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VC / Angel Investor Workshop

Silicon Valley Innovation Center September 15, 2015

www.rubicon.vc

GENERALSOLICITATION

LEGAL DISCLAIMER

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Under no circumstances should any material in this presentation be used or considered as an offer to sell or a solicitation of any offer to buy an interest in any individual company or investment fund managed by Georgetown Angels (Rubicon Venture Capital LLC and Georgetown Angels Fund I DBA Rubicon Venture Capital). Any such offer or solicitation will be separately made only by means of the Confidential Private Offering Memorandum relating to the particular fund to persons who, among other requirements, meet certain qualifications under federal securities laws and generally are sophisticated in financial matters, such that they are capable of evaluating the merits and risks of prospective investments. Copyright © 2014 All rights Reserved Georgetown Angels & Rubicon Venture Capital.

This Confidential Investor Presentation has been prepared for discussion purposes only. It is being delivered on a confidential basis to specified parties solely to assist them in deciding whether to proceed with their investigation of Rubicon Venture Capital (the “Company”). This Investor Presentation does not purport to contain all of the information that may be required or relevant to a recipient’s evaluation of the Company. The distribution and use by each recipient of the information contained herein and any other information provided may not be distributed, reproduced or used without the express consent of the Company or for any purpose other than the evaluation of the Company.

Neither the Company or any of its affiliates or representatives makes any representation, warranty or guaranty of any kind, express or implied, as to the accuracy, completeness or reasonableness of the information contained herein or any other written or oral communication transmitted or made available to the recipient. The Company and its affiliates and representatives expressly disclaim any and all liability based on or arising from, in whole or in part, such information, errors therein or omissions therefrom.

This Investor Presentation includes forward-looking statements and projections provided by the Company. Such projections and forward-looking statements reflect various assumptions of management concerning the future performance of the Company, and are subject to significant business, economic and competitive uncertainties and contingencies, which are beyond the control of the Company. Actual results may materially vary from anticipated results. No representations or warranties are made as to the accuracy or reasonableness of such assumptions or the projections or forward-looking statements based thereon. Only those representations and warranties that are made in a definitive written agreement relating to a transaction, when and if executed, and subject to any limitations and restrictions as may be specified in such definitive agreement, shall have any legal effect. Each recipient should make an independent assessment of the merits of pursuing a transaction and should consult its own professional advisors.

The delivery of this Investor Presentation should not imply that there has been no change in the business and affairs of the Company since the date of the Investor Presentation. Neither the Company nor its affiliates or representatives undertakes any obligation to update any of the information contained herein. The Company is free to conduct the process for the transaction as it determines in its sole discretion (including without limitation, ceasing to proceed with any transaction, terminating further participation in the process by any party, and entering into an agreement with respect to a transaction without prior notice to you or any other person) and any procedures relating to such transaction may be changed at any time without prior notice to you or any other person.

THESE MATERIALS ARE PROVIDED FOR CONVENIENCE ONLY AND MAY NOT BE RELIED UPON. PROSPECTIVE INVESTORS MAY RELY ONLY UPON THE FUND’S PRIVATE PLACEMENT MEMORANDUM OR AN OFFICIAL SUPPLEMENT THERETO

Confidential To Recipient

www.rubicon.vc3

andrew@rubicon.vcTwitter: @RomansVentures

www.linkedin.com/in/romans• Very active venture capitalist in Silicon Valley & New York – Rubicon Venture Capital – roughly 1 new investment per month – unique value add platform for startups

VC-backed Entrepreneur - The Global TeleExchange (The GTX), a $50M venture-backed telecom VoIP venture…Raised $27m from Lucent Technologies + $20m VC• VC investment banker / advisor - Georgetown Venture Partners & Georgetown Angels

• Founder of The Founders Club (42 VCs on the advisory board)

• Author and frequent venture capital speaker on CNBC & msnbc

• Fluent in English, German & French, conversant Slovak – lived 15 years in Europe• BA University of Vermont, Duke University, FU Berlin, MBA in Finance from Georgetown University on scholarship

ANDREW ROMANS, RUBICON VENTURE CAPITAL

www.rubicon.vc4

TRANSLATED INTO CHINESE & RUSSIAN

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• Overview & analysis of the market from Pre-Seed, to Seed, Later Stage Seed

