Venture Capital for Technopreneurship Prasanna V. Krishnan

1. Venture Capital for Technopreneurship • Prasanna V. Krishnan

3. Today’s Talk • Overview of Venture Capital • Raising Venture Capital • Macro Trends in VC Today • Exciting Areas in IT • VC in India

4. What is VC? • Private Equity • Venture, Mezzanine (Venture Debt), Buyout • Venture – Seed, Early, Growth (Series A, B…) • Median Investments: A $4.75M, B $10M • Buyout – LBOs, Distressed • VC businesses vs. ‘Lifestyle’ business • Exit through IPO or M&A

5. General Partners • 10 year funds Structure of VC Fund Committed Capital Management fee, carry

7. Investment, Pre-Boom

8. Investment, Boom and Post-Boom

9. Today’s Talk • Overview of Venture Capital • Raising Venture Capital • Macro Trends in VC Today • Exciting Areas in IT • VC in India

10. Fund Raising in a Nutshell

11. Funding Process - Reality • Only 0.1% of business plans get funded • Process in General • Reaching out to investors • Initial call or meeting • Due Diligence process • Term-sheet • Closing of the transaction • Post transaction interactions • DFJ Process • Have a champion (partner/associate) • First meeting, subsequent DD • 5 partners see, Champion convinces, Vote on 1-5 scale

12. Reaching Out To Investors • Get referred • Personal contacts • Law firms/banks etc. • Pitch events, Conferences • Choose the right firm and target the right contact • Don’t waste time developing a 40 page business plan document • Executive summary and deck are all you need • Executive Summary • Provide information which will grab attention • Team backgrounds • Customer wins/Revenue traction • Metrics around the product/service

13. The Day Of The Meeting • Have 2-3 people attend the meeting • Come 5-10 minutes in advance in order to setup and make yourself comfortable (45 min – 1 hour meeting) • Ask the admin in advance who will be on the meeting • Research the backgrounds of the people • May be people outside the firm – domain experts/friends of the firm etc. • Come prepared with contingencies • Network connectivity/Cellphone reception issues • Projector not working • Helpful to know firm’s prior investments, investment criteria

14. Tone Of The Meeting • Be organized, clear and concise • OK to cover details of tech in subsequent diligence • Don’t make up things • Say you don’t know and you will get back with details • Be polite but confident • Acknowledge what VCs are saying and politely convey your point • Feel free to ask questions • Non-verbal communication • Have a positive body language • Team dynamics are very important • Other team members should show interest in the presenter • Important to get the positioning of the company • Similar companies • Target • Differentiation • Analogies help

15. DD – What VCs Look For Most Important • Market – “How big is the market” • Multi $B • Growth rate • Product - “How much of the market can you capture” • What problem does it solve • Competition – Tech differentiation, barriers to entry • How does it make money • Management Team - “Can you capture that” • Passion & Drive! • Experience • Worked together before Next level - execution • Go-to-market: Channels, distribution • Current product status E.g. Consumer Internet Series A: product, B: growth, C: revenues • Financials • Margins, CapEx • Technical Diligence • Deal Terms – not the deciding factor in early stage

16. What DFJ Looks For • Goal: Can this be a Billion Dollar Company • Can this get to $100M revenue in 4 years • Not just 10X return • Market • Multi $B, growing • Disrupt lazy, bureaucratic incumbents (Skype, Wigix…) • Product • Business models that transcend financial statements • Change the World • Like crazy ideas • Entrepreneurs • Passion and Energy • Leaders • Like young entrepreneurs • Like thriftiness • Great entrepreneurs are everywhere (not just the valley) • Skype, Baidu • DFJ Global Network

17. Valuations • The VC Method • Exit valuation – multiples, comparables • Enterprise company P/S 5 • Consumer company – comparables for $ paid/user • Discount at desired IRR, accounting for dilution • Set aside option pool • Get pre-money valuation now • At the end of the day, it’s a market • The Business of Risk • Higher risk, higher reward • What matters is the magnitude of the winners • 1/3rd lose – 1/3rd breakeven – 1/3rd home runs • Baidu: invested $3 a share, IPO price $27, Rose 350% on day-1 to $120 (40X)

18. What’s A Good Presentation? • Problem that you are addressing • Management team • Addressable market • Top-down/Bottom-up market sizing, growth • Description of the technology/product • Competitive landscape • Business model • Have clear ones, not suggest every revenue model possible • Current product status and roadmap • Go-To-Market strategy • Financial projections • Financing needs and usage

19. Do’s And Don’ts - I • Keep your demos simple • Pick the highest priority scenarios • Ask outsider to see it • Make sure you keep a time check • Ask how long you have if start late • Make sure you are able to convey the core points of your agenda within the allotted time. • Keep it focused “Before giving a 10000ft view, the founder jumped into the nitty-gritty of the technology, leaving us wondering who the product is targeted for and how it will be sold”

20. Do’s And Don’ts – II Our Company • Don’t try to solve every problem in the world • Don’t assume large market means a large market share • “The market is $60B for this product, so even if we get 2% of this market, we have a large company” • Have pictures and interactivity in the presentation • “Only text slides can quickly get boring.”  Partners looking at the clock!

