Stadtler Capital Management

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November 2014

Presentation for

Summary Background: Kevin Stadtler

Mr. Stadtler is the Founder and Principal of Stadtler Capital Value Strategies Fund, LP. Prior to founding Stadtler Capital, Mr. Stadtler was a senior analyst and portfolio manager at Kleinheinz Capital Partners, Inc. (“Kleinheinz”) from 2002 until 2011. While at Kleinheinz, Mr. Stadtler focused on investments in technology and telecom. Kleinheinz is a privately held investment advisor based in Fort Worth, Texas that manages $2.5 billion based on a long-short strategy with a global macro overlay. Mr. Stadtler began his career at Kleinheinz as an analyst, later becoming a portfolio manager and a senior analyst. Prior to joining Kleinheinz, Mr. Stadtler was a Senior Vice President at Commvest, L.L.C. in Massachusetts where he co-managed $200 million of technology venture capital holdings. Prior to Commvest, Mr. Stadtler worked in venture capital at Saturn Partners and at the Xerox Corporation in the sales and management program. Mr. Stadtler received a B.A. in History from Villanova University.

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Summary Background: Kevin Stadtler

Persistence; Wanted to play ice hockey which was new to DC area, since it was expensive parent said no…I didn’t take no for an answer. Starting doing odd jobs, cutting our lawn, neighbors and which grew into a business.

Frugal; caddying , would always ask executives about how they were successful. Favorite story: Marriott…Willard Marriott, A&W root beer, soda shop, hotels etc. What was so interesting was he would pick up golf balls in rough.

Believe in one’s self; Tough economy when I graduated but my goal was to work in NYC, took job in NYC with Xerox Mgt program ’90 – ’92.

Opportunistic; First VC opportunity was TechForce, IT temps, friend asked to help fund business, went around to banks in NYC. Got a lot of NO’s but learned that we needed to see a Venture Capitalist.

Took a position in Boston with small venture capital firm financing ice rinks in Sugarland Texas, Boston Duck Tours and started my tech investing with online business to business exchange.

Led to second VC firm – tech/telecom deals.

Co-invested with leading venture firm KPCB Battery Ventures, Sequoia

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Venture Capitalist

Venture Capitalist – professional investors that specialize in funding new companies

VC’s Partners emerge from three pools:

industry (ex- Cisco, Google)

post business/law school

post successful start ups

Funds are predominately located in Silicon Valley, Boston, New York Area with secondary markets Raleigh, Seattle, Chicago, Austin

Approximately 500 active VC firms with average funds sizes of $150 million

Deals exceeding $100 m may exceed 30 in ‘14 vs. 16 in 2013.

VC’s invested $10 Billion in 1,023 (Q4:14 data) companies (est. $40B in 2014 vs. $30B ‘13)

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The Players

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Bankers

Sales ForceEquity Capital

Markets

ResearchAnalysts

“The Sell Side”

PortfolioManagers

Analysts

Endowment/Pension

Retail/401k/Brokerage

“The Buy Side”

High Net worth

BoardInvestors

Startup Investment Banks Mutual / HedgeFunds

SaversInvestors

Inc.

Venture Capitalist Model

The VC fund bands together, raises commitments from wealthy investors and institutions AKA Limited Partners (LP’s)

Portfolio Theory – the Fund invest in say 100 companies of which (40 fail, 40 return capital or little better and 20% have very high rates of return aka multi baggers 2x- 20x returns)

The Key for the VC business to work is find which companies are the “top 20%” very quickly and focus dollars and resources on them. The other businesses fade quickly

The two main exits via Mergers/Acquisitions or Initial Public Offerings (IPO’s)

In 2014 (YTD), 2013 and 2012, venture backed M/A reached 341, 377 and 488 companies, respectively. Average M/A Deal Sale Size ~$250m in 2104

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IPO Market History

• Market Environment NASDAQ listed companies

– 1991: 4,094 – 1996: 5,556 – 2008: 2,952 – 2009: 2,885 – 2010: 2,846 – 2011: 2,475 – 2012: 2,267 – 2013: 2,637

• Number of Venture Backed IPOs – 1980-1985: 549 – 1986-1990: 496 – 1991-1995: 938 – 1996-2000: 1,022 – 2001-2005: 245 – 2006-2010: 293 – 2011: 52 – 2012: 49 – 2013: 82 and 2014: 88

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What VC’s Look For

Exceptional entrepreneurs to build lasting, category defining companies

A company that solves a current problem, offers a compelling value proposition

Total addressable market…a big idea in a really big market

Leading VC’s include:

Accel Partners

Andreessen Horowitz

Founders Fund

Greylock Partners

Kleiner Perkins

Sequoia

Spark Capital

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Sources of Capital

Where can I find money today: family/friends, angel, mezzanine, venture, hedge fund, Internet?

