPO for companies? Will lobbyists trying to fix Title III JOBS Act fundraising before it is “dead on arrival” (TechCrunch, Feb ‘14) succeed in keeping the administrative costs of raising under Title III reasonable for entrepreneurs? Plus… focus on Title III misses the enormous and largely untappedaccredited investor opportunity.

  16. The Accredited Investor Opportunity 8 million accredited households in the US are eligible to invest in private securities, have the sophistication to be solicited for these types of investments. Given potential updates to the accredited definition, this investor class may soon expand its ranks. Meanwhile, only a handful of these households have ever invested in private companies. Smart firms are taking note… Carlyle lowered its minimum commitment to $50,000 – Time Magazine says they’re allowing “everyone to be a Mitt Romney” by participating in PE deals Carlyle lowered its minimum commitment to $50,000 – Time Magazine says they’re allowing “everyone to be a Mitt Romney” by participating in PE deals

  17. Updates from the VC-Crowdfunding world A maturing industry is winning over major players GE Ventures – OurCrowd Partnership November 2013 Exclusive dealflow sharing agreement allowing GE Ventures allocation in crowdfunding rounds Virgin America Partnership February 2014 Sharing hot consumer brands with Virgin Airline’s amenities procurement team

  18. “The Crowdfunding Economy is About to Pop”24 September 2013

  19. OurCrowdOverview • Global leader in equity crowdfunding, just one year after founding • Raised $40M for 36 companies • 18 companies with over $1m raised • Truly Global Reach: 5 of last 10 companies funded are from outside Israel • First follow-on deal funded in 4 hours, 12 follow-on deals total • Largest equity crowdfunded deal - $3.5M for a round on our site • Approaching 4000 Accredited investors, over 400 active, many high profile/strategic • Average active investor committed to over $100K on site • Experienced investment team - 150 years combined VC experience

  20. OurCrowd: Moving Up and Fast • Investment amount 2013: $26.4M • Investment amount Q1 2014: >$13M • New accredited investors for March 2013 : 400 • Accredited Investors now from 53 countries • Biggest deal so far, Biocatch: $3.5M indicated (raised in 3 weeks)

  21. OurCrowd offers the professionalism and experience of a venture fund, plus the flexibility and choice of angel investing • Independence, self-selection • Low fees • No large upfront commitment • Relative speed and ease • Legal issues/termsheets handled by firm • Exposure to top dealflow • Professional due diligence • Preemptive/other rights Angel Investing Venture Capital • Very limited dealflow • Term sheet negotiations • Limited due diligence capabilities • No protection, no rights • Large Commitment • Hefty management fees • Carried interest fees • No control, no choice

  22. OurCrowd’s Investment Model

  23. OurCrowd’s Leadership Team • Steven Blumgart Co-Founder & Chairman • Co-director of Glencore's aluminum division • Senior executive, management committee at Glencore 1998-2012 • Jon Medved Co-Founder & CEO • Washington Post: "one of Israel’s leading high tech venture capitalists” • 12 exits >$100M • Co-founder, CEO of VRNG • Founder & GP Israel Seed Partners, $260M AOM • ElanZivotofskyGeneral Partner Investments • 15yrs experience in Israeli investing • Managing Partner at Prelude Israel • Former Head of Technology Banking, Lehman Brothers Israel • Top-ranked Israeli tech research analyst for Goldman Sachs • PiniLozowickGeneral Partner • General Partner at Alta Berkeley • Among first employees at Broadcom, Dir. Marketing • Chairman of Provigent • Founder and GM of Verisense • 5 exits; total value $3B • Geoff Levy Chair of Advisory Committee • Extensive experience in law, banking and investing • Non-Executive Chairman of Monash Private Capital, Specialty Fashion Group and Cromwell Property Group • Non-Executive Deputy Chairman of Investec Bank (Australia) Limited • GadiMazorGeneral Partner & CTO • Serial entrepreneur in mobile/wireless • US Senate Advisory Board • RIM entrepreneur of the year 2013 • Ex-8200

  24. Mentor Program Some recently joined mentors Dov Rubin - Co-founder of NDS (sold to Cisco, $5B) - CEO Itamar Medical Mike Berman - President Cardiology @ Boston Scientific - Serial entrepreneur in medical device space Eli Campo - GM Israel @ LivePerson (NASDAQ LPSN) - SVP @ Shopping.com/Ebay Israel Ron Moritz - GM @Microsoft - SVP CTO @Symantec - SVP Chief Security Strategist @CA Warren Adelman - CEO GoDaddy - VP at McAfee - VP at Bigfoot International RaananGewirtzman - CEO Broadlight (sold to Broadcom $200M)