/ Seed Extension, Series, A, B, C, D to the private IPO phenomenon -

understanding trends - which are crowded, overpriced, underpriced and key

risk points

• Why investing now is more attractive than ever before

• What industries, sectors, company stage and geographies are best for you 

• Convertible notes - key points and the meaning beyond the moving parts

PROGRAM FOR THE DAY 1 /3

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• Priced equity rounds - key points and the meaning beyond the moving parts

• Valuation concepts on pricing valuations when investing, exiting and risk

tied to perceived exit multiples

• Portfolio construction strategies for angels and VCs - how to allocate your

capital 

• Best practices for sourcing deal flow and conducting due diligence 

• Tactics to get into oversubscribed deals

PROGRAM FOR THE DAY 2 /3

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• Strategies for continuing to invest in portfolio companies a 2nd, 3rd, 4th, 5th

time, etc

• Best practices for post investment information rights, governance, adding

value and Different options to invest ranging from Angel List, to other

investor platforms, angel groups, demo days, accelerators, VC funds, SPVs,

tax breaks for UK, EU and Israeli taxy payers

• Different options to get liquidity on the secondary market before definitive

liquidity event for startup / how to sell some stock before the final exit

PROGRAM FOR THE DAY 3 /3

www.rubicon.vc

Secondaries

THE PROCESS OF STARTUP FINANCINGS

Founders, Friends,

Family, Credit Cards &

Customer Revs

Pre-Seed

Seed(Demo

Day Context)

Seed Extension / Later Stage

SeedSeries A Series B

Series C Series DPre-IPO / Mezzani

ne

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DIFFERENT STAGES OF INVESTING

Pre-Seed Demo Day Seed

Later Stage Seed

Series A Series BPre-IPO

Growth & Secondari

es

Smart, but a lot of work / needs a

machine

Crowded easy to access

over priced

Less easy to access slightly over priced

Difficult to access optimal risk / reward

Difficult to access optimal risk / reward

Crowded difficult to access

over priced w/protection

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TECH VC MORE ATTRACTIVE NOW THAN EVER BEFORE

• 5.6x more Internet users now than in 2000. Women who make more than 50% of consumer purchase decisions are online (fixed and mobile).

 • Broadband connections are 120x faster. 1995 56k modems > today

6.7 Mbps average US Internet connection.

• People are mobile connected everywhere all the time. Personal, location aware, at point of purchase. 138m US smartphone users, up 18.8% since 2012. 99m US tablet users, up 42.3% since 2012.

• Everyone socially connected driving viral growth rates. Facebook 1bn active monthly users. Twitter 288m. LinkedIn 200m. YouTube 4bn+ hours of video watched by 1bn+ monthly users.

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TECH VC MORE ATTRACTIVE NOW THAN EVER BEFORE

• Everyone has credit cards with single click to purchase. Apple ecosystem $25bn up from zero in 2008

• Amount of LP money addressing series A & B down. Most so-called VC dollars are investing in growth not VC. Amount of actual committed VC capital is far less now than in 1998 and today’s system should require more to be right-sized

• Amount of money investing in Seed increasing. Number of startups being created is increasing brings more funded deal flow to A & B rounds where Rubicon is focused

• VC is the best place to position for a shift in the economy or correction of possible bubble. Pre-Seed, Seed, Growth and PE will be hit hard compared to early stage VC

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1999 VS 2014 – WE ARE NOT IN A BUBBLE

1999 2014US tech funding $ $71bn $48bnFunding as % US Tech GDP

10.8% 2.6%

S&P IT index forward P/E 39.0x 16.1x

Global Internet Population

0.4bn people 3bn people

US e-commerce revenues $12bn $304bn

Number of IPOs 371 53Median time to IPO 4 years 11 years

Source: Andreessen Horowitz

70% of VC dollars are actual private IPO expansion capital / Not enough VC cash in system

www.rubicon.vc13

SECTORS, STAGE & GEOGRAPHIES BEST FOR YOU? 

Internet & Software

Consumer

Enterprise

Hardware

Cleantech

Medtech

Biotech

GEOGRAPHY

SECTOR FOCUS

STAGESeedLater

Stage

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THE DIFFERENT PROCESSES OF A VC’S JOB

Plan Fund / unique

positioning

Recruit team

Source deals

Vet deals and Due Diligence

Seduce the CEO &

other VCs

Complete investment

Collect info to make future investment decisions

Add value to investment & improve your

reputation

Impact the exit

Collect info & report to LPs / Events

Build VC brand and

recruit more team

Raise next fund

Where do you fit or what makes you interesting enough to start a fund?

