June 2015

Introduction to Venture Financing

Douglas Abrams

2

6XXXX

Douglas Abrams

About the facilitator

• Wharton MBA

• JP Morgan – Vice PresidentIB Technology, GM Internet Marketing

• Parallax Capital Mgmt – Co-founder and MD Private Equity

• Extream Ventures – Co-founder and MDS$20 million seed fund

• Expara – Founder and MDIDM Ventures Incubator, advisory, training

• NUS – Adjunct Associate Professor, Business School, Entrepreneurship, Sasin – Visiting Professor, Venture Capital

3

6XXXX

Douglas Abrams

2000 20152000 2002 2004 2006 2008 2010 2012 2014

Parallax

BANSEA

Expara

Sasin

EIDMV I Expara Thailand

Expara Malaysia

i4-X

NUS KIMBA Extream EIDMV II EV III

Expara timeline 2000-2015

3Overview of Expara

4

6XXXX

Douglas Abrams

VC mindset

• Risk and return are highly correlated

• You cannot increase return without taking more risk

Return

Risk

Potential outcomes

5

6XXXX

Douglas Abrams

Why invest in venture capital?

As of June 30, 2014. The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,508 U.S. venture capital funds (963 early stage, 165 late & expansion stage, 374 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2014. (1)Pooled end-to-end return, net of fees, expenses, and carried interest.(2) 2007-2015 Sources: Cambridge Associates LLC, Barclays, Dow Jones Indexes, Frank Russell Company, Standard & Poor's, Thomson Reuters Datastream, and Wilshire Associates, Inc

Case Shiller Real Estate Index 4.1Expara IDM Ventures (2) 43.03

6

6XXXX

Douglas Abrams

Impact of VC on a diversified portfolio

Private Equity and Strategic Asset Allocation. 2007 Ibbotson Associates

7

6XXXX

Douglas Abrams

Companies founded with venture capital

www.nvca.org

8

6XXXX

Douglas Abrams

SEA exit markets at an inflection point

Exit activity in SEA, especially in Singapore, exploded in 2013• Increased investment in startups since 2007 is beginning to yield results

• Number of exits increased from 6 in 2010 to 20 in 2013

• Singapore alone has had 30 exits since 2007, 13 in 2013

• Value of exits increased from 51 MM in 2010 to 400 MM in 2013

9

6XXXX

Douglas Abrams

Some recent exitsCompany Country Acquiror Price Year

ZopIM Singapore Zendesk US$29.8MM 2014Non-Stop Games Singapore King US$ 100MM 2014sgCarMart Singapore SPH S$60 MM 2013DS3 Singapore Gemalto S$50 MM est. 2013Asian Food Channel Singapore Scripps Networks Undisclosed 2013Reebonz Singapore MediaCorp and Existing investors S$250MM 2013Yfind Singapore Ruckus Wireless Undisclosed 2013Techsailor Singapore TO THE NEW Undisclosed 2013travelmob Singapore HomeAway Undisclosed 2013Catcha Digital Media Singapore Opt Inc Undisclosed 2013GridBlaze Singapore Undisclosed Silicon Valley Startup Undisclosed 2013Viki Singapore Rakuten US$200MM 2013SGE Singapore Tech In Asia Undisclosed 2013ThoughtBuzz India To The New Undisclosed 2013AyoPay Indonesia MOL AccessPortal Undisclosed 2013Tongue in Chic Malaysia PopDigital Undisclosed 2013Ocision Malaysia Star Publication US$ 4.36MM 2013Glamybox Vietnam VanityTrove Undisclosed 2013PaymentLink Singapore Wirecard US$41.2MM 2013Dealguru Singapore iBuy S$34.28 MM 2013Buy Together Hong Kong iBuy S$21 MM 2013Dealmates Malaysia iBuy S$10 MM 2013PropertyGuru.com Singapore ImmobilienScout24 S$60 MM 2012HungryGoWhere Singapore Singtel S$12 MM 2012AdMax Network Singapore Komli Media Undisclosed 2012TheMobileGamer Singapore Singtel US$1.5 MM 2012

10

6XXXX

Douglas Abrams

Key elements for success

• Solving a painful problem for customers – Value proposition

• Developing an innovative product – Innovation

• Customers and competitors – Market identification and analysis

• Reaching customers – Marketing, sales and distribution strategy

• Competing when others enter - Sustainable competitive advantage

• Make money – Business model and financial plan

• Team – A team or B team

11

6XXXX

Douglas Abrams

Key venture finance terms

Business model

Financial projections

Valuation

Funding required and equity offered

Use of Proceeds

Exit Strategy and ROI

Cap table

12

6XXXX

Douglas Abrams

Company valuation methods

• Price to earnings (p/e)

• Dividend yield

• Multiple of book value

• Comparables

• Discounted Cash Flow (DCF)

• VC method

13

6XXXX

Douglas Abrams

How much equity does the investor receive?

• Pre-money valuation– Amount invested by VC ÷ (Agreed pre-money value of business

+ Amount invested by VC) – $3MM pre + 1 MM VC = 25% VC equity

• Post-money valuation– Amount invested by VC ÷ post-money valuation– $4MM post = 25% VC equity

14

6XXXX

Douglas Abrams

How do VCs make money?

• Trade sale – sell to another company

• IPO – sell to the public through listing on an exchange

15

6XXXX

Douglas Abrams

Stages and sources of funds

Founder’s Capital

Seed/Angel

Series A, B, C

Mezzanine Pre-IPO IPO

VC hurdle rates 60-100% 40-60% 20% Why are these rates so high?

OM F,F&F

Incubators corporations government

Customers, suppliers, strategic partnersVCs, Banks for VC loans

16

6XXXX

Douglas Abrams

Calculate investor’s ROI including dilution

17

6XXXX

Douglas Abrams

Key elements of a venture deal

Board of directors

Protective provisions

Drag-along agreement

Conversion

Control

Price-per-share

Valuation

Amount of financing

Liquidation preference

Vesting

Options pool

Anti-dilution

Pay-to-play

Economics

18

6XXXX

Douglas Abrams

Contact us

• Douglas Abrams

• Expara, Expara IDM Ventures– dka@expara.com– www.expara.com

• Block 71 Ayer Rajah Crescent

• #$02-10/11 S139951

• 65-9780-5381