NorthCap Partners

“Building businesses is our strength”

How to Attract Start-up Financing

Aditus Network, 2010

Jacob Bratting Pedersen

Agenda

� Intro to NorthCap Partners� Financing options� Venture capital value adds� Requirements for obtaining

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� Requirements for obtaining financing

� What to do as a new graduate?� How VCs think – advice from an insider

NorthCap Partners

� NorthCap Partners is a venture capital manager with 2 funds under management (IVS A/S and IVS Fund II K/S)

� Total committed capital MDKK 600

� Stage independent ICT investments

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� Highly experienced team with operational background in the ICT sector

� Track record with multiple successful international exits

� Currently 7 portfolio companies

Jacob Bratting Pedersen

Background

� M.Sc.BA and Commercial Law (cand.merc.-jur)

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� M.Sc.BA and Commercial Law (cand.merc.-jur) from CBS. Executive courses Harvard BS, INSEAD and MIT

� 3 x Entrepreneur (web design, audio technology, market research)

� Venture capitalist for 8 years

� International experiences – 3 years in Israel, 2 in New York

Financing possibilities

FFF – Friends, Fools and Family� Easy access – don’t have to build credibility� Less valuation sensitive� Limited value add� Limited amounts� Can be uncomfortable around Christmas if investment does not

work out� Don’t get too many shareholders

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� Don’t get too many shareholders

Angel financing� E.g. Rainmaking, Danish Business Angel Network (DBAN)� Typically MDKK 0.1 – 4.0 as initial investment� Find people that knows your industry, can open doors and add

value� Let high caliber people get “sweat equity”, but try also to get a

cash investment from them � Equity stake 15-40%� Can be emotional investors

Financing possibilities

Incubators� Typically MDKK 1.0 – 1.5 as initial investment� Equity stake 20-25%� From 2010 they can invest more in later rounds� Value add differs a lot – screen the person responsible

Vækstkaution� Requires bank approval of loan up to MDKK 10

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� Requires bank approval of loan up to MDKK 10� Risky option but no equity dilution

Venture capital� Possibility for ICT, health care and clean-tech companies� Typical lifetime investment of MDKK 10 – 70� Equity stake 15 – 40%� Hard to get - often waste of time for seed stage companies, but

an option for expansion stage companies to enter “hypergrowth”� Significant involvement and value add, but also demanding� Deep pockets and long term investor (investment horizon of 3-6

years)

Contribution Effects Impact examples

NorthCap Partners’ contribution to portfolio companies

• Enable aggressive growth

• Attract high calibre people

• Funding with other local investors

• Partnerships with US investorsCapital

• Scalado 71% CAGR 2006 - 2009

• Kapow CEO

• Nangate DKK 50m A-round with local investors

• Kennet, Vantage Point, Steam Boat and Open View

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• Management candidates

• Board members and advisors

• Early exposure to acquirers

• Sales leads and market visibility

• Sales execution

• Internationalization

• Corporate execution

• Financial operations

• Exit strategy and execution

Network

Business

• Zmags senior executive from Instadia

• Kapow board composition

• Scalado contact to partners/acquirers

• Octoshape contact to US media partner

• Scalado interim CEO and CFO

• Relocation of HQ for Zmags and Kapow

• Interim CEO in Ascio leading to trade-sale exit

• Driving 7 high value exits in 24 months

What are we looking for in an investment?

� Team:World-class teams with relevant experience and/or attitude

� Traction:Proven technology and business model

� Uniqueness:

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� Uniqueness:Unique platform for international growth: Technology, Partnerships, Business concept

� Market:Attractive and international market potential

Just out of CBS

Just out of school and wanting to start a new business

Brilliant business concept, but:

� No name

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� No customers and

� No money honey

� What to do?

Build a name

� Assemble the best possible management team with complementary resources

� The right energy and attitude can make up for a lot

� Show that you are willing to put 200% of your energy into the business, and will work day and night to make it

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the business, and will work day and night to make it succeed

� Get a name/credibility by attracting experienced profiles to your board/advisory board

� Let them invest (capital, time and resources)

� Underpromise – overdeliver

Get customers / proof of value proposition

� Interview possible customers for validation/adjustment of value proposition before developing anything – everybody wants to be an expert

Very important:

� Show the pain – why there is a serious need for your

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� Show the pain – why there is a serious need for your product – not just a nice to have but a must have

� Make your value proposition very clear – why you have THE solution for the pain!

� Make sure you show exactly how you plan to make money!

� Customer money is always preferred to investor capital

Get customers / proof of value proposition

Be realistic

� Base the projections on realistic assumptions - make realistic and precise niche market assessments (don’t say: “We will target the global online advertisement market, which amount to DKK 500 billion yearly”)

� Instead: “We will initially build our position in the

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� Instead: “We will initially build our position in the Scandinavian market for video advertisements in movies on demand served by Scandinavian cable operators. The current no. of paid on demand movies amounts to ….

