January 28January 28thth, 2005 , 2005

Steve MontoyaSteve MontoyaAzul Venture PartnersAzul Venture Partners

Vice-President, Hispanic-NetVice-President, Hispanic-Net

Venture Capital Venture Capital FundingFunding

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 22

OutlineOutline

FundingFunding Equity FinancingEquity Financing Venture CapitalVenture Capital VC StatisticsVC Statistics AdviceAdvice

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Financing AlternativesFinancing Alternatives

BootstrapBootstrap Debt Debt Customers/Partnerships Customers/Partnerships EquityEquity

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Equity SourcesEquity Sources

PersonalPersonal Angel InvestorsAngel Investors Partnerships/CorporationsPartnerships/Corporations GovernmentGovernment Private Capital FirmsPrivate Capital Firms Venture Capital FirmsVenture Capital Firms

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 55

Equity Investment ModelEquity Investment Model

Purchase % of Ownership Purchase % of Ownership Risk CapitalRisk Capital High Growth BusinessesHigh Growth Businesses Strong ManagementStrong Management Realize a Large ROIRealize a Large ROI 7 to 10x Within 5 Years7 to 10x Within 5 Years

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 66

Stages of Equity FinancingStages of Equity Financing

SeedSeed Start-up/First Start-up/First Second/Third Second/Third ExpansionExpansion MezzanineMezzanine BuyoutBuyout

Seed

Angel

Series A

Series B, C, …

Mezzanine

Early Stage

Late StageHot Tip;Customer Commit

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 77

Venture CapitalVenture Capital

DefinitionDefinition

An investment in a start-up business that is perceived to have excellent growth prospects but does not have access to capital markets. Type of financing sought by early-stage companies seeking to grow rapidly.

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Venture CapitalVenture Capital

Why Use Venture Capital?Why Use Venture Capital? Require substantial capital to develop the Require substantial capital to develop the

product or service.product or service. Must expand quickly to hit the market window.Must expand quickly to hit the market window. Need the contacts to grow the businessNeed the contacts to grow the business

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Venture CapitalVenture Capital

What do Venture Capitalist Have?What do Venture Capitalist Have? Industry ExpertiseIndustry Expertise Industry ContactsIndustry Contacts Vast Experience in Starting, Growing, Selling Vast Experience in Starting, Growing, Selling

CompaniesCompanies Enjoy Working With Young CompaniesEnjoy Working With Young Companies They Want to Make Money !!!They Want to Make Money !!!

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 1010

VC Investment PreferenceVC Investment Preference

Stage of FinancingStage of Financing Amount of CapitalAmount of Capital Geographic Geographic Industry SpecializationIndustry Specialization Management TeamManagement Team Strong ReferralsStrong Referrals

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 1111

Venture Capitalists Look AtVenture Capitalists Look At

VisionVision LeadershipLeadership Experienced TeamExperienced Team Target Market PotentialTarget Market Potential Business ModelBusiness Model Revenues, Revenues, RevenuesRevenues, Revenues, Revenues

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 1212

How to Approach VCs?How to Approach VCs?

Option 1 - ReferralOption 1 - Referral Option 2 - ReferralOption 2 - Referral Option 3 - ReferralOption 3 - Referral

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 1313

Venture CapitalVenture Capital

Your Must Have’sYour Must Have’s Clear DifferentiationClear Differentiation High Barriers to EntryHigh Barriers to Entry Market ExpertiseMarket Expertise Business ModelBusiness Model FinancialsFinancials Strong Management TeamStrong Management Team

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Investments—VInvestments—VC IndustryC Industry

0

20

40

60

80

100

120

1997 1999 2001 2003

Total $ (Bil)

Source: Moneytree Survey (PWC)

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33rdrd Qtr 2004 – National Qtr 2004 – National Top 6 Investments by IndustryTop 6 Investments by Industry SoftwareSoftware 22%22% Biomedical, HealthBiomedical, Health 19%19% Telecomm., NetworkingTelecomm., Networking 17%17% Medical Devices & EquipmentMedical Devices & Equipment 11%11% SemiconductorsSemiconductors 8%8% Media, EntertainmentMedia, Entertainment 3%3%

Source: Venture Economics (www.ventureeconomics.com)Source: Venture Economics (www.ventureeconomics.com)

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33rdrd Qtr 2004 – National Qtr 2004 – National Top 6 Investments by RegionTop 6 Investments by Region

Silicon ValleySilicon Valley 33%33% New YorkNew York 11%11% New EnglandNew England 10%10% SoutheastSoutheast 6%6% NorthwestNorthwest 5%5% TexasTexas 4%4%

Source: Venture Economics (www.ventureeconomics.com)

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 1717

33rdrd Qtr 2004 – National Qtr 2004 – National Investments by RoundsInvestments by Rounds

SeedSeed 0.4%0.4% Early StageEarly Stage 21%21% ExpansionExpansion 49%49% Later StageLater Stage 30%30%

Source: Venture Economics (www.ventureeconomics.com)

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 1818

Overview 2004Overview 2004

Investments have stopped decliningInvestments have stopped declining 2003 Investments – $18.8B 2003 Investments – $18.8B 2004 Investments – $20.8B2004 Investments – $20.8B

1900 Companies funded – remains flat1900 Companies funded – remains flat $8.5M Average investment – remains flat$8.5M Average investment – remains flat Most $ still going into existing portfoliosMost $ still going into existing portfolios

Source: Pricewaterhouse Coopers (www.pwcmoneytree.com)

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 1919

AdviceAdvice

Venture CapitalVenture Capital It’s a Marriage, Not a Date It’s a Marriage, Not a Date One Opportunity for a First ImpressionOne Opportunity for a First Impression Seek Value-Added PartnerSeek Value-Added Partner Ask QuestionsAsk Questions

FundingFunding Understand Your OptionsUnderstand Your Options Best Time to Raise $$$ is When You Don’t Need ItBest Time to Raise $$$ is When You Don’t Need It Control Your Expenses, Understand FinancialsControl Your Expenses, Understand Financials

Jan 28Jan 28thth, 2005, 2005 Azul Venture PartnersAzul Venture Partners 2020

Thank YouThank You