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• Why convertible note vs a priced round?• Cap or discount rate to the next priced round – lower

of the two• Discount rate - 10% to 30% - 20% is the norm –

uncapped notes?• Interest rate – 4% to 8% - 5% or 6% is the norm• Conversion feature – what happens if NewCo is sold

prior to a priced round. 1x, 2x, 3x or cap• Maturity date or SAFE note – 12, 18 or 24 months• What’s behind the moving parts?• Pricing for success

CONVERTIBLE NOTES

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• Pre-money valuation = $10m (classic example)• Size of financing round = $5m (classic example) • Post money Valuation + 15m (pre + round)• % to new investors = round / post (small number / big number = 33% in this

example. Modern times investors get less – in-your-head-math pre is 2x size of round on 33% deal)

• % dilution to insiders (1-% to new investors)• Target 10x upside for early / 4x upside for later stage• Liquidation prefs, pro rata rights, information rights, governance• Get a 1x liquidation pref or walk otherwise founders & existing investors are

not confident• No pro rata and we walk away at Rubicon• If we don’t have good close working chemistry with CEO we walk away

PRICED ROUNDS

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LIQUIDATION PREFS STRUCTURING

• Seed stage investors should get a 2x liquidation preference and win in acqui-hire exits (McClure is one of few that pulls this off – very smart, but hard to get)

• All other investors should get 1x liquidation prefs• Newest investors investing at high valuations may get

1x senior liquidation pref, or 1.2x or higher to justify high valuations

• Use liquidation prefs in concert with valuations and secondaries

• Buying founder shares without liquidation prefs is dangerous and should be priced accordingly – structured deals such as investor makes 1.5x and then splits with seller

• Only use law firms active in the local market place and use standard terms

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• Most VCs have some kind of focus on stage, sector and geography and often strategy is driven by investors in the fund

• Timeless elements in the investor decision making equation…

• Team is number 1 – MANAGEMENT, MANGEMENT, MANGEMENT!!!!!!!!!!!!!!!!!!!

• Market is number 2 and don’t invest unless you have 1 and 2 – IT’S GOT TO BE BIG to cover fees and risky losses

• Team must be a fit to take on the market – subject matter experts born to disrupt that market

• Product - VC is typically product centric. Technology must be a miracle to drive growth and keep out competitors. Never be seduced by a product with bad management and no clear market

• Traction – in a horse race if your horse is in the lead and you drop rocket fuel funding…

• Investor value add – @Rubicon if we can’t add value we don’t invest

• Take on a lazy incumbent – if one big fat lazy company has 80%+ of the market a new startup can disrupt and take a slice and make a 100x for investors

WHY INVEST? WHAT’S MOST IMPORTANT?

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• 10x potential for early investments

• 4x potential for later stage investments

• 2x potential with 1x downside near zero risk protection via prefs for large amounts

• Get 1x senior liquidation pref for each investment / prefs and pre-money are interchangeable

• Performance warrants – get paid if you are super value add

• Make sure each valuation is low enough that each next financing will be an up-round. Down rounds kill founders, early and small investors

• Know the market and do some math. Sanity check your numbers and back your way into a valuation to make sure the return is commensurate with the risk

• Can you afford to wait 3 or 7 years before the first exit? Who are you?

VALUATIONS & STAGE

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• What’s your total amount of capital to be invested over how long a period of time?

• Startup and stage diversification• Vintage diversification – investing at the top of a

bubble curve vs bottom of downturn• How many investments will / can you make over a 3

year period?• What’s your average first check size, follow on check,

reserve amount?• What stage can you muscle into?

PORTFOLIO CONSTRUCTION 1/2

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• Can you access more money next year, next, next, next year?

• VCs with 8 investments in the fund are crazy• VCs investing in 15 over 5 years are crazy• Pre-seed requires 100+ diversification• Seed requires 30+• Series A should have 20+• Optionality concept: invest in 25 and throttle 50% of

fund capital into top 5 to 10 performers • Later stage should target 10 to 25

PORTFOLIO CONSTRUCTION 2/2

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IMPORTANCE OF DEAL FLOW & ABILITY TO CLOSE

• Deal flow is the life blood of a fund• A fund with 3,000 high quality deals per year is

better than a fund with 1,000 high quality deals per year

• A fund with lots of bad deal flow is worthless• Deal flow is not enough, investors must convince

the CEO, founders & other VCs that you add value not just capital or stupid enough to over pay

• Must have ability to demonstrate what value you bring beyond just cash

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• How can you see 100% of all the deals

• Big funnel, invest in small sub-set

• Blogs, Twitter, books, TV

• Produce and attend events

• Lots of public speaking

• How can you get other VCs to bring you deals?

