VÆKSTHUS+

1. VÆKSTHUS+ AGENDA, Thursday, 26 October 2006 Meet Your Assistant Teachers Financing Technology Ventures

2. VÆKSTHUS+ • Meet Your Assistant Teachers • Anne Louise Johansen • Baya Tuvshintugs • Esben Christensen • Hjalte Højsgaard • Knud Lundgaard-Karlshøj • Lars Høy

3. VÆKSTHUS+ • FINANCING Technology Ventures • Financing Technology Venture • John Heebøll • SEEDCapital Denmark • Peter Tøttrup • Vækstfonden • Eric-Alan Rapp

4. VÆKSTHUS+ • FINANCING Technology Ventures • Agenda • Capital: for what ? • The Sources: Origin of Capital • Types related to Business Development • Investors: types • The Capital Market • The Investor’s Judging Criteria • Evaluation of Companies • Example

5. VÆKSTHUS+ Capital: for what? Business Development! Risc Minded Patient Competent Cash flow Time

6. VÆKSTHUS+ • The entrepreneur’s most important • Capital Sources • FFF Family, Friends & Fools • In Kind Other people’s ressources • Your first customer: The more pain, the better • Investors’ moneyLast resort

7. VÆKSTHUS+ • Origins of Capital • You make it unnecessary • Live on a Rock • Start selling! • In kind • You have it: Savings, personal fortune • You get it:Grants • You borrow it: Loan capital • You sell shares: Share capital • private equity

8. VÆKSTHUS+ • GRANTS • Public Industrial Development Programs • Ministerial focus area • Private Foundations • Etc.! See www.finansieringsguiden.dk • Comments: • Dream-capital for start-ups • Hard to find but it happens • In EU: limit: 100.000 EUR • Grants are taxable income, but expenditures are tax deductable.

9. VÆKSTHUS+ • LOAN CAPITAL • Banks • Credit Institutions like FIH • Private debt providers • Special products like Vækstkaution, Mezzanine capital etc. • Comments: • Cheap for the entrepreneur – Expensive for the Company • Paied back by the company. The entrepreneur preserves ownership • Personal collateral mandatory in the start-up phase. • If business flops: repayment after personal tax. No tax-deduction! • Investor runs a business • Never forget it in the momentarily enthusiasm

10. VÆKSTHUS+ • LOAN CAPITAL - 2 • The Convertible Loan • Normal interest and repayment profile • Can be converted into share capital on specific conditions and specific milestones • Comments: • Some advantages in the start-up phase • Less initial dilution of the founders. • Investor may convert to preserve ownership at new funding rounds. • Check the conditions • Investor gets a strong handle bar • Conversion right linked to milestone specifications. Eg.: conversion rate linked to quantified performance.

11. VÆKSTHUS+ • SHARE CAPITAL – private equity • Investor buys shares in the company • At kick-off with the founders • Later: at capital increase (Funding rounds) • Comments: • Expensive for the entrepreneur – Cheap for the Company • Nothing to pay back - but founders are diluted. Think about that, when valuation passes a gazillion. • Possible mismatch in longterm objectives • The investor wants a rapidly expanding business – to be sold at the right time, whereas the founders may have completely different personal goals and they are probably also more risk adverse

12. VÆKSTHUS+ • EXIT • The inherent consequence ofequity financing • Investor converts assets to cash • IPO: Initial Public Offering Rare but rewarding • Trade Sale Acquisition • Management buy-out/buy-in Not best but ROI > 0 • Earn-outs Even worse but ROI > 0 • Repayment of loans Not sustainable for VC • Enforcing preferences Cutting the loss

13. VÆKSTHUS+ • Capital and Business development • Ante - Kick-off • Pre-seed investment: own ressources, grants, in-kind, FFF • Venture Cases: also special share capital • Start-up • Seed investment: share capital, special loans, own money • Growth and commercial development • Early stage, 2. round etc.: share capital, special loans Cash flow Technology wears out Time Inflection Point: first customer!

