october 26, 2010

October 26, 2010October 26, 2010

Presents:

1www.technologytransfertactics.com - 877-729-0959

Angel Funding forAngel Funding forUniversity Innovations:University Innovations:

Outlook and Opportunities for 2011

Robert Okabe• Managing Director, RPX Group LLC

– Technology commercialization firm– Spinout companies for universities, labs, corporations

• Capital Raising Expertise– Investment Banker (debt, equity, structured finance, M&A)– Angel Investor (13 investments)

• Startup Experience– Startup COO, CFO– Board of Directors and Advisory Boards

• Educator– Lead Instructor, ACEF Power of Angel Investing– Adjunct Faculty, University of Illinois at Urbana-Champaign

Marianne Hudson

• Executive Director, – Angel Capital Association– Angel Capital Education Foundation

• Spun out work from Kauffman Foundation• 25 years in technology-based economic

development• BA, Kansas / MA, Rutgers

Life Science Angels, Inc. Confidential – Do Not Duplicate

™

Managing Director of Emergent Medical Partners

Senior Vice President of Diasonics, Inc., an NYSE-listed medical imaging company

President and COO of Fortune Systems Corporation, a NASDAQ-traded developer of file servers

Founder, board member or CEO of a number of medical device and biotechnology startups Athenagen (an LSA company), MAST Immunosystems, Intella

Interventional Systems Quanam Medical, ImmuneTech, NuGEN Technologies AngstroVision, IntegriGen, Imetrx, Vascular Architects

Allan May

Barry Rosenbaum• 40 Years Industrial Experience in Sr Level Technology,

Manufacturing, Business Experience– 32 years with ExxonMobil Chemical Polymers including 6 years in

France/Belgium– Founder and VP technology Advanced Elastomer Systems: Exxon Chemical –

Monsanto JV for Santoprene TPE’s– CTO of GenCorp/OMNOVA Solutions for 8 yrs in Engineered Polymer Systems

and Specialty Chemicals

• 5 Years Senior Fellow with The University of Akron Research Foundation– Focus on Entrepreneurship, Innovation, and Technology Commercialization– Foster the role of Higher Education Institutions as leaders in regional

Technology Based Economic Development– Founding member of ARCHAngel Investment Network to provide access to

early stage capital and mentorship for start up companies

• BS CHE from The Cooper Union, MS / PhD CHE from Northwestern University

Angel Funding Angel Funding forUniversity Innovations:

Outlook & Opportunities for 2011

Market Perspective Robert OkabeRobert Okabe

Managing Director, RPX Group LLCManaging Director, RPX Group LLC


In 2008

627,000new employer businesses were formed

In 2008

1,179 companiesobtained their 1st venture capital

• Only 0.19% of all firms

• One in 500 companies

University Startups

• Company creation by universities alone has outpaced seed stage venture capital activity

• Add non-university startups and the gap is more acute

Startup Activity

0100200300400500600700800900

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Year

Com

pani

es

PWC Seed Stage

AUTM Survey

Funding Geography

• Venture capital imbalances are more extensive when geographic concentrations are considered

2008 University Startups

15%12%

73%

0

150

300

450

600

750

2008

Com

pani

es

2008 Seed Stage Funding

20%

45%

35% MassachusettsCaliforniaAll Other

Time to Funding

Source: California Public Policy Institute Paper

• Raw startups rarely attract VC, even in Silicon Valley/Boston

• It takes even longer outside major VC markets

Age of Companies Receiving Venture Capital

0

5

10

15

20

25

SV/SF/Boston All OtherLocation

Mon

ths

to F

undi

ng

In 2008

55,480 companiesreceived “angel” funding

Center for Venture ResearchUniversity of New Hampshire

• Less than 9% of all firms (91st percentile)

• Unfiltered odds are about 11 to 1

Funding by Source and Stage- 2009

6,1608,272

2,640

1,596

4,672

5,511

5,912

5280

2,500

5,000

7,500

10,000

12,500

15,000

Seed Early Expansion LaterInvestment Stage

US$

Mill

ions

Venture CapitalAngels

• US$ 17.60 billion• ~57,000 deals• 35% seed/startup• 47% early stage• Approx. 259,500 individuals

Angel Investors 2009

• US$ 17.69 billion• ~2,800 deals• 9% seed/startup• 26% early stage• Total 794 firms (not all active)

Venture Capital 2009

Data: NVCA Yearbook 2010UNH Ctr. for Venture Research



Angel Investing Overview Marianne HudsonMarianne Hudson

Executive Director, Angel Capital AssociationExecutive Director, Angel Capital Association


0

50

100

150

200

250

300

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Growth in Number of American Angel Groups

Sources: Center for Venture Research (pre 03 data) and Kauffman Foundation/ACEF (04-09 data)

Angel Groups: Small -but Important- subset

4,200,000

InformalInvestors

3 study estimates

Investors in Angel Groups

Active Angels

Center for Venture

Research

U.S. Millionaires

1,000,000

225,000

12,000

2009 Report from Spectrem: $1 millionaires down in 2008 27%, those with $5 million down 28%World Wealth Report (Capgemini): 19% drop in HNWI and 22.8% drop in wealth in 2008

