An Opinionated Introduction To Venture Capital in Europe

An Opinionated Introduction To Venture Capital in Europe Andrea Capitanio Alice Ventures E: mail andrea@aliceventures. it An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

Private Equity & Venture Capital <> <> An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

Early Investments Lifecycle Start-up V 1. 1 Res. & Develop. concept Eng. Specs Prototype Alfa Beta V 1 CUSTOMERS Marketing & Sales M&S Plan V 0. 1 Prod. & Ops P&O Plan V 0. 1 Seed (< € 1 mil) Angels Incubators Plan V 1 Plan V 2 Early Stages (€ 1 - 10 mil) Accelerators Venture Capital An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Expansion/ (€ 10+ mil) development Private Equity & Merchant Banks Viewgraph No.

• Advisor to MB Venture Capital • MB Venture Capital Fund I – € 150 mil under management – Focus on • Early stages investments (start-up to first round) in the EU and Israel • Bio-tech, Media and Info-tech • Financing from € 1 to 10 mil (€ 3 - 5 mil operations on average) – 12 investments in SE, BE, UK, IT, … • The Team – Edoardo Lecaldano (Media and Infotech), John Gonzales (Biotech), Sergio Saibene (Infotech and Telecom), Andrea Capitanio (Infotech and Telecom) – the Polytechnic of Milan and the Bocconi Business School of Milan • MB VC Fund I investors: FIAT, Pirelli, Mediobanca, Generali, Montedison, Informatica, . . . An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

What Venture Capitalists do. . . • • Sift through thousands of (good and bad) investment propositions Identify a few valid initiatives and finance them • Support the entrepreneurs in succeeding. E. g. : • – in exchange for private equity (usually a minority stake) – structure the deal – – – providing financial advice in headhunting and setting up advisory boards in contacting customers, channels, … in steering and positioning the company in managing PRs activities in managing IP and legal issues Look after value creation – further round of financing – merger and acquisition, IPO, … An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

Venture Capital in the EU (FY 2000) – UK 37%, Fr 16%, DE 13%, . . . – High Tech early-stage: € 8. 6 bil – High Tech expansion/development: € 6. 6 bil An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No. Source: “Annual Survey of Pan European Private Equity & Venture Capital Activity”, European Private Equity & VC Association • Funds raised in the EU: € 48 bil

Venture Capital in the EU (FY 2000) • Investments made: € 34. 9 bil (over 13000) An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Source: “Annual Survey of Pan European Private Equity & Venture Capital Activity”, European Private Equity & VC Association – UK 38%, FR 15%, DE 14%, … – € 11 bil (31. 5%) in 5448 High Tech deals Viewgraph No.

Venture Capital in the EU (FY 2000) – € 3. 4 mil per financing (€ 18. 5 in the US*) * Source: Financial Times, July 16 th 2001 An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No. Source: “Annual Survey of Pan European Private Equity & Venture Capital Activity”, European Private Equity & VC Association • Average deal size € 2. 7 m (€ 2. 2 m in 1999)

Venture Capital in the EU (FY 2000) – € 3 bil in 1308 trade sale operations – € 1. 3 bil in 1001 public offerings • 249 IPO & 682 sales of quoted equity – € 689 mil in 896 write-offs – € 1. 4 bil in 316 sales to other VCs or financial institutions • 37 Tech. IPOs up to June 1 st. , 2001 – Raised € 1253 mil + € 6255 mil of Orange IPO An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No. Source: “Annual Survey of Pan European Private Equity & Venture Capital Activity”, European Private Equity & VC Association • Divestments made: € 9. 1 bil

Venture Capital in the EU (FY 2000) • What does a VC asks for – VC investors’ stake 2% have 1 - 9% 38% have 10 - 33% 21% have 34 -49% 39% have 50+ % An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Source: “The Economic Impact of Venture Capital in Europe” (EVCA and Coopers & Lybrand) • • Viewgraph No.

