2014 annual general meeting · 2018-12-20 · vcs are from mars venture capitalists ... her up with...

University Innovation, Realized.

Contact Us50 Monument Rd, 201, Bala Cynwyd, PA 19004484.434.2255 • info@osagepartners.com

CONFIDENTIAL & PROPRIETARY

Startups 2.0UCSDSeptember 19, 2016

Louis P. Berneman, EdD, CLP, RTTP

Lou BernemanFounding Partner, Osage University Partners

AlsoAdvisor, HealthCare Royalty PartnersManaging Director, Texelerate, LLC

- Licensing transactions- Expert witness services

Previously• Managing Director, U Penn CTT• Co-founder, 4 “academic” startups• Past President, AUTM• Former VP and Trustee, LES and LES Foundation• Columbia University Teachers College, MA, MEd, EdD• UC Santa Barbara, Teaching Credential• Penn State, B.A.

Matthew E. Cohen, Ph.D.

Matt CohenSenior AssociateOsage University Partners

Previously• Consultant, L.E.K. Consulting• Ph.D., Cell and Molecular Biology – University of

Pennsylvania• B.S., Microbiology – Penn State University

Eureka! Finally! We did it! Yea! We’re gonna be famous and rich!

Great, but…it’s just the beginning…

Picture by Ryan McGuire

Beware – it’s a long, long tough road with many unforeseen obstaclesFocus on lead productUse capital efficientlyValue company and raise money thoughtfullyCreate a clear, concise, and compelling fund raising “pitch”

Venture Capital on TV

VCs are from Mars

Venture Capitalists are from Mars

Entrepreneurs are from Venus

If the sun, moon and stars align – how much could the company be worth?How much and how long will it take to get there?

Essential Elements of a New Venture (Prior to Capital)

MANAGEMENT

SCIENCE NEED• Validated in peer-reviewed publications• Accepted hypothesis for MoA and

underlying biology • Proof of concept or working prototype

• What is the product and its first application?

• What alternative approaches are pursued and why?

• Science and business acumen

Choosing the Right Co-Founder/Entrepreneur

Finding your co-founder• Co-founders are very much like a marriage as the relationship

may span for a decade or more – choosing the right person should be a careful and considerate process

• Co-founders should complement one another’s skills, strengths, and weaknesses

From our portfolio• AGTC – Sue Washer, a serial entrepreneur, approached the

University of Florida TTO for emerging opportunities. UF synced her up with the scientists behind AGTC and they launched the company, taking the company to IPO in 2014

• RECEPTOS – Faheem Hasnain, a successful serial entrepreneur, worked with previous team members from other startups to co-found Receptos, ultimately taking it to IPO in 2013

• INFINIO – Arun Agarwal identified Vishal Mishra’s technology at Columbia while interning at Lightspeed; a young energetic entrepreneur, Arun helped Vishal start Infinio, joining on as CEO; Arun and Vishal went on to raise $24M in venture capital from the top enterprise firms: Lightspeed, Bessemer, Highland Capital

Personal Characteristics of a Great CEO

Vision

• Drive to be the leader in the space (2nd place isn’t acceptable)

• Thinking high level, but taking care of the details

Communication

• Build and drive an internal team

• Sell the vision externally – communicate succinctly and be able to sell

Adaptability

• See what’s coming before everyone else and positions to take advantage of it

• The quicker CEOs admit they were wrong, the faster they can pivot

Realistic/Modest

• CEOs aren’t expected to have every skill necessary to build out a company

• The best CEOs identify what they lack and will hire better people around them to make the company succeed

Low and high ego

• The best CEOs have a high ego to be irreverent about the industry they’re disrupting, firm in their beliefs, and have significant grit when faced with problems

• They also have low enough ego to know that when they’re not the right person to run a company or solve a problem, they step aside

