How to Write a Business Plan Seth Yakatan Katan Associates January 15, 2008 UCI Student Center Newport Beach Room C

1. How to Write a Business Plan Seth Yakatan Katan Associates January 15, 2008 UCI Student Center Newport Beach Room C

2. Disclaimer • My opinion

3. Our Business • Strategic Consulting • Mergers and Acquisitions • Business Development and Partnering and Other • Government and Industry Advisory • Corporate Training

4. Katan Associates: Representative Clients

5. Seth Yakatan, MBA • In excess of 15 years experience as a corporate finance professional • In excess of 4 years on a direct investment basis as a venture capitalist • In excess of 6 years as a merchant banker; part of a group with over $5 billion under management at Union Bank of California, N.A. • Founded Katan seven years ago, completed: • Sale of assets of 3 biotechnology companies; transaction value > $75.0 million • Advised on 3 successfully completed, early-stage, partnering assignments, with value generated for clients in excess of $250.0 million • For the past five years, Mr. Yakatan has served as a faculty member for the BIO Annual Meeting Executive Workshop Series • Currently sits on Board of Directors of DCI Capital USA BDC, (OCTBB:DCIU) • Mr. Yakatan holds a BS in History and Public Affairs from the University of Denver and a MBA, from the University of California, Irvine, Graduate School of Management.

6. Company Description Vintage Role Status R2 Medical Systems, Inc. Ventana Growth Funds Investment 91 - 93 Analyst Acquired by Cardiotronic Systems in 1994 BioCryst Pharmaceuticals, Inc. Venture Growth Funds Investment 91 - 93 Analyst IPO in 1994 ANEW, Inc Sureste Ventures Investment 93 - 95 Associate Acquired by PEMEX in 1996 Triton Cellular UBOC Private Equity Investment 96 -97 Assistant VP Acquired by RCC, Inc, in 2001for $1.2 billion Triton PCS UBOC Private Equity t Investment 96 - 97 Assistant VP Operates as SunCom; $1.1 billion market cap LBI Holdings II UBOC Sub-Debt Investment 97 -98 Negotiated, Advised Company on terms Largest Private Hispanic Media Firm in USA Ancora Management UBOC Private Equity Investment 98 - 99 Assistant VP Acquired by Pitney Bowes in 2004 Heritage Marketing Group UBOC Private Equity Investment 98 - 99 Sourced, VP Acquired by Rock-Tenn Co. in 2002 Helicon Cable UBOC Sub-Debt Investment 98 - 99 Sourced, VP Acquired by Charter Communications in 2000 Sol PCS UBOC Private Equity Investment 99 -00 Sourced, VP Acquired by VoiceStream in 2001 for $300.0 million, 13.3x return 1100% IRR R&R Media, Inc. UBOC Equity Sponsor Transaction 99- 00 Managed Transaction Arranged financing for Private Equity Firm’s acquisition of this asset Classic Cable, Inc. Sell Side M&A 99 -00 Co-Led Transaction Divested Tower Communication Portfolio for $225.0 million Cygnus Business Media UBOC Equity Sponsor Transaction 00 -01 Managed Transaction Arranged financing for Private Equity Firm’s acquisition of this asset Korea Times UBOC Equity Sponsor Transaction 00 -01 Managed Transaction Arranged financing for Private Equity Firm’s acquisition of this asset Seth Yakatan Track Record page #1

7. Company Description Vintage Role Status Inovio, Inc. Katan Sell-Side Mandate 01- 02 Sourced, Managed Transaction Acquired by Harvard Bioscience, Inc. CPG, Inc. Katan Sell-Side Mandate 01- 02 Managed Transaction Acquired by Milipore for 4.1x revenues Stressgen, Inc. $203.0 million partnership with Roche 01 - 02 Advisor On-going MTI, Inc. $40.0 million partnership with Aventis 02 - 03 Advisor Terminated post Sanofi Merger Biocomm Regional Venture Capital Fund 02 -03 Advisor Entity ongoing; created 4 portfolio companies DermaTrends Pharmaceutical Partnership 03 -04 Negotiated, Advised Company on terms On-going Stressgen Reagents Katan M&A Advisory 04 -05 M&A Advisor Acquired by Assay Designs in 2005 DCI USA Business Development Company 04 - External BOD On going Nventa Pharmaceuticals Restructuring 04 - Advisor Assisted CEO in broad restructuring of company Premiere US Academic Institution Company formation 04 - Advisor Assist in new company formation process XL Tech Group Debt Facility 05 -06 Managed Transaction Arranged $35. 0 million financing Seth Yakatan Track Record page #2