Most Appreciated VCs Contributions Financial Advice 44% Corporate Strategy & Direction 43% Sounding board for ideas 41% Challenging status quo 32% Contacts or market information 26% Management recruitment 10% Marketing strategy 7% Money only 12% An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Source: “The Economic Impact of Venture Capital in Europe” (EVCA and Coopers & Lybrand) • • Viewgraph No.

The Financing Lifecycle • Approach – Elevator’s Pitch and Info Memo • Presentation – Placement Memo • Business plan – Meetings • Negotiation – Term Sheet (or Letter of Intent) • Verification and Validation – Due diligence • Closing & Financing • Value Creation • Exit An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

How to approach a venture capitalist Quick Check: Do You Need a VC ? • The Business Plan • A Team • A Presentation and an “Elevator’s Pitch” – be ready !! • References • An NDA (if required) An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

The Business Plan • A Product/Service description – Pros and cons of the solution – Market needs it satisfies – Barriers to Competition • Business Model – Market Analysis (strategic and tactical) • Competitors – Execution Plan • Marketing and Sales Plan • Research and Development Plan • Operations Plan • Team • Financials – Valuation Model & Placement Terms – Income Statement, Balance Sheet & Cash Flow • 3 years minimum, quarterly breakdown • 1 st year in monthly breakdown An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

The Business Plan: Suggestions • Be sure you sell a “need to have” not a “nice to have” solution. • Be Focused. • Assess your competition (present and future) • Be concise and speak the truth • Be complete and clear in your analysis – state ALL your assumptions – do not hide cons • Have details ready if requested • Validate, validate … An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

The Term Sheet • • • • The parties Securities to be issued Amount of financing & disbursement schedule Pre-financing valuation Option plan & earn-out Use of proceeds Liquidation Preference Protective Provisions, Voting Rights and Bo. D participation Anti-dilution Lock-ups Tag along and drag along Exclusivity Reporting. . . An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

How does a VC think • IRR (Internal Rate of Return) – Company’s Current and Future Valuation • Comparables (P/E, P/S, …), “Number of”, DCF, … – What’s The Best Strategy To Create Value • Which are the achievable milestones and what’s the financing needed ? • When is the break-even expected ? With which margins and revenues. – Exit Strategy • Trade sale, IPO, Nth+1 round of financing, . . • Minimizing Risks – Diluting the investment – Liquidation Preference rights An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

A possible valuation scenario • Company X. Quoted on Stock Exchange Z. Valuation € 100 mil, Sales € 50 mil, Earnings € 5 mil. P/E = 100/5 = 20, P/S = 100/50 = 2. • Company Y. Acquired for € 20 mil with sales of € 10 mil. P/S = 20/10 = 2. • Your “Unwired. Co” plan forecasts € 30 mil in sales and € 5 mil in earnings in 2006. Its buss. model is “similar” to X and Y. – Lower Valuation of Unwired. Co in 2006 using P/S of 2 is 30*2 = € 60 mil – Higher Valuation in 2006 using P/E of 20 is 5*20 = € 100 mil • • • Present Post-Money 1 valuation (discount-rate 2 of 50%) is between 60/(150%)5 years = € 8 mil and 100/(150%)5 years = € 13. 3 mil The “Unwired. Co” requires a € 4 mil financing round. The Pre-Money valuation is between € 8 -4=4 mil and € 13. 3 -4= 9. 3 mil. An agreement is reached at a pre-money valuation of € 6 mil. hence the Investor will obtain a 4 / (6 + 4) = 40% stake in the company. 1 Valuation of the company after the investment. 2 Target Annualized Return of Investment An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

Source: “Annual Survey of Pan European Private Equity & Venture Capital Activity”, European Private Equity & VC Association European Private Equity Funds Formed 1980 -1998 Net IRRs to Investors Investment Horizon Return as of 31 -Dec-2000 IRR: Internal Rate of Return. “Rate of discount which equates the present value of the cash outflows associated with an investment with the sum of the present value of the cash inflows accruing from it and the present value of the valuation of the unrealized portfolio”. An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

