investing in

1
add partners

• investing in
• future global leaders

University of Exeter Lecture
28 November 2002
2
Agenda

• What does it take to start a company ?
• What is Venture Capital ?
• What do VCs do ?
• A peek into Add Partners
• Strategy
• Portfolio
• VC returns
• Q A

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Components of a Startup
Product / Service that addresses a market need
Founders
Staff / Management team
Financing
4
Financing Options

• Personal funds of founder(s)
• Friends Family
• Angel investors
• Bank loans
• Private equity / venture capital

5
Venture Capital is

• money provided by professionals who invest
  alongside management in young rapidly growing
  companies that have the potential to develop into
  significant economic contributors
• an important source of equity for startups
• Examples of venture-backed companies Intel,
  Compaq, Sun Microsystems, Ariba

6
Venture capitalists generally

• Finance new and rapidly growing companies
• Purchase equity securities
• Assist in the development of new products and
  services
• Add value to the company through active
  participation
• Take higher risks with the expectation of higher
  rewards
• Have a long-term orientation

7
Example Capitalisation Table
Acme Inc Capitalisation Table
1st Round
Current Number of Shares
Ownership
Fully Diluted Ownership
Fully Diluted Number of Shares
Investment In
New Shares
Founder 1 Founder 2 Allocated ESOP Unallocated
ESOP Add Partners Investor B Investor
C Investor D TOTAL Pre-Money Valuation Post-Mone
y Valuation Share Price
Founder 1 Founder 2 Allocated ESOP Unallocated
ESOP Add Partners Investor B Investor
C Investor D TOTAL Pre-Money Valuation Post-Mone
y Valuation Share Price
2,000,000 2,000,000 4,000,000 2,000,000
6,000,000 0.22
7,200,000 1,200,000 800,000 9,200,000 00
78.3 13.0 8.7 29,770,000
24.2 4.0 2.7 7.3 30.9 30.9
2,170,000 9,200,000 9,200,000
7,200,000 1,200,000 800,000 2,170,000 9,200,000
9,200,000 29,770,000
91.3 8.7 0.0
28.2 10.0 61.8
100.0
100.0
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Why use Venture Capital ?

• Make a company grow bigger, faster than it
  otherwise would.
• Combination of funding and added value
• Price is reflective of both financial investment
  and added value investment

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Types of VCs

• Investment Focus generalists or specialists
• Stage of Investments
• Seed
• Early stage
• Expansion stage
• Late stage / pre-IPO
• Others
• Acquisition, turnaround or recapitalisation
• MBO / MBI / BIMBO

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Add Partners Strategy
Pan European
Technology
Early Stage
Hands On

• 1st or 2nd round
• Revenue visibility

• Focus on UK, Germany, France Scandinavia
• Global potential

• Infrastructure enablers
• Technology validated

• Development capital of 3-5 million
• Active investor

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Adding Value to Future Global Leaders
Financing
Recruiting

• Syndication partners
• IPO
• MA

Exposure

• Specialized headhunters
• Pool of contacts

Portfolio Company

• Media
• Analysts
• Conferences

Partners
Customers

• Technology leaders
• Keiretsu
• Universities

• Technology leaders
• Telcos, banks, insurance cos

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Anatomy of a Deal

• What do we look for in a company ?
• Size of market
• Product / Technology
• Strength of management team
• Term sheet
• Valuation
• Investor rights
• Exit Considerations
• Trade sale
• IPO

13
Valuation Metric ?
14
From start-up to IPO
Nov 2001 Nov 2002 Nov 2004 May 2006 May 2008
Company Incorporated Incomplete team. Product not yet proven (pre-beta) Raise 4m VC at 2m pre-money valuation Management Team strengthened. Product working. 2-4 reference customers Turnover of 500k to 1m Loss-making Raise 6m at 12m pre-money Business model well proven. Turnover of 4m to 6m in 2005. Loss making still. Raise 15m at 35m pre-money. Turnover of at least 20m in 2007. Profitable. IPO e.g. raise 20m to 50m at 150m pre-money
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Current Portfolio

• Terahertz Photonics
• Optical component and backplane materials
• Lead 1st Round, Aug 2000
• Co-investors Scottish Equity Partners
• Freever
• Messaging platform technology services
• Lead 2nd Round, Sep 2000
• Co-investors Net Partners, CDC Innovation,
  Apollo Invest
• XIAM
• Information routing technology
• Lead 2nd Round, Nov 2000
• Co-investors Vertex, Delta Partners

www.terahertz-photonics.com
Livingston, Scotland
www.freever.com
Paris, France
www.xiam.com
Dublin, Ireland
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Current Portfolio

• SurfKitchen
• Portal infrastructure and applications software
• Lead 1st Round, Jan 2001
• Co-investors n/a
• Scientific Systems
• Plasma measurement and control solutions
• 2nd Round, Sep 2001
• Co-investors Vertex, ACT Partners
• TempoSoft
• Human Capital Management software
• Lead 3rd Round, Sep 2001
• Co-investors Atlas Venture, CDC Innovation

www.surfkitchen.com
Zurich, Switzerland
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Current Portfolio

• Proximion
• Optical components and subsystems
• 2nd Round, Sep 2001
• Co-investors Celtic House, Innovations Kapital
• Phyworks
• Communications ICs
• Lead 1st Round, Feb 2002
• Co-investors Atlas Venture, Prelude
• PolarLake
• Transactional XML Processing Software
• Lead 1st Round, November 2002
• Co-investors Delta Partners

www.phyworks-ic.com
Bristol, UK
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Venture Capital Returns (1)
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Venture Capital Returns (2)
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A Convergence of Favorable Factors Re-shapes the
European Technology Landscape
Real Deals, Tornado Insider, serial entrepreneurs
Entrepreneurship on the rise
Cambridge, Thames Valley, Munich, Flanders, Kista
Success of technology clusters
Development of venture capital
US VCs in Europe, European VCs more focused
Local growth exchanges
Easdaq, Euro NM, Techmark European NASDAQ
Restructuring of technology giants
Nokia, Ericsson, Alcatel, Siemens, Philips, ST
Micro
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Contact Details

• Maisy Ng
• Add Partners Limited
• 34 Dover Street
• London, W1S 4NG
• UK
• Tel [phone]
• Fax [phone]
• www.addpartners.com