© 2006 massachusetts institute of technology 1 international entrepreneurship & global...

© 2006 Massachusetts Institute of Technology

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International Entrepreneurship & Global Fundraising

Richard P KivelCEO

TheraGeneticsMIT Entrepreneurship Center, Deshpande Center, MITEF, MIT $100K

May 30th 2008


Entrepreneurship

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“ In America they celebrate working hard.Like, ‘Wow! Look how hard they worked,And maybe I can do that too’

It’s a beautiful thing”Rachel Weisz

Actress / London


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The Entrepreneur: A Special Species?

What do successful entrepreneurs look like?1. Integrity

2. Leadership

3. Impatient; bias toward action (with analysis).

4. Modest ego. Recognizes, and hires to overcome weaknesses.

5. Willing to be different, but knows it

6. Pragmatic; willing to compromise (in order to move forward).

7. Rejoices in others’ victories (no petty jealousy).

8. Driven to solve a valuable problem for customers (not driven by money or technology).

9. Able to attract world class talent.

* With special thanks to Flagship Ventures


Typical Founding CEO CharacteristicsSecond CEO or Long-Term CEO Characteristics

Passion and energy Passion and energy

Narrow and riveted focus -- owner of "the dream"Long-term exit-strategy focus, knowing that he/she must leave a stable, profitable company behind

Eyes on personal-wealth exit strategy -- worries about personal funds

Deep operational-profit focus with an eye on responsibility for shareholder value -- worries about that and his/her reputation in the business world

Fingers in every part of the business -- desire for total control

Desire to establish a management team in each department that will take the company forward

Desire to build something out of nothingTrack record of building a company from initial-funding stages to sustained growth and profitability

Desire to build teams from scratchAbility to reorganize teams to make most effective use of their talents

Desire to establish and nurture a corporate culture from scratch

Enhanced corporate culture in his/her own likeness with the aim of increasing shareholder value

Confidence in a vision that is nothing more than a vision

Validated vision, achieved by surrounding him/herself with experts who quantify and drill down on every aspect of the business

Willingness to take huge risks

Understanding of the calculated risks that the company can take -- readiness to take the business to the next level using solid information and the right talent

Knowledge that burn-out will deplete his/her effectiveness in two to three years

Steps taken to avoid burnout, especially surrounding him/herself with a strong executive team that takes ownership of their departments

Founding CEO vs Long-Term CEO Founding CEO vs Long-Term CEO


•Raise cash •Recruiting and Building Culture •Managing the Board and Investors•Operations and Finance•Customers and Partners

CEO must divide time betweenCEO must divide time between


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Critical Success Factors in Entrepreneurship

1. Believe that Startup Ventures can Succeed: Parent(s) who are entrepreneurs Early contact with successful entrepreneurs Exposure to success stories and case studies.

2. Gain practical, real world experience before, during and after university studies.

3. Be willing to be Unusual/Unconventional.

4. Agree to Embrace Risk, and possibly failure.

5. Want to create a large Company.

6. Live in a society that sees the above as normal, not a strange exception.

7. Ambitious Entrepreneurs ask : “What do we really want to do?”

We want to make a world class product whatever it is. We want to have fun doing it. We want to get involved in a business area or business

segment that is at its ground floor and in its infancy.


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The Current Climate:B2B = Back to Basics

Entrepreneurs need to have an outstanding Team Technology Value Proposition Market Customers

Applies to VCs as well… Europe Canada USA


FinancingFinancing

“My interest in life comes from setting myself huge, apparently unachievable challenges and trying to rise

above them.” Richard Branson


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Is there a need? Have the market segments been identified and are they understood? Is the market large and will it grow rapidly? Can the company establish a defensible market position? Is there or will there be formidable competition? Is the sales cycle a serious hurdle?Organization Does the CEO have a successful track record? If necessary, can we attract a new CEO? Are the founders experienced and respected in their industries? Is the team innovative, experienced and success-oriented? What are the founder's strengths and weaknesses? Is the team capable of building a large company? Does the team have an in-depth knowledge of the market?Products/Technology

Can you answer the tough questions?