What to look for in a VC • People you LIKE ! – Trustworthy & Collaborative • Can bring value, not money only ! – Do not have to be experts in the sector but have to understand the business. – Good network of contacts. • Ask for references An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

The Wireless Market • • • UMTS – July 2000. West. LB Panmure UMTS Report estimates German UMTS users to pass the 2 mils threshold (3% of total) in 2002 and reach 51. 6 mil (60%) in 2011. – Oct 2000. UMTS Forum Report 9 estimates 32 mils Mobile Multimedia Users in West Europe in 2005 and 90 mils in 2010 – Recent (May 01 ? ). Durlacher UMTS Report - 0. 3 mils in the EU in 2003 and 32 mils in 2005. Layoffs – Ericsson announced 3300 layoffs and ceasing production in two EU plants. – Nokia has announced 3/400 layoffs. – Motorola has announced another 4 K layoffs (adding to the 18 K already announced) Handsets – Projections for handset sales in 2001 in the EU have came down from 600 to 450 mil. An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

The Wireless Market Sectors • Content – Producers and Providers • Services – (Virtual) Mobile Network Operators – Application providers (WASP) & Portals • Applications – End-user applications – Platforms and frameworks • Optimization Tools and Techniques • Enabling Technologies – Access, Core & Home Networks – Mobile Terminals An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

ng si tion a re eti c ng si In omp a C re c y s In ntr ier E arr B Application Optimization Enabling Technologies M-commerce Data Compression and Optimization Streaming & Multi. Media Smart Messaging, m-advertising m-CRM, m-SFM, . . . Smart Antennas & Radios, … x. G Stacks, ICs, . . Location Based Services MEx. Es Mobile Terminal Hybrid Networks & Multi Access Network Radio Network Core Network An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Home Network Enterprise Network Viewgraph No.

Conclusions • Always engage your brain before doing anything – your BP deserve more care than your best publication • Do your homework – assess your competition and the market • Push the envelope but … Be aware of your limits – partner with others to define the BP – do not be too greedy • Do frequent reality checks – talk to other experts, prospective buyers & channels, VCs – compare to other similar initiatives • Be committed – the start-up must be your only thought until the IPO An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

Good Luck and … I hope to be hearing from you soon ! Andrea Capitanio - Alice Ventures E-mail: andrea@aliceventures. it Phone: +39 02 4998 1730 S-mail: Piazzale Baracca 1, Milano, 20123, Italy An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.

Abstract Mobile communications are rapidly becoming the preferred mean of personal remote interaction in today's society and besides the hype surrounding the quantum leaps in the cellular networks genealogy - 2 G, 2. 5 G, 3 G, 4 G, . . - the continuously improving wireless infrastructure is likely to generate a ground fertile for significant business opportunities but also clouded with aggressive competitors. The “Private Equity” capitals market provides capital to enterprises not quoted on a stock market in exchange for an equity participation. Venture Capital (VC) is, strictly speaking, a sub-class of Private Equity and is characterized by investments made for the purpose of developing, launching, and expanding the commercialization of new products or services. Venture Capital has long been a necessary lubricant in the success stories of high-tech business initiatives and a key ally for technologists turned entrepreneurs. The presentation will provide an introduction to the world of Venture Capital, and will address issues related to how VC can positively impact the lifecycle of high-tech startups and support a business initiative in its early days. Markets statistics will be used to extrapolate what to expect from a VC and an opinionated speaker will provide some practical suggestions on how a technologist turned entrepreneur should prepare, present his/her plan, select the right VC and pursue his/her goals. Some specific considerations will be made addressing the peculiarities of the capital market for business initiatives insisting in the wireless mobile communications world. An Introduction To Venture Capital Andrea Capitanio - Alice Ventures Viewgraph No.