Family/Friends - Start today, right an outline of business plan, have specific goals short term long term.

Be an entrepreneur because you want to be self-sufficient, manifest destiny, start with $500

Start with Funding Yourself - Keep your day job for cash flow. Work at night and weekends emailing and researching.

I can do it. Sara Blakely, Spanx, hosier business, was started with $5,000, Kevin Plank started Under Armour, sports apparel, with $17,000

Dish Network, the nation's third-largest satellite/cable TV provider, a public company that's grown from a $60,000 startup to an empire with 14 million subscribers and $14 billion in annual revenue

Family/Friends are second choice but try to structure investment as a personal note e.g. $5,000 with 5% interest rather than offering equity.

Make the amount manageable so you can still be invited back for Thanksgiving and know that it will likely be paid out with first outside capital or cash flow.

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Sources of Capital

Angel – high net worth

High net worth investors are investors typically making +$250,000 year or have assets greater than $1 million who are looking to make a greater return than stock market e.g. +20%

Network to locate potential investors; Doctors, lawyers, benefactors of symphony, opera, museums, industry contacts, ex- entrepreneurs.

Write letters, call email to set up meetings

Attend regional venture capital events

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Sources of Capital

Social Media - Speed to market and helps set seed valuation

With a well thought out business plan, several online Angel level platforms are available.

Companies submit an application, they review it with their investment panels and give you feedback, and if they want to list your company, you’ll get a valuation as well.

Kickstarter – go-to place for entrepreneurs seeking capital for tech, games, fashion

Angellist.com – “LinkedIn for startups”

Fundersclub.com – marketplace of accredited investors seeking equity in start ups. Benefits are quick review, pre-money valuation and potential board members however you just told everybody about the next great idea! Many VC’s are co-investors in these deals.

Microventures.com – seeks start ups looking for $100k to $1M in capital. Tech focused investments. Screens companies, creates offering docs and offers to their group of online investors.

WeFunder.com – online resource for start ups and start up investors. Crowd funding where investors ($5000 minimum) review start-ups and take equity stakes.

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VC Investment Timeframe

What level of success or stability does a business need to exhibit to be an interesting investment for investors?

Function of time, business results, nature of business.

0-12 months/ up to $5 million in revenue/ cash burn up initial seed funding –attracts friends/family, self-funding

1-2 years/ up to $25 million in revenue / cash burn high with rapid increase in headcount during product development – Series A round with VC

2-4 years – Series B and C rounds, Follow on investment from original investor, new larger venture firms/ break even or better on “income statement projections”

5 – 7 years IPO, M/A or large Private Equity firm, +$100 million of revenue, profitable

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What Makes an Investment Attractive

Quality of management team

A large total addressable market

Potential revenue growth due to technical superiority or market share gain

A unique idea with path to profitability

Attractive business model and valuation

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UTA – Student Investment Committee

Case Study: Qtera Corporation

Qtera Corporation, founded in Boca Raton, FL., by a team of engineers from Alcatel, Uniphase, Pirelli, and

Siemens. Co-invested with lead investor Battery Ventures. Developed ultra- long haul optical networking

system into large TAM. A total of $43 million was raised in two rounds.

Case Study: Inbox Health Corp

Inbox Health, Madison, CT., founded by a team of that included a Doctor, software engineers, media

executive. Developed software for healthcare practices to improve billing transparency, makes payments

simpler, and improves collections. A total of $0.7 million was raised in two rounds.

• What company would you invest in ?

• What company was sold for $3.25 B after 16 months?

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How to evaluate risk

Management - Does management have a passion for the company and are they committed to achieving success? Expect VC’s to call references/background checks

Industry – Does the company provide a differentiated product that solves a problem today? Expect VC’s to call potential customers and industry contacts

Competition – Study your competition because the VC’s will know most of them

Company – What is the culture? Types employees being recruited? Expenses.

Customer Concentration – Be careful of being too reliant upon a single customer

Values – what does the company and management stand for?

Case Study: Kateeva

Kateeva, based in Silicon Valley, is a manufacturer of equipment that makes flexible glass

substrates was seeking financing this year. Great investors included; Sigma Partners, Spark,

and Madrone. We did not invest for three reasons; late stage (missed attractive valuation),

customer concentration, and technology risk.

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Assessing Quality of Management Team

What kind of personal characteristics to you look for in the managers or owners?

Self-starter, mental toughness

Trustworthy

Intelligence

History of a strong work ethic

What related experience do they have?

Have they worked together before?

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Contact Information

Stadtler Capital Value Strategies Fund, LP

c/o: Stadtler Capital Management, LLC

Attention: Kevin Stadtler

201 Main Street, Suite 1375

Fort Worth, Texas 76102

Telephone: (817) 984-4600

Facsimile: (817) 665-9157

Email: kas@stadtlercapital.com

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