SOURCING DEAL FLOW AND CONDUCTING DD

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• Strategy /brand to be unique

• Strategy /brand to source new deals

• Strategy /brand to close into the oversubscribed deal

• Strategy /brand to make all founders and VCs love you

and want to work with you

• Strategy /brand to raise more capital

WHAT’S YOUR BRAND?

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• Adding value

• Information rights

• Governance

• Continuing to invest in portfolio companies

• Accessing enough information to make future

investment decisions

POST INVESTMENT GAME

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• Angel List & other investor platforms

• Angel groups – hunt in packs

• Accelerators, demo days & pre-demo day investing

• Tax breaks for UK, EU and Israeli tax payers

• Special Purpose Vehicles (SPVs)

• Invest into VC fund, Fund of Funds or start a corporate VC

• Start your own fund & all of the above

DIFFERENT OPTIONS TO INVEST

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• How to get your money out after investing

• M&A trade sales

• IPO

• Secondary market for direct investment

• Secondary market for LP interest

• Investment pace and positioning for vintages

THE LADDER TO LIQUIDITY

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• 2% annual management fee

• 20% carry

• Dynamics around 2 & 20

• Stacking fees and diversification among vintages

• Positive dynamics of multiple funds at once

VENTURE CAPITAL REVENUE MODEL

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• Financial return• Access to innovation• Access to information in Silicon Valley, New York,

London and Israel• Protection against becoming obsolete• Leverage existing resources and capabilities • Response to deferred IPO• Personal goals• Become a VC

WHAT ARE YOUR TOP OBJECTIVES AS AN INVESTOR

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RUBICON FUND THESIS

Our thesis: If we can’t add value we don’t invest How we add value: Network of angel, corporates and institutional investors across the US, Canada, Europe, China and Japan

A new model of venture capital: Investors in Rubicon’s fund may co-invest on a deal-by-deal basis

Sidecar funds pay part of their deal-by-deal carry / profit as a distribution to the main fund. Better for startups, better for investors, better for Rubicon: win-win-win

www.rubicon.vc31

INVESTMENT FOCUS

Geography: Silicon Valley & New York Offices, US-focus, may invest globally but prefer Northern Europe (London, Stockholm, Berlin, Amsterdam, Paris)  Sector focus: Software/internet companies and some hardware/software Enterprise and Consumer

Stage:• Raised a min of $1 million already• Must see at least one other VC in the deal with us• Current round provides 18 to 24 month runway• Potential for 10x return• Seeing significant traction—typically in terms of revenue

growth but also user growth and engagement• Capital efficient businesses with potential to grow very

quickly

www.rubicon.vc32

CO -INVESTMENT MODEL

VC Fun

d Invests in

later

stage

seed

VC Fun

d Invests in VC Series

A & B

Sidecar

Invests in

Later

Stage

Growth LPs Co-

Invest with the VC Fund

LPs Co-Invest

with the Fund

LPs may Investuntil Exit

Investors in our VC fund may co-invest with our fund from later stage Seed, to Series A to very late stage pre-IPO rounds typically too late for most VCs. Investors only co-invest in the deals they like

Angels, family offices & corporates deserve the same access to high quality deals and terms as VCs, not just angel financings

www.rubicon.vc33

14 COMPANIES IN 16 MONTHS TARGETING 25

Superhuman Labs

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RELATIONSHIPS: WHO WE INVEST WITH

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Masters of Corporate Venture Capital

Every corporate with $1bn revs should launch a FoF and CVC

CVC should sit right next to Corp Dev and Strategy

NEXT BOOK

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Do 2 favors for someone you meet tonight It’s the magic dust

Make 2 intros for someone from tonight. Good karma will come back to you

Crossing the Rubicon

In the centuries since Julius Caesar led a Roman legion across the Rubicon River, “crossing the Rubicon” has become

synonymous with irrevocably committing oneself to a bold and revolutionary course of action. At Rubicon we’re committed to revolutionizing venture capital and building a lasting venture

capital franchise to last many generations.

Andrew@Rubicon.vc

QUESTIONS & DISCUSSION