14. VÆKSTHUS+ Investors Pre-seed FFF Innovation environments Seed – Early Stage SEEDCapital Denmark Business Angels Venture Capital companies (VC) Vækstfonden Second round, follow-on VC and Corporate Venture Capital Credit Institutions Banks Vækstfonden Some stock exchanges like First North

15. 4.000 150% 3.500 125% 3.000 100% Årlig vækst 2.500 75% Mio. kr. 2.000 50% 1.500 25% 1.000 0% 500 -25% 0 -50% 1998 1999 2000 2001 2002 2003 2004 I alt (venstre akse) Årlig tilvækst (højre akse) VÆKSTHUS+ The Danish VC Market Investments in mio. DKK DOT-COM collapse September - 11

16. VÆKSTHUS+ • The Investors Valuation Criteria • 4P • Perspectives Pain, quantified pain-relief, exit-op. • Persons Track records, competencies, ambition • PlatformProof of principle, concept, value, pull, profit • Process The project acc. to the Business Plan • Comments: • Must be a Venture Case: ROI > 10 in less than 5 years. (126 rule) • The team is the singlemost important precondition • Platform: the more commercial proofs, the better. • Commercial proofs reflect risk and competence

17. VÆKSTHUS+ • The Investors Perceived Valuation - 1 Valuation Proof of Profit Proof ofGrowth Proof of Market Proof of Expandability Growth potential substantiated Exit opportunities substantiated IPR estbl. Proof of Concept. First solid customer feedback. Time Proof of Principle.

18. VÆKSTHUS+ • The Investors Perceived Valuation - 2 Saleability Valuation Management Market Potential

19. VÆKSTHUS+ • Dancing with Woolves • Or how to deal with investors • Capital always Wins • Your adversary has done this many times • Your adversary is not dependent on you • Your adversary has lots of time • Negotiating tactics: • Freedom of Maneovre • Never enter negotiations without having fall-back positions. • No major payments that jeopardize your project • Your investor will find out at ”due diligence” • Don’t go for money unless you can do without • Make that clear from the beginning • If you are asked for exclusivity: it costs (all claims cost) • Exclusivity reduces your freedom of maneovre • Try to get more investors into the game – transparently • The more proofs before investment – the better • Strategic partners also an asset • Get yourself a management team before opening the game

20. VÆKSTHUS+ EXAMPLE: GBQ Ltd. PRECONDITIONS Kick-off: DKK 125.000 + DKK 250.000 Founders + pre-seed investor Private equity + convertible loan First Milestone: DKK 500.000 Pre-seed investor: private equity Second Milestone: DKK 5.000.000 Venture Capital Company: private equity Exit: Profits (EBITDA) > 20 mio. DKK EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization. P/E ~ 10

21. VÆKSTHUS+ Kick-off DKK 125.000 shares and DKK 250.000 loan Shares: founder + pre-seed investor Loan: Pre-seed investor DKK 125.000 is paied to the bank account of the newly formed company. (DKK 10.000 is paied in start-up costs) Convertible loan, DKK 250.000 is paied to the bank account Total input of cash: DKK 375.000

22. VÆKSTHUS+ 1. Milestone Contribution through capital expansion Loan converted into shares at the same time DKK 500.000 is paied to the bank account Total input of cash at MS1: DKK 875.000

23. VÆKSTHUS+ 2. Round Contribution through capital expansion New VC investor enters DKK 5.000.000 is paied to the bank account Total input of cash at 2R: DKK 5.875.000

24. VÆKSTHUS+ Exit • Rule 126: 100 mio T/O, 20% revenues (EBITDA) in 6 years • Profits (EBITDA) = 20 mio. DKK. (T/O ≈ 100 mio. DKK, 30 – 60 employees) • P/E ~ 10 • Price: 10 X 20 mio. DKK = 200 mio. DKK • Founder: 36.9% 74 mio • Investor A 23,1% 46 mio ROI = 60 • Investor B 40,0% 80 mio ROI = 15

25. VÆKSTHUS+ Phew!