Source: ACA Angel Group Confidence Surveys – 2008, 2009, and 2010

Average Group Investment Activity by Year

• Note: Investment numbers reflect investments per group, which is not the same as total deal size (lots of syndication)

• In 2009, 60.8% had follow-on or co-investments with VC firms

2009 2008 2007Number of investments 6.3 6.3 7.3Total dollars invested $1.38 mil $1.77 mil $1.94 milDollars invested per round $218,131 $276,918 $265,926Number of new companies 3.5 3.7 4.5

Average Total Investments Per Group – 2009

% of GroupsSource: ACA Confidence Survey, March, 2010

0 5 10 15 20 25

$2,000,000 Plus

$1,000,001 to$2,000,000

$500,001 to $1,000,000

$251,000 to $500,000

$100,001 to $250,000

$25,000 to $100,000

$0

Group Investment Preference – 2008-2009

Source: 2009 ACA Angel Group Confidence Survey and 2008 Member Directory

0 10 20 30 40 50 60 70 80

Telecommunications

Software

Semiconductors

Retail/ Distribution

Other

Networking & Equipment

Medical Devices & Equipment

Media & Entertainment

IT Services

Industrial/ Energy

Healthcare Services

Financial Services

Electronics/ Instrumentation

Consumer Products/ Services

Computers & Peripherals

Business Products/ Services

Biotechnology

% of Groups

• Mission: Support the growth, financial stability, and investment success of its member groups.

• 150 member angel groups• 6,500 accredited investors• 20 affiliated organizations• 49 states/ provinces• Charitable partner:

Angel Capital Association Today

What We Do – Benefits of MembershipEducationResearch/DataCollaborationServices/ Toolkits

Knowledge & InsightsMember Bottom-LinePublic Policy

Angel Groups and Universities

Relationship Types:

• University hosts group

• Partnership

• Good communications



Life Science Angel Investor Perspective Allan MayAllan May

Chair, Life Science AngelsChair, Life Science Angels



™LSA DemographicsFounded Q3/2004; First Dinner Q1/200530 portfolio companies

~$25M invested capital>$600M+ follow on capitalConsistent follow on investing2 exits; 1 license deal; 1 IPO filing; 3 failures

Members backgrounds: CEOs, Chairmen, Founders, Senior Executives of Life

Science Companies 80%Practicing Physicians/Scientists 15%Women comprise 17%


™LSA Organzational StructureMember led group

Single employee (administrator)

For Profit structure (pays taxes)

~100 active membersMembers commit to invest min $50k/yrMembers commit to participate in due diligenceMembers commit to refer deals

20+ venture capital members

20+ Sponsors and corporate members


™LSA Investment ProcessLimited formal investment dinners/companies

5-6 dinners per year; 1-2 companies per dinner

Extensive deal screening/diligenceBiotech, medical device, and Dx screening committees

24 meetings per year each committeeSubstantial due diligence in between meetingsInvestment luncheon post dinner meeting

Active investing (LSA member involvement)

Formal Term Sheet/Convertible Note


™LSA Investment StructureIndividual investment decision, but…..

Pooled investment vehicleIndividual LLC per investmentIn series to reduce legal costs/taxes

LLC acts as single investor for communications Increases ability to negotiate terms Follow-on; anti-dilution; board representation, etcInformation more readily available to investors

Greater public recognition of LSA participation


™LSA Investment TargetsMedical devices, biopharma, diagnostics

No Services; Software/IT; NutraceuticalsSeed, A round deals (First money in)Deals where $200k-$1M can achieve meaningful

milestones (i.e., increase valuation!)Founders listen and value experience and helpIP filed or pending, Freedom to Operate (informal)Some proof of concept, working prototype, or

animal or in vivo dataInitial presentation and financials prepared


™LSA Investment Targets (cont’d)If Medical Device:

Clear regulatory pathwayExisting reimbursement coverage

If Biopharma:Within one year of INDValidated targetClearly understood mechanism of action

If Diagnostic:Test result directly impacts therapeutic decisionTest used to identify disease early as well as to predict

and monitor drug response


™LSA Metrics (Q1 2005 -1H 2010)Deals Initial RaisedScreened Diligence Diligence Present Money@350/30 mo @45-50 15-20 36 30(some deals handled “ad hoc” or “offline’)

Average # new deals/year: 6Average # follow-ons: Has risen as portfolio grows- 8 in 2010 Average investment: ~$350k but ranges from $150k - $800kAverage Investors per deal: 13Geography:•Local– 60% So California– 30%•East Coast– 5% Northwest– 5%

31

Emergent Medical Ventures

• $70 million medical device fund• Three general partners

• 85% of medical device exits are <$120 million

32

Strategic Focus

• Focus Capital on Technology and Commercialization – Versus Infrastructure

• Prove you can build it and it works first• Used focused, targeted sales ramp

• Target Low Total Capital to POC/Exit• Avoid large or complex clinical trials• Seek proof of human efficacy OUS

