Raising Capital for EarlyStage Technology Companies

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Raising Capital for Early-Stage Technology
Companies

• CINA eSIG

January 13, 2005
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Agenda

• About Silicon Valley Bank
• Venture Capital
• Other Equity Investments
• Debt Financing

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About Silicon Valley Bank
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Silicon Valley Bank
About Silicon Valley Bank
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SVBs Global Banking Network
London
Shanghai (2005)
Bangalore
SVB Offices
SVBs Banking Network
Argentina Australia Austria Belgium Brazil Croatia

Cyprus Czech Republic Denmark Ecuador Egypt Estoni
a
Finland France Germany Greece Hong Kong Hungary
Iceland India Indonesia Ireland Israel Italy
Japan Korea Latvia Lithuania Malaysia Mexico
Netherlands New Zealand Norway Paraguay Peru Phili
ppines
Poland Portugal Russia Singapore South
Africa Spain
Sweden Switzerland Taiwan Thailand Turkey United
Arab Emirates
United Kingdom Uruguay Venezuela
About Silicon Valley Bank
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A Partner at Every Stage of Your Life Cycle
Venture Capital Corporate Partnering Private
Placement Early Stage Funding Follow on
Funding Mergers Acquisitions
Public Markets Liquidation Strategy Portfolio
Management
Seed Stage Angel Funding Infrastructure
Development
Professional Referrals International Expansion
Software Services
Corporate Technology
Emerging Technology
Communications Electronics
Life Sciences
SVB Asset Management ("SAM") and SVB Securities
("SVBS") are non-bank affiliates of Silicon
Valley Bank.  Investments recommended by or
offered through SAM or SVBS are not FDIC insured,
are not bank guaranteed and may lose value. SVB
Alliant is a wholly owned broker-dealer
subsidiary of Silicon Valley Bancshares.  The
services of SVB Alliant are not bank services,
are not guaranteed by Silicon Valley Bank, and
are not insured by the FDIC.
About Silicon Valley Bank
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Diversified Services Single Partner
SVB Asset Management ("SAM") and SVB Securities
("SVBS") are non-bank affiliates of Silicon
Valley Bank.  Investments recommended by or
offered through SAM or SVBS are not FDIC insured,
are not bank guaranteed and may lose value. SVB
Alliant is a wholly owned broker-dealer
subsidiary of Silicon Valley Bancshares.  The
services of SVB Alliant are not bank services,
are not guaranteed by Silicon Valley Bank, and
are not insured by the FDIC.
About Silicon Valley Bank
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Venture Capital
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VC Investing Trends

• Increased Investing Activity 15 billion by end
  of Q3 2004 versus 18 billion in 2003. (Sources
  VentureOne and Ernst Young.)
• Investments are relatively diversified across
  industry (software, hardware, life science) and
  stage (early, mid, later).
• VCs are hiring more GPs with operating
  backgrounds to provide greater access to sales
  channels and strategic partners.
• MA is more common exit path than IPO 84 of
  exits by end of Q3 2004 were MA transactions,
  versus 50 in 1996. (Sources VentureOne and
  Ernst Young.)

Venture Capital
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VC Investment Criteria

• Its Back to Basics.
• Team Management, Board of Directors, Board of
  Advisors
• Market Size and Growth of Addressable Market
  (Bottoms-Up)
• Technology Intellectual Property Position,
  Know-How
• Validation Customers, Strategic Partners

Venture Capital
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Access to VCs

• Existing Relationship
• Referral through Trusted Source
• Boards of Directors/Advisors
• Seed Investors
• Service Providers
• Law Firm
• Accounting Firm
• Interim CFO Firm
• Bank
• Customers
• Strategic Partners
• Cold Call?

Venture Capital
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Presentation Materials

• Executive Summary Keep it short and sweet.
• Value Proposition
• Team
• Market
• Technology
• Validation
• PowerPoint Presentation VCs need to know
  within 5-10 minutes who you are, what you do, and
  how you will be successful.
• Business Plan More useful for internal
  planning, save it for due diligence.

Venture Capital
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Other Equity Investments
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Alternative Sources of Equity Capital

• Friends and Family
• Angels
• Corporate VCs

Other Equity Investments
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Alternative Sources of Equity Capital

• Friends and Family
• Seed stage
• Structure Convertible debt versus preferred or
  common stock
• Ability to raise VC funding

Other Equity Investments
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Alternative Sources of Equity Capital

• Angels
• Seed to early stage
• Individuals versus groups
• Structure Convertible debt versus preferred or
  common stock
• Criteria vis-à-vis VCs

Other Equity Investments
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Alternative Sources of Equity Capital

• Corporate VCs
• Early to later stage
• Structure Preferred stock
• Ability to set strategy
• Ability to raise VC funding

Other Equity Investments
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Debt Financing
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Key Considerations re Debt Financing

• Debt costs less than equity with respect to
  dilution.
• For profitable companies, debt provides tax
  benefits since interest is tax-deductible, while
  dividends are not.
• However, debt results in higher bankruptcy risk,
  especially for companies with volatile cash flow,
  since it has to be repaid.
• Bottom line Debt should be used to leverage
  equity, rather than replace it.

Debt Financing
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Types of Debt Financing

• Growth Capital
• Leverage equity from venture capital investors
• Finance expansion
• Equipment Financing
• Leverage equity from angel or venture capital
  investors
• Finance fixed asset purchases
• Working Capital
• Manage operating cash flow
• Finance expansion
• Bridge Financing
• Provide additional runway to equity funding event

Debt Financing
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Lending Criteria

• Proven Access to Equity Financing
• Viable Business Model
• Experienced Management Team
• Positive EBITDA Not Required
• Intangibles in the Business
• Financial Covenants Track Performance to
  Plan/Liquidity

Debt Financing
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Lending Process

• Due Diligence
• Executive summary, business plan or PowerPoint
  presentation
• Financial statements historical and projected
• Accounts receivable and payable aging reports
  (working capital lines of credit only)
• Capitalization table
• Term Sheet
• Underwriting and Credit Approval
• Discussions with investors and customers
• Audit of accounts receivable and payable
• Loan Documentation and Closing

Debt Financing
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Contact Information

• John Lee
• Relationship Manager
• Emerging Technologies Practice
• 650.320.1149
• jclee_at_svbank.com

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