Curtis Jonathan Kevin Brent VC-AR Venture Capital In

Curtis Jonathan Kevin Brent VC-AR Venture Capital In Argentina Bragdon Heuser Kittredge Squires

Intro • • • Climate Exits Angels Conclusions Introduction to Venture Capital Argentina: Climate and Opportunities Exit Strategies: US vs. Argentina Angels vs. Traditional VCs Trends and Conclusions

Intro Climate Exits Angels Conclusions Introduction to Venture Capital

Intro Climate Exits Angels Conclusions Venture Capital Basics Angels - Individual Investors Venture Capitalists Are Funded By: Wealthy individuals Corporations Financial institutions Private foundations University endowments

Intro Climate Exits Angels Conclusions Venture Capital Basics Entrance Requirements: Management Team Opportunity Exit Strategy: Initial Public Offering Acquisition

Intro Climate Exits Angels Conclusions Historical Backdrop 1978: Rule changes for pension funds 1983: 100 IPOs, $4 billion in Venture Capital Apple and Intel capture the public’s imagination Inexperience investors flee market Pension funds and mutual funds gain strength IPO, M&A activity increase 10 year bull stock market

Intro Climate Exits Angels Conclusions 1999: The Boom Year 544 companies went public 271 were backed by VC money Average offering size of venture-backed IPO: $87. 2 million Average post-offering valuation: $502. 7 million Average return achieved by VC this year: 62. 5%

Intro Climate Exits Angels Conclusions Trends • • • Growth of funds: numbers and size Institutional players gain influence Late stage players in the game to “flip” Investment banks in space Market downturn – Valuations down – Retrenchment of investors – Negotiating power shift

Intro Climate Exits Angels Conclusions How much is enough? Venture capital invested by stage USD (Millions)

Intro Climate Exits Angels Conclusions Sharing the Wealth? Total classic venture capital invested worldwide in 1999 Classic venture capital comprises investments in seed, early, startup, and expansion stage companies. $11, 796 $45, 931

Intro Climate Exits Angels Conclusions Venture Capital Moves South

Intro Climate Exits Angels Conclusions Argentina: Climate & Opportunities

Intro Climate Exits Angels Conclusions Investment Climate In Argentina • Argentina viewed favorably by investors seeking venture capital opportunities for the following reasons: – More stable economic and political climate as a result of recent reforms – Extensive capital requirements – Limited capital availability

Intro Climate Exits Angels Conclusions Investment Climate in Argentina • Comparative advantages for venture capital investing in Argentina: – – – – Solid economic fundamentals Strong workforce Existence of Mercosur Positive relations with foreign investors Presence of start-up and early-stage businesses Similar accounting and reporting standards Personal security and safety not an issue

Intro Climate Exits Angels Conclusions Investment Climate in Argentina • Comparative disadvantages for venture capital investing in Argentina: – – – – Current recession in Argentina Limited options for exit strategy Difficulty obtaining long-term risk capital Expensive debt capital Serious barriers to regional Internet growth Difficulty with the due diligence process Corruption and lack of trust in government

Intro Climate Exits Angels Conclusions Investment Opportunities in Argentina • Venture capital investment opportunities expected to arise from the following situations: – Acquisitions of privately owned companies with growth constraints – Companies with promising business models but inadequate capital structures – Consolidation of fragmented industries – Spin-offs of divisions by companies – Leveraged buy-outs

Intro Climate Exits Angels Conclusions Investment Opportunities in Argentina • Future venture capital investing opportunities expected to be in the following industries: – Technology used to improve businesses – Agri-business – Telecommunications

Intro Climate Exits Angels Conclusions Exit Strategies: USA & Argentina

Intro Climate Exits Angels Conclusions Exit Strategies: The United States: IPO Merger Acquisition

Intro Climate Exits Angels Conclusions VC IRR vs. Value of VC-Backed IPOs

Intro Climate Exits Angels Conclusions Exit Strategies: Argentina International & institutional investors want a way to extract capital IPO process is flawed No domestic stock exchanges with liquidity— focus is almost entirely on acquisition Difficulties performing proper due diligence Sector influences—agribusiness doesn’t lend itself to harvest

Intro Climate Exits Angels Conclusions Exit Strategies: Emerging Solutions The majority of high tech start-ups in Argentina are incorporated in Delaware or British Virgin Islands IPO on NASDAQ is becoming the goal of more start- ups Government policy of dollarization facilitates exit strategies

Intro Climate Exits Angels Conclusions Angels & Traditional VCs

Intro Climate Exits Angels Conclusions Angels and Traditional VCs Traditional • From International Groups – Typically branches of funds from US or Europe – Bring investment managers with backgrounds in banking and sometimes operations – Also large banks, e. g. Chase $200 M fund, Bank. Boston/e. Pagos • Funds from family groups – Will co-invest with international groups – Trend mid 1998 -2000

Intro Climate Exits Angels Conclusions Angels and Traditional VCs Angels • • • Can offer experience and contacts Cashed out businessmen - tend to be local Managers from family groups Some entrepreneurs do not like angels Tax issues will impact angel financing – Top tax rate went from 35% to 42% – No capital gains tax

Intro Climate Exits Angels Conclusions Securities Laws • Low flexibility - need revamping • Business concepts important to Angel & VC financing do not exist or do not work – Funding round provisions, lock-up, vesting (term, cliff, etc. ), warrants, treasury stock • Need more work with laws for fairness, control, disclosure, and minority shareholder protection • May create problem with businesses incorporating in Argentina and getting angel funds

Intro Climate Exits Angels Conclusions Angels: Comparison to US • Both have industry experience, have cashed out, and want to help the next generation. • US Angels are a critical stage for very early ventures, especially for first-time entrepreneurs • Argentine Angels are where US angels were several years ago • US angels do create arms length transactions, and do use NDAs once an investment is made

Intro Climate Exits Angels Conclusions Trends & Conclusions

Intro Climate Exits Angels Conclusions Other Organizations • IADB – Multilateral Investment Fund – MIF has developed a set of early stage funds with harvest periods of 5 -8 years – $100 K-$1 M (similar to US Angels) – Provides technical assistance • Endeavor – Based in NY, with several LA field offices – Screens plans – Provides technical help and capital

Intro Climate Exits Angels Conclusions Innovative • Nature Conservancy – Fondo Eco. Empresas Project – Includes $6. 5 M fund for Latin America – $50 K - $800 K investments – Must have non-profit partner • Ministry of Labor and Social Security – Funding from IADB – Ministry provides training – Focus on micro-enterprises

Intro Climate Exits Angels Conclusions Softbank • SOFTBANK Latin America Ventures – Provide funding & technical help for LA Internet companies – Provide LA for Softbank companies – $150 M; 18 -24 months from 1/00 • SOFTBANK Emerging Markets – With International Finance Corporation – $200 M fund with 75% Softbank – Focus on 100 emerging countries – Provides accelerator/incubator model

Intro Climate Exits Angels Conclusions Impact on Entrepreneurs • Importance of angels is in question, and the real role lies with international groups • Counsel and advice is expensive and hard to come by • Ability to raise capital and gain contacts hurts first time entrepreneurs

Intro Climate Exits Angels Sources 1 Please see notes section. Conclusions

Intro Climate Exits Angels Sources 2 Please see notes section. Conclusions