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What are comparable market caps for companies of this nature? What are the company's capital needs? What are the paths to liquidity and what is the timing? Can the company be financed in the future?Plan Is the strategy well-conceived? Can the management team articulate the strategy? Can the strategy result in a large company? Does the company have a roadmap to profitability? What business is the company in? Is its mission explicit?Economics Is the company profit-oriented? Are the company's ratios attractive? When will the company turn a profit?

Is the concept unique? Are the products differentiated? How does the technology address a market need? Does the company have a patent or other proprietary position? Is the engineering plan explicit and can the engineering team execute? Is the technology realistic and feasible? What are the major risks?Financing Arrangements What is the capital structure?

Are the numbers realistic and achievable?Risks What are the major risks? What is the magnitude of the risks? What is the risk/reward ratio?

If not, who will?


Sources of Capital

Gifts and Grants Federal Government – NIH, SBIR, DARPA, other State Government - Various Foreign Governments

Philanthropists Bloomberg donation to John Hopkins Gates Foundation Wellcome Trust

Celebrity Charitable Organizations Michael J. Fox Foundation Reeve Foundation

Debt Capital Secured Unsecured

Private Equity Investors (principally VCs)

Public Equity Investors


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U.S. Venture Capital Investment Reaches Highest Level Since Q1 2001,

Rises 8% to $8.07 Billion in Third Quarter of 2007

Venture capitalists invested $7.1 billion in 922 deals in the first quarter of 2008

“You have to pretend you're 100 percent sure. You have to take action; you can't hesitate or hedge your bets. Anything less will condemn your efforts to failure. “

Andy Grove / Intel


What is Venture Capital?

… Investing in high potential, high growth private companies

… Identifying and assisting talented entrepreneurs as they build successful companies

… Helping to drive growth, productivity, and technological innovation

Venture Capital Is...


VC Value Chain

(1) Raise Capital

(2) Evaluate Market Segments

(3) Generate Deal Flow

(4) Select Investment Candidates

(5) Negotiate and Structure Investments

(6) Nurture Portfolio Companies

(7) Liquidate / SellPortfolio Companies


Venture Capital Investment Path

Venture Research Identification of attractive sectors and investment opportunities

Source deals and initially screen opportunities Meet with management team of potential investment Partner meeting and further screening Due diligence begins Prepare formal Investment Opportunity Summary (IOS) memorandum IOS partners meeting and investment decision Term Sheet submission Legal negotiations Co-investor syndicate selection Due diligence checklist completed Investment closing Active investment management

Ongoing

Week 1

Months 2-4


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US Venture First-Time Financings

•The dollar value of first-time deals was $1.6 billion going into 294 first-time deals.

•First time financings accounted for 23 percent of all dollars and 32 percent of all deals in the first quarter.

•Companies in Software, Medical Devices, Biotechnology, and Media/Entertainment received the highest level of first-time dollars.

•Financial Services, Computers & Peripherals, and IT Services also saw more dollars invested into their industries for the first-time this quarter as compared to last. •Only the Media/Entertainment industry experienced an increase in both dollars and deals with 45 companies receiving $210 million in funding.

•The average first-time deal in the first quarter was $5.6 million compared to $6.2 million one quarter ago.

•Seed/Early stage companies received the bulk of first-time investments garnering 57 percent of the dollars and 66 percent of the deals.


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US Venture Industry Analysis

•The Biotechnology industry narrowly edged out Software as the number one industry sector for the quarter with $1.27 billion going into 126 deals.

•Investments in Life Sciences companies represented 32 percent of all investment dollars and 24 percent of all deals in the first quarter.

