Gate2Growth is supported by the European Commission InvestorNet

Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative How to attract investors Funding schemes and private investors Paris November 27th 2007 By Uffe Bundgaard-Jrgensen, Ph.D. Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 1 Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative The paradox and the problem! There is no lack of funding possibilities! But there are thousands of good projects in vain seeking financing!

Private sources of funding require a competitive risk adjusted return of capital. But only few projects offer this return. Investors can only analyze very few projects. But entrepreneurs think they read it all, do not know how to find the right investors. Few project are tailored to meet investor requirements. And investors are really looking for high growth opportunities they can understand! BUT the diagnose of thecombined paradox & problem is: LACK OF CAPITAL ! Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 2 InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative Sources of innovation financing.

Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 3 InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative Besides public support there are basically three sources for innovation financing. Loans Provided by banks Equity Provided by investors Revenues !!! Generated from sales ! Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 4 InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative

Different view on the same project. If you gather 10 Bankers in a room and ask them to judge if a loan appliaction shall be granted. In most cases they will agreee at least on the principles. The loan decision is rather objective than it is subjective. Each bank will have the capacity to process a lot of loan applications. But if you put 10 Investors in a room and ask them if they will invest in a project presented. 8 of the Investors might prefer to run away while the two remaining investors might be facinated by the opportunity. The investment decision is rather subjective than it is objective. In contrast to the bank, the individual Investor only has the capacity to process a few selected deals.

Loan applications are typically processed by standardised methods. Investment opportunities are assessed based on personal preferences and interest, and through a thorough and sometimes lengthy due-diligence process. Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 5 Gate2Growth is supported by the European Commission InvestorNet The deal funnel - Partner in the Gate2Growth initiative Screening process Investor questions: 500 new deals/year 250 selected deals 10 min/deal If I believe in the business

plan and the budgets can I make money? 150 selected deals 20 min/deal Do I believe in the business plan and the budgets? 75 analysed deals 4 Hours/deal Is it realistic ? Can this management deliver the promised results ? 50 negotiation 10 Days/deal Ok, would you like to meet us and discuss? 5-10 investments 1 month/ investment

Are you ready to start serious negotiations. 490 rejected deals Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 6 Gate2Growth is supported by the European Commission InvestorNet The deal funnel 500 new deals/year - Partner in the Gate2Growth initiative Screening process 2 min/deal Investor questions: Do I like the business concept and - model ? 250 selected deals 10 min/deal

If I believe in the business plan and the budgets can I make money? 150 selected deals 20 min/deal Do I believe in the business plan and the budgets? 75 analysed deals 4 Hours/deal Is it realistic ? Can this management deliver the promised results ? 50 negotiation 10 Days/deal Ok, would you like to meet us and discuss? 5-10 investments 1 month/

investment Are you ready to start serious negotiations. 490 rejected deals Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 7 InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative Sector or business fit. If the Investor has experience from e.g. the Energy sector, he will immediately be interested if you say: We can cheaply store and release MW of energy in the form of hydrogen at room temperature and at atmospheric pressure and we have demonstrated it in real life! If his experience is from e.g. consumer goods, he will probably look elsewhere for new deals. Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 8

Gate2Growth is supported by the European Commission He may InvestorNet be attracted by bigger and cheaper flat screens ! - Partner in the Gate2Growth initiative Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 9 InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative but only if the technical solution is good ! Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 10 InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative The product shall be easy to understand

If you are not a scuba diver, you would not know what this strange product is and why it is good! InvestorNet - gate2growth.com 2007- page : 11 Uffe Bundgaard-Jrgensen InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative And the product shall solve a real need ! Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 12 InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative What troubles investors in the clean tech and energy sector ?

How efficient is competing technology ? How energy price sensitive is the project ? What does it cost to protect the concept and can it be done? How easy/difficult is it to scale up/internationalize? Barriers from rules & regulations in other countries? Is there a real proof of concept under realistic conditions? Dependence on political whims ! Often very capital intensive projects Lack of understanding of barrier for market uptake Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 13 Gate2Growth is supported by the European Commission InvestorNet The deal funnel 500 new deals/year - Partner in the Gate2Growth initiative Screening process 2 min/deal

Investor questions: Do I like the business concept and - model ? 10 min/deal If I believe in the business plan and the budgets, can I then make money? 75 analysed deals 4 Hours/deal Is it realistic ? Can this management deliver the promised results ? 50 negotiation 10 Days/deal Ok, would you like to meet us and discuss? 5-10 investments 1 month/

investment Are you ready to start serious negotiations. 250 selected deals 150 selected deals 490 rejected deals Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 14 InvestorNet Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 15 Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative Innovation Pre-Seed

Seed Develop business application Validate innovation potential Round A Spin out / license Structure / grow business Labs ~ 20k 100k ~ 100 500k ~ 500k 5m Risk Profile

Funding Need Time line Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 16 Round B /C InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative The risk of Dilution If more rounds of financing is expected, the early investors face the risk of dilution. Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 17 Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative More rounds and increase in valuation.