Essential Elements – Team – It takes a village

Entrepreneurs/CEO/CBO/CTO

– Industry experience and expertise, visionary

– Track record of successful fundraising

– Networked into innovation chain, market, investors and partners

– Responsible for day-to-day operations and execution

Domain Expertise

– Researchers who understand the technology and its possibilities

– Scientists to validate for commercial applications

The team needs to

complement one another (cultural fit)

work well together

be able to disagree productively (dynamic tension)

trust each other

Company Formation – Board of Directors (BoD)

Odd number (ideally 3) to start

– Scientific founder

– Entrepreneurial lead

– Independent trusted advisor / investor

Additional BoD members will join as company develops and raises more capital

BoD responsibilities during the startup phase:

– Setting policies and objectives of the organization

– Supporting, advising, and reviewing the CEO

– Oversight of finances and approval of budgets

Company Formation – Advisory Board(s)

• Scientific and commercial experts provide additional credibility, insights and networks

• Peers and experts you trust

• Responsibilities, expectations, assignments, and compensation vary widely

CORPORATE STRUCTURE

Company Formation – LLC, an S-Corp, or a C-Corp?

Type Description Pros Cons

Limited LiabilityCompany (LLC)

Partnership • Can be relatively inexpensive to set up

• Structure permits deduction of initial R&D expenses (losses)

• “Pass through” of profits and losses to the owners

• Taking an LLC public is complicated• Not a vehicle of choice for

institutional investors

S-Corp Corporation but with some characteristics of a partnership

• Allows for the taxable profits and losses to be “passed through” to owners

• Dividends not subject to self-employment taxes

• Potentially beneficial if profits are anticipated early

• Only one class of stock• No more than 100 shareholders• Shareholders must be US citizens or

residents• Shareholders generally cannot be

corporations or partnerships

C-Corp Traditional commercial corporation

• Preferred vehicle of investors• Flexible in number and type of

shareholders• Multiple classes of stock

permissible• Easy exit via IPO or M&A

• Traditional tax structure (potential for "double taxation”)

• Requirement to file more paperwork

• Filing corporate tax forms usually require an accountant

CAPITAL FORMATION

Funding Sources

ANGELS AND ACCELERATORS

VENTURECAPITAL

STRATEGIC

FRIENDS AND FAMILY

GRANTS

PROOF OF CONCEPT

RAPIDSCALING

GROWTH

PRE-FUNDEDSTARTUP

SCIENCEPROJECT

SOURCE FUNCTION

CROWDFUNDING MARKET TRACTION

High Net Worth

VENTURE PHILANTHROPY

Venture Investment Continues to be Brisk

2015 Saw The Most Venture Capital Deployed Since 2000• $58.8 billion in 4,400 financings• Dollars per deal increased from 2013 through 2015

2007 2008 2009 2010 2011 2012 2013 2014 2015

Venture Investment Activity

Late/Growth $ Invested [$B] Early/Seed $ Invested [$B] # of DealsPWC/NVCA MoneyTree Report

Venture Capital Investments Over Time – Biotech & Software

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Biotechnology Software

Average Round Sizes in December, 2015*• Pre Series A - $1.7M• Series A - $10.5M• Series B - $24.9M

*However, averages are inflated by some huge deals

Life Sciences Financing Today

Public markets down, private markets still robust• Public market valuations for life science companies have come down significantly – value creation will be based

on data (some will be good, some will be bad)• Private market investments continue to be robust. Most VCs still have capital to invest in both early stage

(novel biology) and later stage (differentiated clinical data) therapeutics companies.

Hot Sectors – Therapeutics!• Immuno-oncology

Tumor microenvironment modulators

Cell Therapy 2.0 (e.g., solid tumor targets)

• Oncology

Proteasome modulators (e.g., IRE1a)

Cell metabolism modulators (e.g., mTOR)