•Internet-specific companies garnered $1.3 billion going into 195 deals in the first quarter,

•Four of the last five quarters have seen Internet-specific investment of more than $1 billion.

•‘Internet-Specific’ is a discrete classification assigned to a company with a business model that is fundamentally dependent on the Internet, regardless of the company’s primary industry category.


International Stock Exchanges

US NYSE/NASDAQ

Pan-European

Euronext SWX Other regional exchanges

UK

LSE/AIM Germany

FSE Dubai

DIFX

Japan TSE/Mothers

Hong Kong HKE

Mainland China SSE

India BSE

Singapore SGX


2007 Life Science Financing Overview

Initial Public Offerings: 27 offerings with proceeds of at least $20.0m $2b total proceeds raised $70m average deal size $162.3m median pre-money valuation The share price of issuing companies increased

2% on average 5 days post pricing The share price since time of offering has

increased 2% on average

US Biotech Industry Financings 2007

US: NASDAQ & NYSE


US Biotech Industry Financings 2007

Q1 Q2 Q3 Q4 2007

IPO $ 527$ 527 $ 900$ 900 $ 243$ 243 $ 371$ 371 $ 2,041$ 2,041

Follow-on $ 1,055$ 1,055 $ 1,675$ 1,675 $ 538$ 538 $ 1,278$ 1,278 $ 4,546$ 4,546

PIPEs $ 370$ 370 $ 543$ 543 $ 537$ 537 $ 502$ 502 $ 1,952$ 1,952

Debt $ 1,278$ 1,278 $ 5,497$ 5,497 $ 440$ 440 $ 67$ 67 $ 7,282$ 7,282

VC $ 1,401$ 1,401 $ 1,130$ 1,130 $ 951$ 951 $ 963$ 963 $ 4,445$ 4,445

Other $ 267$ 267 $ 98$ 98 $ 75$ 75 $ 171$ 171 $ 611$ 611

Sub -Total $ 4,898$ 4,898 $ 8,343$ 8,343 $ 2,784$ 2,784 $ 3,352$ 3,352 $ 20,877$ 20,877

Partnering $ 4,915$ 4,915 $ 3,783$ 3,783 $ 7,655$ 7,655 $ 7,012$ 7,012 $ 22,365$ 22,365

Total $ 9,813$ 9,813 $ 12,126$ 12,126 $ 10,439$ 10,439 $ 10,364$ 10,364 $ 43,242$ 43,242

US: NASDAQ & NYSE


Capital Raised 1980-2007

US: NASDAQ & NYSE


IPOs – Not What They Used to Be


IPOs – Not What They Used to Be

IPO WINDOW SUMMARY 2003 TO 2007

Number of IPOs

2003 7 $438

2004 29 $1,628

2005 17 $819

2006 19 $920

2007 28 $2,041

Total 100 $5,846

*Includes over-allotmentsSource: Burrill & Company

Amount Raised*($ Million)


London Stock Exchange / AiM

AIM is the London Stock Exchange’s international market specifically designed for smaller, growing companies, combining the benefits of a public flotation with appropriate levels of regulation.

AIM gives companies from all countries and sectors access to the market at an earlier stage of their development, allowing them to experience life as a public company.

Since AIM opened in 1995, more than 2,000 companies have been admitted and more than $42 billion has been raised collectively.

An AIM quotation offers companies: A flexible regulatory regime Access to a unique, globally respected market Access to a wide pool of capital Enhanced profile – heightened interest in your company Increased status and credibility Currency for and easier rules on acquisition Lower cost of administration


• 220 international companies Dec 2005 (16% of market)• Increased of 90% over 2005 (37% whole market)• Market value of overseas companies increased 98% over 2005 (78% for market)

Number of and percentage of international AIM companies December 2004 to December 2005