8. Agenda • Risk & Milestones • How I Do It • Business Plan 101 • Specific Criteria • A Few More Tips • Q&A

9. Risks & Milestones Seth Yakatan Katan Associates January 15, 2008 UCI Student Center Newport Beach Room C

10. Risk Value Commercialization Most new technologies go through a long maturity-this can take up to 20 years development cycle before they reach commercialization ”Debugging” ”Early Hype” ”DIssapointments and disillusion” Time

11. IP Creation Invention: Functional Business Validation New Firm or Program Viable Business Basic Research Proof of Concept Early-Stage Technology Development Product Development Production / Marketing Angels Corporations Technology Labs SBIR Phase II NSF, NIH Corporate Research SBIR Phase I Equity Debt Capital Markets VC Taken from “Between Invention and Innovation An Analysis of Funding for Early-Stage Technology Development” Prepared for NIST Economic Assessment Office November 2002, page 33 Milestones of Development

12. Are you ready to start today ? • What do you have? • Why is it novel? • What is the market? • At what stage of development is it? • Can one technology support the formation of an entire company? • Who can help ? • Where do I get $$$$$$$ ?

13. DP’s Issues • Inability to tell the story properly • Failure to meet or respect the time frame • Failure to explain the value proposition • Failure to disclose issues up-front • Lack of knowledge of the competitive landscape

14. It IS a Tough Road • There is a high failure rate in new ventures • Approximately 20% are successful in obtaining more than 1 round of capital • VC’s strive for failure rates of 80% on investments • 5 in 10 investments fail • 3 in 10 investments breakeven • 2 in 10 investments succeed • A 2004 report by PriceWaterhouseCoopers indicates that only 10% to 30% of venture capital funds produce profit-generating firms

15. Would You Have Invested?

16. How I Do It Seth Yakatan Katan Associates January 15, 2008 UCI Student Center Newport Beach Room C

17. Our Criteria – K. I. S. S. • Do we believe that the people involved can get the job done? • Does the product/technology/company have a sustainable competitive advantage? • Do we share similar expectations of value and outcomes? • Can we add value to the company/process given our involvement?

18. 4 Easy Steps • Elevator Pitch • Presentation • Executive Summary • Plan • Executive Summary • Products or Services • Market Need (Marketing ??) • Market Potential • Competitive Advantage • Management • Financial Overview

19. The Elevator Pitch • Do we know what this is ??? • An elevator pitch (or elevator speech) is a brief overview of an idea for a product, service, or project. • The pitch is so called because it can be delivered in the time span of an elevator ride (say, thirty seconds or 100-150 words). • Part Mission Statement • Part Positioning Statement

20. Executive Summary • Most important piece of the Plan • Begin with the Elevator Pitch • Talk about product / service • Highlight Market • Promote Management • Use of Proceeds • Ask for the $$$ • What is the value ?

21. Presentation • Use as a high level outline for the business plan • Executive Summary • Products or Services • Market Need • Market Potential • Competitive Advantage • Management • Financial Overview

22. Business Plan • Executive Summary • Products or Services • Market Need • Market Potential • Competitive Advantage • Management • Financial Overview

23. Business Plan 101 Seth Yakatan Katan Associates January 15, 2008 UCI Student Center Newport Beach Room C

24. What is a Business Plan ?? • A business plan is any plan that works for a business to look ahead, allocate resources, focus on key points, and prepare for problems and opportunities • Plans don't sell new business ideas to investors. People do. Investors invest in people, not ideas. The plan, though necessary, is only a way to present information

25. Purpose • Business planning is about results • You need to make the contents of your plan match your purpose • Don't accept a standard outline just because it's there

26. Key Factors • Simplicity • Believability • Focus • Management • Milestones

27. Key Mistakes • Management • Competition • Idea / Technology inflation • Belief in the market • Valuation or Lack of Valuation • Answering questions • Lack of milestones