What’s left of validated targets: mutant KRAS

• Fibrosis

Novel targets

• Antibiotics

Gram-negative pathogens

Novel mechanisms of action

• Orphan diseases

• CNS: Pain, psych, degeneration

Cold Sectors – the pain continues• Devices

Regulatory hurdles

Costly clinical trials with lower upside than therapeutics

Reimbursement uncertainty

Few truly innovative ideas

• Diagnostics

Reimbursement is major hurdle

Difficult and expensive to show clinical utility

Additional regulatory challenges on the horizon

Tech Sector Financing Today

General Trends• Valuations – interest inflated late stage rounds has slowed, early stage valuations are normalizing. More

prudent capital deployment is returning in the venture community• IT and Software – Next generation data centers are focusing increasingly on hyper-scale, machine learning

becoming dominant tool for big data analysis, microservices architecture emerging while ecosystem matures• Hardware – software defined hardware, functionality of innovative devices enhanced by real-time control of

software (robotics, autonomous vehicles, communications, connected toys)

Hot Sectors• Machine Learning

Closed Loop AI + Vertical

• Hyperconverged Data CenterSoftware Defined Stack

• Microservices ArchitectureAPI EconomyContainerization

• RoboticsManufacturing 4.0Autonomous vehicles

• Internet of ThingsSensor DeploymentsNetworksSensors to Manipulation

Cold Sectors• Cleantech

Capital requirements

Failures at scale-up

Development timeline

Customer channels

• Telecom

Difficult to forecast carrier adoption strategy

Carriers are bad customers

• Graphene

Best applications are in commodity markets

Planning for and timing a financing

– Essential to think about financing strategically

• Each funding round as a stepping stone to the next

• Each right sized to generate data to the next value inflexion point

– Key ingredient: Good timing!

Positioning the company

– It all starts with the quality of the science and the entrepreneurial team

– Present a clear and compelling story in a way that non-scientific individuals can understand the concept, value and differentiation of the approach

– Emphasize the 3-4 most important elements of the opportunity

– Clearly describe use of funds and timing of value-creating activities

Sizing the offering

– Dilution can be good -- do not limit the size of a round to avoid dilution

– Raise (more than) enough capital get to the next value inflection point

Insights to Raising Capital

https://lifescivc.com/2016/04/raising-capital-private-biotech-insights-unum-therapeutics-series-b-round/

Targeting investors

– Target investors whose investment strategy (sector), approach and availability of funds fit the company’s stage and future financing plans

– Build a diversified investor base

Running the process

– Unless you’re a ‘rock star’ with prior entrepreneurial success, fund raising can be challenging, potentially grueling and long process

– Early stage companies often represent new stories, technologies and approaches

• Multiple meetings are likely to be needed

• Provide potential investors sufficient time to vet you, the science, the management team and the opportunity

Private placement agents may be used to identify potential investors and arrange meetings, but investors will want to work directly with founders

– Pros: can run an efficient process and identify potential investors

– Cons: cost; founders will still need to be personally involved

Lessons Learned about Raising Capital for a New Venture

Funding – Capital Requirements

• Amounts vary widely by sector and stage

• Be realistic in budgeting

– Team - Age, size, expertise, and experience

• Payroll is likely the majority of your budget

– Startup costs – legal, administrative, marketing, etc.

– Equipment

– Lease, taxes, utilities, etc.

– Outside contractors/product development costs

• If you have never done this before search out advisors and/or management

• Most startups underestimate how much capital they will need

– Experience suggests every step takes twice as long and twice as much

• Plan on the need to pivot

How to Begin Your VC Journey

VC is a relationship business

• We know each other, invest together, share leads and due diligence• VCs working and investing together (syndicates) reduce future financing risk• Avoid ‘cold calling’ VCs – approach through a trusted friend/advisor

Understand each VCs area of interest and expertise

• VCs make investments in areas of strategic interest• VCs time investments based on the fund’s life cycle• Be prepared for rejection and take it professionally – you may need to approach them

later!