21. Do’s And Don’ts - III • Be forthright about shortcomings in the team. That’s where the investors can help • Don’t try to hide the competitive landscape • “We have no competitors” – If there is a market, there will be competitors • Competitive matrix – Don’t have all boxes checked for your company • Make comparisons – VCs understand better in analogies • Patents are important but not huge barriers to entry

22. Do’s And Don’ts - IV • Have optimistic but realistic projections • VCs will still give it a haircut • Scenarios for cash use & revenues • Optimistic, conservative • Remember to ask for the next steps • Feel free to politely nudge along

23. Now that it’s a ‘Yes’….. • Termsheet • Participating • Liquidation • Option pool • Series A ownership – 25-40% most common range • Board seats • Vesting of common stock • Right of First Refusal • Legal docs & closing process • After funding • Board meetings monthly/6 weeks • VCs help with contacts (customers, partners, independent board members, hires), business strategy

24. Today’s Talk • Overview of Venture Capital • Raising Venture Capital • Macro Trends in VC Today • Exciting Areas in IT • VC in India

26. VC not hit as much as buyout – coz of debt markets • Exits – IPOs lower – no IPOs in Q2 08 – not surprising • DFJ – we are optimistic, this is a good time

27. Today’s Talk • Overview of Venture Capital • Raising Venture Capital • Macro Trends in VC Today • Exciting Areas in IT • VC in India

28. What’s Exciting/Not in IT • What’s Hot • Cloud Computing • Apps: SaaS, SMBs • Platform – AWS, Virtualization (VMWare IPO) • Mobile coming back with iPhone • KPCB – iPhone fund • New wave of search – nothing revolutionary • Baby boomer demographic • What’s Not • Consumer internet – pure ad supported models • Video content & video ads – lots companies, no $ yet • Other areas • Cleantech • Solar (Solarcity), Biofuels algae-based, Water • Alternative transportation

29. Today’s Talk • Overview of Venture Capital • Raising Venture Capital • Macro Trends in VC Today • Exciting Areas in IT • VC in India

30. India: 2nd Fastest Growing Among the Ten Largest Economies 4th Highest GDP (Purchasing Power Parity) 2nd Highest GDP Growth • Fastest growing among the ten largest economies Sources: The World Factbook Sources: The World Factbook Comments • GDP: $1.1 Trillion in fiscal year ending 3/31/07 • World’s 2nd most populous country: 1.13B people. Will overtake China by 2020. • Median Age: 25; 32% are younger than 15. Life expectancy is 69. • PE Investments in India crossed $14B in 2007. • Mobile subscriber base at 240M. Projected to be at 490M by 2012. • Internet: 35-40M users; 3M Broadband enabled homes (214M homes) • Need online + offline/mobile Sources: Times of India, eValueserve

31. DFJ India: Executive Summary Executive Summary • DFJ established core presence on the ground in India in October, 2007 • Local team located in Bangalore and Hyderabad • Invested $47.7 million in 17 portfolio companies over the last 24 months. • Invested $21.5M in 7 companies over roughly seven months. • Largest #deals among VCs in Q2 2008 • DFJ India focuses on early to mid stage venture investments across sectors • Investing $1-10 million with an allocation of $75 million from DFJ IX • Most VC firms not just IT, plus more growth stage • Sectors include Consumer media (Desihits), Telecom (mCHQ), Internet (70mm), Cleantech/Energy (Atero), IT, ITES, Healthcare, Education (Catura), Retail • Look for disruptive plays in large existing or emerging sectors; Many are low tech

32. Growth of PE/VC investments in India Private Equity and Venture Capital Investment in India • Late stage investments are witnessing the biggest growth • VC/PE Investments projected to be $20B in 2010 • 300 funds active in the last 3 years (Government, Overseas, Corporate, Domestic) Source: TSJ Venture Intelligence

33. Naseeb, Livemedia, Dlight, Deeya, Catura, Attero, Komli, Cleartrip Vegayan Mchek, mginger, canvera, Reva, 70mm,

34. Thanks and I Look Forward to Continuing the Dialog