  25. OurCrowd’s Mentors & Advisors New recent mentor additions: • Applango: HannanCarmeli (Former President and Co-CEO ClickSoftware,Nasdaq traded enterprise software company), joined as OC director • Crosswise: Josh Wexler (Head of Buyer Cloud for Rubicon Project, leading provider of advertising automation solutions), joined as OC director • Boatbound: Victor Mizrachi (Formerly chief scientist at Ciena), joining as OC director

  26. OurCrowd’s Portfolio

  27. Serial Entrepreneurs/Strong Backgrounds Jeff Pulver & Jacob Ner-David VoIP pioneer, founded Vonage, VOX, FWD, investor in Twitter and Foursquare Founded Delta Three ($1.8B NASDAQ), founded Nomadiq Benny Landa & Aviv Ratzman Indigo, major global force in digital printing; HP acquisition ~$800M Dr. Amit Goffer & Larry Jasinski Founded Odin Medical Technologies (acquired by Medtronic) CEO Soteira (acquired by Globus), Cortek (acquired by Alphatec) Bob Rosenschein Founded Answers.com ($127M exit), Accent Software ($400M on NASDAQ)

  28. Serial Entrepreneurs/Strong Backgrounds Richard Demb Founded GC Zone, Founded Popcorn Indiana (acquired by Goldman Sachs) EitanBauch & Avi Yehuda Collectively sold startups to Intel, F5, Salesforce.com ZviSchrieber Founded TradeUM ($500M exit), Unicorn (acquired by IBM), Lightec (acquired by GE)

  29. Not just capital – we’re creating opportunities “I am excited about the value that OurCrowd brings to early stage investors who invest in startup companies. Not only did we raise our seed round on OurCrowd in a week, but we had people from all over the world invest in Zula thanks to this platform” Jeff Pulver Co-Founder, Zula

  30. Co-investing with leading angel investors Mort Meyerson Dell EDS Tzachi Sultan Clal Underwriting Gideon Ben Zvi Briefcam Rami Lipman Microsoft Israel Gigi Levy 888 Amdocs Ajay Shah SilverlakeSumeru Shah Capital Partners Benny Landa Indigo Yigal Jacoby Allot Communications Moshe Lichtman Microsoft

  31. Announcing Strategic Co-Investment Agreement with General Electric Ventures • GE will co-invest with OurCrowd in select early stage companies in the areas of energy, healthcare, software and advanced manufacturing • Investing on the same terms as our members/investors. • First time major corporation has made such a commitment to an equity crowdfunding platform • Huge validation for OurCrowd. Sue Siegel, GE Ventures CEO :“OurCrowdhas created a unique platform for dynamic early stage origination and funding. They offer a quality investment environment and the partnership will give GE increased access to early innovation.”

  32. Portfolio Reserve: A New Way to Build an OurCrowd Portfolio Funded accounts to invest across OurCrowd with opt-out functionality Making it easy to build a real portfolio, one set of docs, auto-invest, but maintaining discretion Automatically starting deals with $400K spoken for – powerful tool to build immediate demand for rounds • Launch: Sep. 2013 • Minimum commitment: $100K • Total Value: $5M • Allocation per deal: $400K • Already have had re-fills from satisfied investors

  33. Press Coverage in 2013 “The platform has been an enormous success…the ultimate win-win-win situation, brought to you by an new and improved Israel – innovative& confident.” “The 5 Most Important New Companies You Need to Know” Forbes Online | April 2nd “An Israeli company trying to change the way startups are funded”CNN Business 360 | April 30th “Medved'slatest mission is to blow up the exclusivity around tech fundraising” Bloomberg BusinessWeek | August 1st “Crowdfunding for real investors” thestreet.com | November "The most interesting investment of the week goes to OurCrowd”WSJ | Feb 8th

  34. Press Coverage in 2014

  35. Summary • Meeting a demand for a better online way to invest in startups • Platform works—Raised record sums for 36 companies online • Industry-leading performance to date – worldwide leadership • Strong Israeli base, global investor reach into 53 countries • 50% of last ten new deals originate from outside Israel • Recruited industry-leading team • Strong and impressive initial portfolio • 16 companies have completed additional funding rounds after initial funding • Have provided real value-add for our startups • Achieving strong traction in a gigantic market

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