Ask for advice

• If you’re looking for money, ask for advice• If you want advice, ask for money

Where to begin

• The TLO can help whether you’re interested in actively engaging in the entrepreneurial process or continuing to focus on research while the TLO leads the process

MAKING THE PITCH

The Investment Paradox

Entrepreneurs and investors take different approaches

Entrepreneurs

Getting to

Investors

Getting to

Initial Interaction, Pitch Deck, Executive Summary

VCs receive many pitch decks

• The cliché is true – you only get one chance to make a first impression

• Ideally, your introduction to potential investors would come from one of their trusted friends or advisors

• Make your initial interactions (phone call, pitch deck, executive summary) clear, concise and compelling:

− Who you are

− Data justifying your enthusiasm and why data are compelling

− Addressable market and size

− Comparable companies as evidence of exit value

− Funding and accomplishments to date

− Amount and use of proceeds of financing

Deals at this early stage are often “triaged” so that VCs can quickly identify the most attractive opportunities

• These deals will move to a phone call or pitch presentation

Who Pitches?

• Entrepreneurs should pitch

• PIs should pitch

• Tech transfer should not pitch unless they plan to be part of the company

• It’s OK for tech transfer to be in the room or on the call, but usually only appropriate if it’s just the PI pitching

• Examples:

– A great PI pitch focuses on the science, it’s place in the landscape, product opportunities, and next steps including the timeline and some idea of the cost

– A great entrepreneur pitch includes the team background, key data, the market opportunity, the timeline, costs, and more

Key Components of a Good Pitch Deck

• Title page (1 slide)• Intro page (1 slide)

– Define your company and what it does– Brief background– What you are seeking from the investors

• Leadership and Boards (1-2 slides)– Executives, founders, and advisors

• Key data slides (3-10 slides)– Experimental results that gave you that “eureka” moment– Exactly where you are at in the product/service development process– Next steps in the program once you secure financing

• Pipeline/Products slides (1-3 slides)– When you will accomplish what in the future

• Competition (1-2 slides)– What’s on the market, What previously failed, What’s in the pipeline, What’s in academia,

Non-traditional competition– How does your product fit into the competitive landscape

• Capital you are seeking and use of proceeds (1-2 slides)• Timeline of operational goals (1 slide)

– Tie the financing/capital needs to the goals– Plan for multiple rounds and include on this slide

• Summary of the opportunity (1 slide)

Practical Suggestions For Pitching

• Do not hide anything substantive; it won’t stay hidden for long

– You will lose credibility

– Your lack of transparency and forthrightness will be shared with others

• Pre-empt any ‘killer’ questions.

– Show that you did your homework!

• Follow good presentation guidelines

– Be direct, be brief, then listen

– Be clear, concise, and compelling

– Do not over populate / over complicate slides

• Pause to allow for questions

• When you do not know an answer, say so

– If you can find out the information, let the questioner know you will get back to them with the information following the presentation

REMEMBER! You may be an expert on your company and the technology, but this may be the first time an investor is seeing this

Mistakes to Avoid When Raising Capital

1. The company story is too long and complicated

– Having a tight and "to the point" story is key

2. Not understanding the financial implications of the deal/financing

– Financing and IP documents are complex agreements

– You’ll need advisors to assist

3. Targeting the wrong investors

– Focus fundraising strategically

4. Not understanding that dilution can be beneficial

5. Not sizing the team to the opportunity

– The stage of development of the company should dictate the type and size of the management team

6. Hiding something that you hope potential investors will not find out about

– Diligence reveals all

7. Telling one investor one thing and another investor something else

– Investors talk to each other frequently

Source: Locust Walk Partners and Osage University Partners

INNOVATION MATH: A SMALL PIECE OF A BIG PIE…

IS DILUTION GOOD OR BAD?