28. ABRAHAM LINCOLN • 1831 Failed in Business • 1832 Lost bid for Illinois State Legislature • 1834 Failed in Business • 1835 Fiancé died • 1836 Suffered a nervous breakdown • 1843 Ran for Congress and Lost • 1848 Tried again for Congress and Lost • 1855 Ran for US Senate and Lost • 1856 Tried for Vice President and Lost • 1859 Lost bid for Senate again • 1860 Became 16th President of the US

29. Specific Criteria Seth Yakatan Katan Associates January 15, 2008 UCI Student Center Newport Beach Room C

30. Katan’s Concepts Executive Summary Products or Services Market Need Market Potential Competitive Advantage Management Financial Overview Development pathway IP Technology overview BOD AB Competition Requirements Executive Summary Products or Services Market Need Market Potential Competitive Advantage Management Financials Business Plan

31. Some things to consider… • Does the plan explore an opportunity that is realistic? • Is the business model well thought out and have the potential to be effective? • Are there past benchmarks set that the plan can be measured against? • Is a significant initial investment required? • What is the length of the implementation process? • Does the business have the necessary tools to become a market leader? • Has a clear target customer been established? • Does the management team have the skills to succeed? • What are the projections for the venture to achieve profitability? • Is the plan concise and well written? • What will allow this business plan to have sustained success?

32. Executive Summary • What problem are you solving? • What is your business proposition for solving the problem? • Who are your customers? • Who are your competitors? • How viable is your business? • How do you make money? • Executive Summary is clear & effective as a stand-alone document

33. Products or Services – What ? • What is the product or service? • What are its attributes? • Advantages and potential drawbacks? • Why/how is your product/service more compelling than existing ones or the competition? What is the stage of development? • Do you have a proprietary position or intellectual property protection planned or in place?)

34. Market Need – Why ? • What specific conditions in the market have created the problem you are solving? • How will your product/service take advantage of the opportunity? • Who are your customers and what are their attributes? • Clearly define your potential customers and why they will pay for your product or service

35. Market Potential – Why ?? • What are the characteristics of the market for your product or service? • How will you reach the market? • How big is the market opportunity: number of potential customers & annual sales? • Can you narrow the market to a manageable segment? • How will you dominate the market? e.g. through pricing, quality, geography, etc? • Is there a market niche where you will have competitive advantage?

36. Competitive Advantage – How ? • Competitive Matrix: Who are your competitors? • Their strengths & weaknesses? • Your strengths & weaknesses? • How will you close the gap? • How easily can competition close gap?

37. Management – Who ? • Who are key team members and their respective roles? • What are their relevant experiences and accomplishments? • What other areas of expertise are you lacking? • When will you need additional team members?

38. Financials • Income Statement • Balance Sheet • Funds Required & Uses • Key Assumptions • Financial Model

39. A Few More Tips….. Seth Yakatan Katan Associates January 15, 2008 UCI Student Center Newport Beach Room C

40. Clayton Christensen: Disruptive Technologies • The term disruptive technology was coined by Clayton M. Christensen and described in his 1997 book The Innovator's Dilemma.

41. Clayton Christensen: Disruptive Technologies • Main Principals • 1. Companies listen to their customers, and strive to bring to the market the products their customers ask for. • 2. Small Markets Don’t Solve the Growth Needs of Large Companies. • 3. Markets that don’t exist can’t be analyzed: Get close to your customers, learn their needs. • 4. Technology Supply May Not Equal Market demand.

42. Pre Money Valuation = notional amount of equity value prior to any equity investments Pre Money Valuation + Invested Capital = Post Money Valuation Price per share = Pre Money Valuation / Pre-Money Shares Definitions $5 million pre-money $10 million post money & 50% ownership + $5 million = Taken from “Understanding Valuation: a venture Investor’s perspective” Callow, etal, Boston Millenia Partners White Paper

43. Data Taken from “Understanding Valuation: a venture Investor’s perspective” Callow, etal, Boston Millenia Partners White Paper

44. The Exit • It there one ? • How realistic is it ? • What happens if there is none ? • Is that okay ?

45. Key Lessons for Success • Products must have large and near-term markets • Compatible corporate team • Level of funding sufficient to meet goals • Observant – follow market – don’t discard anything • Confidence in common sense • Be prepared for competition – new product pipeline • Need luck and smart friends

46. Q & A Seth Yakatan Katan Associates January 15, 2008 UCI Student Center Newport Beach Room C