� From interviews with leading advertisers and operators we know that they will pay DKK 2 for each video commercial leading to a total addressable current market in Scandinavia of …

� We expect to capture 4% of this during our first year of operation and generate DKK … in revenue”

No money

� Seed stage money are the most “expensive”

� Bootstrap the company as much as possible initially, but be prepared to take in capital when the business model has proven its scalability

� Don’t waste time addressing venture capitalists too early

� Get advice on deal terms from other entrepreneurs and

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� Get advice on deal terms from other entrepreneurs and from professional investors

� Don’t be secretive or suspicious – communicate openly and freely with potential investors

� Develop in-depth knowledge of your market and competition before seeking investors

� Don’t be discouraged – perseverance is often a key ingredient to your success

How VCs think – advice from an insider

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How VCs think – advice from an insider

Keiretsu score

Category

Score0 = weak1 = good

2 = strong

Characteristics Comments

Value proposition 1Product, value proposition for customers, clear problem, seriousness of problem, willingness to change.

Some obstacles to change in terms of web-site redesign and involvement of IT-department, but otherwise clear and easily communicable value prop.

Business model 1Scalability, ability to capture margins & value, sales cycles, uniqueness, disruptiveness, position in value system.

5% of sales increase but capped for large customers at USD 20k per months, which limits the scalability

Market 2Market potential, growth, value system and margins, market trends, competition.

The e-commerce market is growing at around 30% in company’s key markets

Revenue, growth, customers, markets, sales model, KPIs.

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Traction 2Revenue, growth, customers, markets, sales model, KPIs. Early stage: R&D progress or other relevant KPIs.

Landed a no. of leading European e-commerce sites

Team 2The right team for the next 1-2 years: Team background, track record, competencies. Strong vision, willingness to listen and change.

Strong team background – McKinsey, Accenture, and previous start-up experience

Technology 2Barriers-to-entry, technology advantage, patents, ability to dominate, hard to immitate, disruptiveness, innovation level.

Alghorithm based technology for behavioral targeting. Innovative.

Exit routes 2Exit candidates, ability to acquire, IPO possibilities, potential exit multiples. Current and potential exposure possibilities.

Several exit possibilities like Omniture, Google etc.

Terms 0Capital structure, valuation, terms, control mechanisms, investment case (IRR), financial risk, capital amount.

Expected high valuation

Total 16Add scores for total score 0-20.Note: multiply traction and team by 2x.

x2

x2

Investment

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Investment

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Proven ability to drive growth

DKK 1,000 US US DK DK SE DK DK

Portfolio company IntelePeer Kapow Nangate OctoShape Scalado Visiopharm ZmagsRevenue 2007 143.450 36.473 2.999 1.233 20.249 12.031 8.232

Revenue 2008 221.838 39.910 13.163 3.763 55.224 16.303 23.993

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• Very strong revenue growth in portfolio

• Median Compound Annual Growth Rate (CAGR) for 2007 to 2009 is 91%

• Portfolio outperforms the Danish ICT industry index with a factor 4 on both revenue growth and gross profit

Revenue 2008 221.838 39.910 13.163 3.763 55.224 16.303 23.993

Revenue 2009 405.653 48.932 22.134 7.347 73.730 17.000 39.841

Revenue increase 07 to 08 55% 9% 339% 205% 173% 36% 191%

Revenue increase 08 to 09 83% 23% 68% 95% 34% 4% 66%

CAGR 07 to 09 68% 16% 172% 144% 91% 19% 120%

Portfolio Companies

Imaging analysis for medical industry

Invested in 2007

NCP responsible:Thomas W. Knudsen

Digital publishing service for medias

Invested in 2008

NCP responsible:Kim Wiencken

IP peering and registry service

Invested in 2006

NCP responsible:Thomas W. Knudsen

Enterprise mash-up platform

Invested in 1999

NCP responsible:Thomas W. Knudsen

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EDA platform for radical perf. improv.

Invested in 2006

NCP responsible:Thomas W. Knudsen

Imaging platform for mobile devices

Invested in 2005

NCP responsible:Kim Wiencken

Efficient and scalable IP streaming

Invested in 2003

NCP responsible: Thomas W. Knudsen

Featured Investments: From startup to exit

Start up 5 employees

Strategic change from B2C domain registration to B2B brand management

InternationalizationS, N, D, CH

Acquired in 2007 by

Key management hiresInternationalization

Acquired in 2007 by

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Spin off from consultancy company.4 employees

Danish Top 200, Key references abroad

InternationalizationSales offices in S, D, UK

Acquired in 2007 by

Start-up3 employees

InternationalizationS, N, Baltics

Acquisition of Swedishand Norwegiancompetitor

Q&A – shoot!

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Q&A – shoot!

NorthCap PartnersScion-DTU Research Park

Diplomvej 381DK-2800 Kgs. Lyngby

Denmark

Contact Information

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Denmark

E-mail: info@northcappartners.com

Jacob Bratting Pedersen+45 40 13 92 44

jbp@northcappartners.com

www.northcappartners.com