Out of the lab and into the real

Out of the lab and into the real World J Carl Allen Director and Venture Capital Leader Forrester Research, Inc.

Forrester Research, Inc. • The leading analysts of technology’s impact on business • Founded in 1983 by George F. Colony • Headquarters in Cambridge, Mass. ; additional research centers in Amsterdam, Frankfurt, London, Norwalk, Conn. , Paris, San Francisco, and Santa Clara, Calif. • 598 employees globally • 209 research professionals • 1991 clients

Theme Taking technology out of the lab and into the real World

Agenda • Who is investing in tech start-ups? • Industry concerns for tech start-ups • The structural changes in the IT marketplace » How start-ups can benefit • The role of tech transfer - - where does it fit? • Making the funding journey » Identify your equity customer and plan your funding roadmap • Q&A

Who is Investing in Technology Start-Ups? • The 164 BVCA members - - but mostly in the South • 2003 private equity investment: » 1274 companies: +7% from 2002 » £ 4074 million: -9% from 2002 • 185 start-ups were funded by BVCA members in 2003 » £ 73 million: 2% of total funds invested, 15% of company total, average of £ 395, 000 per deal • The North West represented only 7% of start-ups » £ 5. 1 million and 13 deals • There is a lack of VC focus outside of the South » Strong London/M 4 corridor/Cambridge focus

Industry Concerns • Corporates have slashed supply lists by upto 95%: to the detriment of smaller/unquoted vendors* • 90% of large corporates will not buy solutions >£ 50 k from vendors with <£ 10 M in revenues* • EXITS: Established vendors are being very selective in acquiring feature/function to boost their offerings: VC’s need to market their assets for sale » 900 IT M&A deals globally in H 2, 2003 and H 1, 2004 » Only 70 acquisitions by top 38 vendors, only 12 were European companies • Liquidity: IPO routes still difficult in the short term, especially in Europe • The global IT market has structurally changed and there are new rules of engagement *Source: Forrester Research

The New Ecosystem - Follow the Money Background: The Changing Deep Structure of the IT Industry Software Vendor Hardware and Network Equip. Vendor CIO/CTO/ IT Dept. C 1985 Transaction

The New Ecosystem - Follow the Money Background: The Changing Deep Structure of the IT Industry Network Service Provider Software Vendor Hardware and Network Equip. Vendor Emerging Tech. Vendor CIO/CTO/ IT Dept. Investor C 1990 Transaction

The New Ecosystem - Follow the Money Background: The Changing Deep Structure of the IT Industry Network Service Provider IT Service Provider Software Vendor Hardware and Network Equip. Vendor Emerging Tech. Vendor CIO/CTO/ IT Dept. Investor C 1995 Transaction

The New Ecosystem - Follow the Money Background: The Changing Deep Structure of the IT Industry Network Service Provider IT Service Provider Software Vendor Hardware and Network Equip. Vendor Enterpris e Lines of Business Emerging Tech. Vendor CIO/CTO/ IT Dept. Investor C 2000 Transaction

The New Ecosystem - Follow the Money Where does technology transfer and brokering fit? Network Service Provider IT Service Provider Software Vendor Hardware and Network Equip. Vendor Academia Enterpris e Lines of Business Emerging Tech. Vendor CIO/CTO/ IT Dept. Investor C 2000 Transaction

Technology Transfer and Brokering A Win - - Win Model y Ro k oc Ca sh St Broker, e. g. PAX TT og y h Te ch no l St arc se Re Emerging Tech. Vendor ies alt oc k Software Vendor Hardware and Network Equip. Vendor Cash Academia Technology

Making the Funding Journey 3. Plan your equity funding roadmap 2. Know your equity customer 1. Understand the equity marketing paradox

1. Understand the equity marketing paradox • The Entrepreneur/CEO has TWO marketing problems Product 2 Customers CEO Product 1 Capital Aerospace Angel/seed funding Biotech Venture Capital Semiconductors Bank Debt E-Commerce Corporates

2. Know Your Equity Customer People The Deal Context The Business Opportunity

2. Know Your Equity Customer (Cont. ) Stakeholders The Team Deal Structure Entrepreneur Price Opportunity Size Economy Technology Customer Competition Business Model Timing

3. Plan your equity funding roadmap Version 1. 0 Company Version 1. 5 Company Version 2. 0 Company Source: Venlogic. LLC

Theme Taking technology out of the lab and into the real World

Recommendations • Understand exactly where you fit into the new IT market ecosystem – either directly or using the channels • Prepare for your two sales pitches » Your product and your equity • Identify your equity customer and determine what they need to fully analyse your business » You only have one chance to pitch • Do not ‘shop’ the deal » Be very selective in your approach and focus your energy and budget on the ‘best’ investors for your business • Cash is king ! » Plan your equity roadmap like a military assault