Pre-money valuation Series A Series B Series C Uffe Bundgaard-Jrgensen Amount invested Series D InvestorNet - gate2growth.com 2007- page : 18 Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative More rounds and decrease in valuation. Pre-money valuation Series A Series B Series C Uffe Bundgaard-Jrgensen Amount invested Series D InvestorNet - gate2growth.com 2007- page : 19 Gate2Growth is supported by the European Commission

InvestorNet - Partner in the Gate2Growth initiative How it should be ! Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 20 InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative But be prepared for this! Uffe Bundgaard-Jrgensen Multiple attempts InvestorNet - gate2growth.com 2007- page : 21 Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative

What does 30% or 50 % IRR mean? Required growth in company value 16000 14000 12000 10000 8000 6000 4000 2000 0 -2000 Year 1 Year 2 year 3 Company value (30 % IRR) or 3 times back Uffe Bundgaard-Jrgensen Company value year 4 year 5 Company value (40 % IRR) or 4 times back

InvestorNet - gate2growth.com 2007- page : 22ownership) (50 % IRR) or 5 times back Investment (33% Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative 5 years growth requirement & ownership % 25000 Required company value in year 5 20000 15000 Investor ownership 50 % Investor ownership 33 % Investor ownership 20 % 10000

5000 30 % IRR 40 % IRR 0 Uffe Bundgaard-Jrgensen 30% IRR InvestorNet 40% IRR - gate2growth.com 50%2007IRR page : 23 50 % IRR Gate2Growth is supported by the European Commission InvestorNet The deal funnel 500 new deals/year - Partner in the Gate2Growth initiative Screening process

2 min/deal Investor questions: Do I like the business concept and - model ? 250 selected deals 10 min/deal If I believe in the business plan and the budgets can I make money? 150 selected deals 20 min/deal Can I trust the business plan and the budgets? 75 analysed deals 4 Hours/deal Is it realistic ? Can this management deliver the promised results ? 50 negotiation

10 Days/deal Ok, would you like to meet us and discuss? 5-10 investments 1 month/ investment Are you ready to start serious negotiations. 490 rejected deals Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 24 InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative NABI discovered that the highest-cost element to municipalities was not the price of the bus per se, but rather the cost that came after the bus was purchased: Maintenance of running the bus over its twelve-year life cycle.

This made NABI create a bus unlikely any the industry has seen before. NABI adopted fiberglass in making its busses killing five birds with one stone: Fiberglass bodies are corrosive-free Body repair is faster, cheaper and easier Light weight (30-35% less than steel) cut fuel consumption Light weight allowed the use of lower-powered engines and fewer axles All examples from the Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 25 Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative The NABI blue ocean strategy! High Average U.S. transit bus Low

Initial Corrosion Purchase price Maintenance Fuel Environmental Aesthetic cost consumption friendliness design Customer friendliness Life Cycle cost Source: Blue Ocean Strategy, Kim & Maubogne, 2005 Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 26 Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative The NABI blue ocean strategy! High

NABI would not have won any tender if they had not influenced the tender criteria from Average U.S. transit bus -Product price to - Life cycle cost Low Initial Corrosion Purchase price Maintenance Fuel Environmental Aesthetic cost consumption friendliness design Customer friendliness Life Cycle cost Source: Blue Ocean Strategy, Kim & Maubogne, 2005 Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 27

InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative ProRett examples could ETV have been used ? Solar cell related project Recyckling project Academic inventor with limited business experience No serious scalable proof of concept Energy storage

Interesting technology Academic inventor with limited business experience No serious scalable proof of concept Interesting technology Limited competitor analysis and price sensitivity analysis Can be turned into an investment proposal Biofuel project Proof of concept outside lab missing Limited competitor analysis and price sensitivity analysis Business plan revised through ProRett intervention Found investors and is now on a growth track Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 28 Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative

The investor puzzel to be solved Energy efficiency documented Uffe Bundgaard-Jrgensen Technology verified Market access estimated Market Size estimated Competitors evaluated Capital requirement correctly estimated Return of investment meeting

investor requirement Regulatory compliance Management capabilities InvestorNet - gate2growth.com 2007- page : 29 Gate2Growth is supported by the European Commission InvestorNet The deal funnel 500 new deals/year - Partner in the Gate2Growth initiative Screening process 2 min/deal Investor questions: Do I like the business concept and - model ? 250 selected deals

10 min/deal If I believe in the business plan and the budgets can I make money? 150 selected deals 20 min/deal Can I trust the business plan and the budgets? 75 analysed deals 4 Hours/deal If it is realistic, can this management deliver the promised results ? 50 negotiation 10 Days/deal Ok, would you like to meet us and discuss? 5-10 investments

1 month/ investment Are you ready to start serious negotiations. 490 rejected deals Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 30 Gate2Growth is supported by the European Commission InvestorNet The deal funnel 500 new deals/year - Partner in the Gate2Growth initiative Screening process 2 min/deal Investor questions: Do I like the business concept and - model ? 250 selected deals

10 min/deal If I believe in the business plan and the budgets can I make money? 150 selected deals 20 min/deal Can I trust the business plan and the budgets? 75 analysed deals 4 Hours/deal If it is realistic, can this management deliver the promised results ? 50 negotiation 10 Days/deal Ok, would you like to meet us and discuss? 5-10

investments 1 month/ investment Are you ready to start serious negotiations. 490 rejected deals Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 31 Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative Investor Investor Investor Investor Investor Investors Management company A typical

VC fond Portefljeselskaber Portefljeselskaber Portefljeselskaber Fund I Fund I Fund II Portefljeselskaber Portefljeselskaber Portfolio companies Portfolio companies Portfolio companies Portfolio Portefljeselssskaber companies Portfolio companies Portefljeselssskaber Portfolio Companies Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 32 Gate2Growth is supported by the European Commission InvestorNet

- Partner in the Gate2Growth initiative Need 2 % to manage and will request 10 20 % carried interest Management company Portefljeselskaber Portefljeselskaber Portefljeselskaber Portefljeselskaber Portefljeselskaber Portfolio companies Investor Investor Investor Investor Investor Investors Fund I VC Fund I Investors request not less than Libor + 8% to 10 % Fund II

Each Fund shall receive 15 % IRR Portfolio companies Portfolio companies Portfolio Portefljeselssskaber companies Portfolio companies Portefljeselssskaber Portefljeselssskaber If risk is 50 %, then each Portfolio co. shall have the potential to generate 30+ % IRR Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 33 Gate2Growth is supported by the European Commission InvestorNet - Partner in the Gate2Growth initiative New trends in the market. Capital requirement IPO/Stock market Corporate investors/ Large Venture Funds Business Angels

Venture Funds FFF Seed Bank loans Start-Up Uffe Bundgaard-Jrgensen Development Growth M&A/Restructuring InvestorNet - gate2growth.com 2007- page : 34 InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative Understanding investors is imperative ! There is a need to understand how investors think and why they act as they do. It is also relevant to know how they analyze investment opportunities.

There is a need to understand the fund raising process from the start to the investment has been made and finally to the exit. There is a need to understand how to structure the offering to the Investor and how to make a business plan that become the project of his dreams! . There is a need to know about the most important documents, and how they play a role in the negotiation process. Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 35 InvestorNet Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 36 Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative

InvestorNet Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 37 Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative InvestorNet Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 38 Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative InvestorNet Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 39 Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative

InvestorNet Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 40 Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative InvestorNet Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 41 Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative InvestorNet Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative What is considered as a good investment ? The business potential and strength and competence of the management team. Good fit with investor preferences.

The possibility to protect the business concept and the growth potential. Substantial capital gain possibilities. Predictable environment = not too much depending on political decisions Clear and realistic exit possibilities for the investor. Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 43 InvestorNet InvestorNet Address : SCION-DTU Diplomvej 381 DK 2800 Kongens Lyngby DENMARK Phone: (+45) 39 307 307 Fax : (+45) 39 642 396 Mobile: (+45) 40 521 645 E-mail: [email protected] Uffe Bundgaard-Jrgensen InvestorNet - gate2growth.com 2007- page : 44 Gate2Growth is supported by the European Commission - Partner in the Gate2Growth initiative

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