Planning for Dilution: Seed Investment

Ideally, a Seed Round would be in the form of a convertible note, and would not have a valuation

Common %ownership Seed Cost$ %ownership

Founders 1,050,000 70.0% - - 50.0%

University 150,000 10.0% - - 7.1%

Angels - 0.0% 600,000 750,000$ 28.6%

Series A Lead - VC - 0.0% - - 0.0%

Series B Lead - VC - 0.0% - - 0.0%

Series C Lead - VC - 0.0% - - 0.0%

Option Pool 300,000 20.0% - 14.3%

Total Shares 1,500,000 100% 2,100,000 750,000$ 100%

Price/share $1.25

$Raise $750,000

Pre-Money $1,875,000

Post-Money $2,625,000

Founding Seed Round

Planning for Dilution: VC Rounds

Series A Cost$ Option Pool %ownership Series B Cost$ Option Pool %ownership

- -$ - 24.0% - -$ - 10.5%

- -$ - 3.4% - -$ - 1.5%

- -$ - 13.7% - -$ - 6.0%

1,920,000 3,000,000$ - 43.9% 2,105,806 6,580,645$ - 40.2%

- -$ - 0.0% 2,694,194 8,419,355$ - 26.9%

- -$ - 0.0% - -$ - 0.0%

- -$ 356,471 15.0% - -$ 847,059 15.0%

4,020,000 3,000,000 4,376,471 100.0% 9,176,471 15,000,000 10,023,529 100%

Multiple(x) 1.25x Multiple(x) 2.00x

Price/share $1.56 Price/share $3.13

$Raise $3,000,000 $Raise $15,000,000

Option Pool % 15% Option Pool % 15%

Pre-Money $3,838,235 Pre-Money $16,323,529

Post-Money $6,838,235 Post-Money $31,323,529

Series B - VCSeries A Round - VC

Planning for Dilution: Acquisition

Series C Cost$ Option Pool %ownership Return

- -$ - 6.5% 13,047,708$

- -$ - 0.9% 1,863,958$

- -$ - 3.7% 7,455,833$ 9.9x

1,701,045 10,631,531$ - 35.6% 71,164,082$ 3.5x

1,138,392 7,114,948$ - 23.8% 47,625,195$ 3.1x

2,321,127 7,253,521$ - 14.4% 28,843,223$ 4.0x

- -$ 910,688 15.0% 30,000,000$

15,184,093 25,000,000 16,094,780 100% 200,000,000

Multiple(x) 2.00x Sale Price $200,000,000

Price/share $6.25

$Raise $25,000,000

Option Pool % 15%

Pre-Money $68,338,857

Post-Money $100,592,378

Proceeds

Acquisition/IPOSeries C - VC

INVESTORS’ DUE DILIGENCE AND INVESTMENT MEMO

Key Areas of Diligence

SCIENCE & CLINICAL DATA

MARKET

OPPORTUNITY

& SALES

DYNAMICS

REGULATORY &REIMBURSEMENT

PROCESS

COMPETITION

CAPITAL

STRUCTURE & EXIT ANALYSIS

The Investment Memo

– Internal document to evaluate the deal dynamics, company history, interactions and technology

– Uncover red flags that will require further diligence

– Allows entire team to raise objections to the deal

– Work-in-progress continually updated

– Final investment memo is typically presented to investment committee for approval to invest

– Analysts and associates for partners’ review

– VC fund’s investment committee reviews

Key Questions Addressed in The Investment Memo

Component Questions?

Investment thesis Why invest in this company/technology at this time?

Management teamIs this the right mix of experience and domain expertise to make the company successful?

Pros, cons, risks, red flags Why invest? Why not invest? What other diligence is required?

CompetitionIs this the best technology? Who else is innovating in this space? What problem is it solving? What will the market look like atproduct launch?

Development timeline MilestonesBudget

Are the milestones attainable within the current budget? Does the current budget bring the company to a significant value inflection point?

Term sheet summary Are the terms favorable for an investment at this time?

Cap table Who will own what after closing and at exit?

Exit AnalysisIf the sun, stars, and moon align, how much will it be worth? To whom? When?

Due Diligence Responses to questions regarding risks and red flags

PARTNERING WITH OSAGE

We Invest in Disruptive Science

Osage focuses on companies (or soon-to-be companies) developing transformative technologies

solving major global challenges led by passionate entrepreneurs

being (or likely to be) financed by top-tier venture investors.