20

40

60

80

100

120

140

160

180

200

220

Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05

No

of in

tern

atio

nal

AIM

com

pan

ies

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

Inte

rnat

ion

al p

erce

nta

ge o

f A

IM c

omp

anie

s

Number of international AIM companies

International percentage of AIM companies




• Regulated by the London Stock Exchange, giving a more flexible regulatory environment

• No trading record required

• No minimum amount of shares to be in public hands

• In most cases, no prior shareholder approval required for transactions

• Admission documents not pre-vetted by Exchange or UKLA but by nominated adviser

• Nominated adviser required at all times



AIM companies are subject to the AIM Rules which outline the continuing obligations of being on a public market. Some of the key continuing obligations are:

Must have a Nomad at all times, otherwise they will be suspended from the market

AIM companies must disclose all price sensitive information in a timely manner including substantial transactions, related party transaction, reverse takeovers and other miscellaneous transactions

All directors accept full responsibilityfor the AIM Rules

Half yearly and annual report and accounts required in adherence with deadlines

Restrictions on deals for directors and applicable employees on AIM securities during close periods

UK Corporate Governance standards



Costs of quotation: NASDAQ AIM TSX

Directors & Officers Insurance $500,000 $100,000 $250,000

Directors Fees and Expenses $150,000 $150,000 $150,000

Annual Audit Accounting Fees $150,000 $150,000 $150,000

404 Compliance $500,000 N/A $250,000

Legal Fees $300,000 $300,000 $150,000

Internal costs for SEC & Exchange compliance $300,000 N/A $150,000

SEC Filing Expenses & Listing Fees $35,000 $7,000 $39,000

Nomad Expenses N/A $90,000 N/A

Other (Investor Relations, Mailing, Printing, Travel etc.)

$250,000 $125,000 $185,000

Total Approximate Cost: $2,335,000 $922,000 $1,324,000

Source: Adam Harkness / Cannacord Adams

Annual Fees: AIM, charges approx $10,000 for its admission fee and yearly fees. NASDAQ, minimum admission fee of $100,000 and annual fees of between $21,225 and $75,000.


The European regulated market of the NYSE Euronext group

The leading equities marketplace in the world Companies include a cross-section of large, midsize and small capitalization companies

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NYSE / Euronext / Alternext


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•NYSE Euronext's nearly 4,000 listed companies• Representing a combined $27.3 / €17.3 trillion in total global market capitalization (as of March 31, 2008).•Four times that of any other exchange group.•NYSE Euronext's equity exchanges transact an average daily trading value of approximately $169.6 / €113.2 billion (as of March 31, 2008), which represents more than one-third of the world's cash equities trading.

Belgium FranceThe Netherlands Portugal

NYSE / Euronext


Now is the time!Now is the time!

Inexperienced gamblers are dying or dead.

A line of bull + .ppt is not enough.

Serious entrepreneurs, business angels, and VCs are quietly and carefully moving forward.

Expectations and time horizons are realistic.

Recruiting top talent is easier.

Unprofessional competition and their VCs have retreated to the sidelines. “Creative destruction” is a good thing.

“Go to bed early and wake up early. The morning hours are good.”

Jeff Bezos


Summary / Review Summary / Review 1. Trends• Know the past and search for the future• Looks at trends and find leaders• Identify Convergence

2. Entrepreneurship• Take the risks, life is short• Work with the best people• Manage your Board• Communicate with your Investors

3.Financing• Raise more then you need• Investigate all sources of capital• Raise smart money

4. Leadership & Rules of Engagement• Hire slow, Fire Fast• Create a culture not a work place• Passion is contagious , top down


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Anybody can jump a motorcycle. Anybody can jump a motorcycle.

The trouble begins when you try to land it. The trouble begins when you try to land it. Evel Knievel

1938-2007


Special Thanks to:

MIT

Ken Morse

NVCA

Burrill and Co

UKTI

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Richard P. KivelCEO

TheraGenetics [email protected] www.theragenetics.com

© 2006 massachusetts institute of technology 1 international entrepreneurship & global...

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