• Low Initial Capital Allows Two-Step Approach to Exits• Understand market value after early rounds; don’t keep going• Accept early >5x return except where further investment • clearly justified by clinical results/market need

33

Thoughts on Working with Universities

• “The Idea” has little value without money, teams, knowledge and knowhow, not to mention significant new IP

• Average Device company needs >$20-80M/6 years• Average Biotech needs >$60M/10 years

• Startups cannot get financed if there exist onerous license terms or substantial front end cash requirements

• Investors are interested in seeing whether it can be built/developed and whether it will work

• Universities are increasingly acting as partners in the early stage relationship with investors

• Strong trend towards university equity participation• Increasing prevalence of Innovation and Entrepreneurship programs

including seed capital



University - Angel Group Relationship Barry RosenbaumBarry Rosenbaum

Senior Fellow, Univ. of Akron Research FoundationSenior Fellow, Univ. of Akron Research Foundation


Strategic Imperative• Be recognized nationally for technology transfer and

commercialization of research– Recently won prestigious i6 award from the Department of Commerce

• Outperform national benchmarks for number of spinout startup companies

• Partner with industry to advance UA’s research and technology transfer goals

• Expand UA’s capacity to form strategic partnerships with-– Industry, other educational institutions, and local government– To support innovation and capital investment in the region

• Senior level university leadership at UA is critical to success

Univ. of Akron Research Foundation• Separate 501C3 non profit established in 2001 to manage

intellectual property of The University of Akron– Portal between business and UA to facilitate research and tech

transfer– Can hold equity in startup companies– Leverages partnership to commercialize new technologies– Provides access to capital through ARCHAngels investment Network

• Vice President of Research and President of the University of Akron Research Foundation – George Newkome

• Markets the role of Tech Transfer in technology commercialization across the university research community

UARF Tech Transfer Team• Experienced and business oriented Tech Transfer

Team

• University of Akron Employees– Associate VP Ken Preston – ex TRW– Associate VP Wayne Watkins – from Chemical Industry– Director Marketing Sue Dollinger – ex Dow

• Senior Fellows– Gordon Schorr – ex Goodyear– Barry Rosenbaum – ex ExxonMobil

UARF TTO Support for Startups• Identification, development, and maintenance of a

protectable patent portfolio• A range of business support services-

– Formation of startup companies– Strategic business plans– Financial analysis– Market assessment– Access to early stage capital– Access to entrepreneurial mentorship/validation partners through a

regional ecosystem• Senior Fellows model at UARF has been effective• Sponsorship of ARCHAngel investment Network & pre-seed Innovation

Fund

Role of UARF Senior Fellows• Entrepreneurship

– Vet internal UA and external technology opportunities– Link start ups to validation partners– Student engagements to support start ups– Create/manage pre seed Innovation Fund and ARCHAngels

investment network

• Innovation– Open innovation to create extended network– Innovation services to regional businesses

• Technology Commercialization– Bring market focus for technology valuation– Access commercial mentors/business partners– Drive early stage start ups: possible equity stakes

Univ. of Akron- Innovation Fund• In partnership with Lorain County Community

College, Youngstown University, and Cleveland State University

• Provide pre seed grants to regional technology based start ups

• $25,000 proof of concept and $100,000 market validation grants

• Funded by Ohio Third Frontier and partnering universities

ARCHAngel Investment Network• Sponsored by UARF• Forum for entrepreneurship & innovation in the

region• More than 450 members of the community• Presented more than 50 new startups since 2005

– Companies raised approximately $75M follow on funding– Business leader mentors provide support

• Brought angels & regional business leaders to the podium– Engaged hundreds of students and young entrepreneurs– Changing the culture in Northeast Ohio



Panelist Discussion


OutlookOutlook• Has the economy affected angel investing

activity…– Nationally– In your regions

• What are your long-term expectations for the scope of angel investing in the U.S.?

University-Angel InteractionUniversity-Angel Interaction• How many university-affiliated angel

groups are there?

• Are economic conditions affecting the level of campus entrepreneurship…– From faculty– By students

Intellectual PropertyIntellectual Property• How important are patents when

evaluating a university technology startup?

• Does the level of foreign patent protection affect the desirability of a deal?

Technology LicensingTechnology Licensing• Are license terms (royalties, patent

reimbursement) reasonable given the risks inherent in a startup?

• Have you turned down deals due to a difficult licensing process or onerous terms?

Inventor InvolvementInventor Involvement• How much inventor involvement do you

prefer to see in a spinout company?

• Is know-how an important factor in product development?

• Are faculty well-prepared to ”let go” of their technologies?

University/Inventor ShareholdingUniversity/Inventor Shareholding• Are shareholder rights and responsibilities

well understood by-– Tech transfer offices– Inventors

• How much does dilution affect the discussion?

Audience Q&AAudience Q&A• Utilize the chat box to the bottom left of

your screen to submit a question to the panel. Please address your question to a specific presenter.

OR

• Press 01 on your touchtone phone and this will place you into the phone queue.

october 26, 2010

Documents

early stage capital

activeventure capital

regional technology

sr level technology

business experience32

kauffman foundation25

engineered polymer systems

university of illinois