Unique Venture Fund that Partners with Research Institutions to Invest in their Spin-outs by Exercising their Participation Rights •Osage invests in early, middle, and late stage spinouts in all sectors -- life science, software,

advanced materials, semiconductors, clean energy, and more

Partner Institutions Share in Osage’s Profit and Benefit from Significant Support in Launching and Promoting Start-ups• Institutions share in Osage’s fund profit in return for assigning Participation Rights•Osage provides programmatic support to TTOs and their start-ups to promote funding activity,

hiring, strategic partnerships, and the overall entrepreneurial ecosystem•Osage shares proprietary data with institutional partners

Osage University Partners Overview

Osage University Partners Network

Investment Focus

ALL STAGES OF NEW VENTURES

BROAD RANGE OF MARKET SECTORS

$100,000 to $1,000,000 $1,000,000 to $3,000,000 $3,000,000 to $6,000,000

Cleantech & Energy Information Technology Materials

Seed Early Mature

Life Sciences

OUP Portfolio: Spanning All Stages

Seed 1st Round 4th Round +2nd Round 3rd Round

Exited

Additional Resources

• Company structure– http://www.inc.com/graham-winfrey/how-to-structure-your-startup.html

• Due diligence – http://fortune.com/2012/02/06/start-up-due-diligence-is-not-mysterious/– http://www.meritusventures.com/template_assets/pdf/diligence.pdf

• Model legal documents from NVCA– http://nvca.org/resources/model-legal-documents/– Includes Certificate of Incorporation, Term Sheet (for investment), Stock Purchase

Agreement, and Investor Rights Agreement

• Valuation– https://www.andrew.cmu.edu/user/fd0n/23%20Small%20Piece%20-

%20big%20pie.htm

• General knowledge– The Lean Startup, by Eric Ries– Venture Deals, by Brad Feld and Jason Mendelson

VC 101: A Primer in les nouvelles

Louis P. Berneman and Christopher F. Wright, "Venture Capital 101: Financing Mentality, Jargon, Term Sheets, and Documents - Primer for Academic Technology Transfer Managers and Industry Licensing Executives," in les Nouvelles, the Journal of the Licensing Executives Society, March, 2014

The University as a Venture Investor

Christopher F. Wright and Louis P. Berneman, "The University as a Venture Investor: Models and Challenges for Equity Licensing, Direct Investment and Partnering Methods" in the American Bar Associate Technology Transfer Law Handbook, Elizabeth D. Rodriguez and Sean D. Solberg, Editors, 2014.

Contact Us

SUMMARYOsage University Partners (OUP) invests in startups that have licensed technologies from universities and research institutions. OUP has partnered with over 80 academic institutions to invest in pioneering technologies and visionary entrepreneurs targeting large market opportunities. The Fund invests across a range of technology sectors and company stages, and typically co-invests with other leading venture funds.

University Innovation, Realized.

PERSONNELName Title Email

Robert Adelson Managing Partner radelson@osagepartners.com

Louis Berneman Founding Partner lberneman@osagepartners.com

William Harrington Managing Partner bharrington@osagepartners.com

Marc Singer Managing Partner msinger@osagepartners.com

Kirsten Leute SVP, University Relations kleute@osagepartners.com

Matthew Cohen Senior Associate mcohen@osagepartners.com

John Lee Senior Associate jlee@osagepartners.com

Kristen Albright Associate kalbright@osagepartners.com

Stephanie Stehman Associate sstehman@osagepartners.com

Manny Stockman Associate mstockman@osagepartners.com

David Dorsey Associate ddorsey@osagepartners.com

Roberra Aklilu Analyst rakllilu@osagepartners.com

Natasha Azar University Relations Manager nazar@osagepartners.com

Contact Us50 Monument Rd, 201Bala Cynwyd, PA 19004484.434.2255www.osageuniversitypartners.com

WHO HAS THE FIRST QUESTION?

THANK YOU

2014 annual general meeting · 2018-12-20 · vcs are from mars venture capitalists ... her up with...

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