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October 26, 2010

October 26, 2010. Presents:. Angel Funding for University Innovations: Outlook and Opportunities for 2011. Robert Okabe. Managing Director, RPX Group LLC Technology commercialization firm Spinout companies for universities, labs, corporations Capital Raising Expertise

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October 26, 2010

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  1. October 26, 2010 www.technologytransfertactics.com - 877-729-0959 Presents: Angel Funding forUniversity Innovations:Outlook and Opportunities for 2011

  2. Robert Okabe • Managing Director, RPX Group LLC • Technology commercialization firm • Spinout companies for universities, labs, corporations • Capital Raising Expertise • Investment Banker (debt, equity, structured finance, M&A) • Angel Investor (13 investments) • Startup Experience • Startup COO, CFO • Board of Directors and Advisory Boards • Educator • Lead Instructor, ACEF Power of Angel Investing • Adjunct Faculty, University of Illinois at Urbana-Champaign

  3. Marianne Hudson • Executive Director, • Angel Capital Association • Angel Capital Education Foundation • Spun out work from Kauffman Foundation • 25 years in technology-based economic development • BA, Kansas / MA, Rutgers

  4. Allan May • Managing Director of Emergent Medical Partners • Senior Vice President of Diasonics, Inc., an NYSE-listed medical imaging company • President and COO of Fortune Systems Corporation, a NASDAQ-traded developer of file servers • Founder, board member or CEO of a number of medical device and biotechnology startups • Athenagen (an LSA company), MAST Immunosystems, Intella Interventional Systems • Quanam Medical, ImmuneTech, NuGEN Technologies • AngstroVision, IntegriGen, Imetrx, Vascular Architects

  5. Barry Rosenbaum • 40 Years Industrial Experience in Sr Level Technology,Manufacturing, Business Experience • 32 years with ExxonMobil Chemical Polymers including 6 years in France/Belgium • Founder and VP technology Advanced Elastomer Systems:  Exxon Chemical – Monsanto JV for Santoprene TPE’s • CTO of GenCorp/OMNOVA Solutions for 8 yrs in Engineered Polymer Systems and Specialty Chemicals • 5 Years Senior Fellow with The University of Akron Research Foundation • Focus on Entrepreneurship, Innovation, and Technology Commercialization • Foster the role of Higher Education Institutions as leaders in regional Technology Based Economic Development • Founding member of ARCHAngel Investment Network to provide access to early stage capital and mentorship for start up companies • BS CHE from The Cooper Union, MS / PhD CHE from Northwestern University

  6. Angel Funding forUniversity Innovations:Outlook & Opportunities for 2011 Market Perspective Robert Okabe Managing Director, RPX Group LLC www.technologytransfertactics.com - 877-729-0959 6

  7. In 2008 627,000new employer businesses were formed

  8. In 2008 1,179 companiesobtained their 1st venture capital • Only 0.19% of all firms • One in 500 companies

  9. University Startups • Company creation by universities alone has outpaced seed stage venture capital activity • Add non-university startups and the gap is more acute

  10. Funding Geography • Venture capital imbalances are more extensive when geographic concentrations are considered

  11. Source: California Public Policy Institute Paper Time to Funding • Raw startups rarely attract VC, even in Silicon Valley/Boston • It takes even longer outside major VC markets

  12. Center for Venture Research University of New Hampshire In 2008 55,480 companiesreceived “angel” funding • Less than 9% of all firms (91st percentile) • Unfiltered odds are about 11 to 1

  13. Data: NVCA Yearbook 2010UNH Ctr. for Venture Research • US$ 17.60 billion • ~57,000 deals • 35% seed/startup • 47% early stage • Approx. 259,500 individuals Angel Investors 2009 • US$ 17.69 billion • ~2,800 deals • 9% seed/startup • 26% early stage • Total 794 firms (not all active) Venture Capital 2009

  14. Angel Funding forUniversity Innovations:Outlook & Opportunities for 2011 Angel Investing Overview Marianne Hudson Executive Director, Angel Capital Association www.technologytransfertactics.com - 877-729-0959 14

  15. Growth in Number of American Angel Groups Sources: Center for Venture Research (pre 03 data) and Kauffman Foundation/ACEF (04-09 data)

  16. Angel Groups: Small -but Important- subset U.S. Millionaires Informal Investors 3 study estimates 4,200,000 Active AngelsCenter for Venture Research 1,000,000 Investors in Angel Groups 225,000 12,000 2009 Report from Spectrem: $1 millionaires down in 2008 27%, those with $5 million down 28%World Wealth Report (Capgemini): 19% drop in HNWI and 22.8% drop in wealth in 2008

  17. Average Group Investment Activity by Year • Note: Investment numbers reflect investments per group, which is not the same as total deal size (lots of syndication) • In 2009, 60.8% had follow-on or co-investments with VC firms Source: ACA Angel Group Confidence Surveys – 2008, 2009, and 2010

  18. Average Total Investments Per Group – 2009 % of Groups Source: ACA Confidence Survey, March, 2010

  19. Group Investment Preference – 2008-2009 % of Groups Source: 2009 ACA Angel Group Confidence Survey and 2008 Member Directory

  20. Mission: Support the growth, financial stability, and investment success of its member groups. 150 member angel groups 6,500 accredited investors 20 affiliated organizations 49 states/ provinces Charitable partner: Angel Capital Association Today

  21. Angel Groups and Universities Relationship Types: • University hosts group • Partnership • Good communications

  22. Angel Funding forUniversity Innovations:Outlook & Opportunities for 2011 Life Science Angel Investor Perspective Allan May Chair, Life Science Angels www.technologytransfertactics.com - 877-729-0959 23

  23. LSA Demographics • Founded Q3/2004; First Dinner Q1/2005 • 30 portfolio companies • ~$25M invested capital • >$600M+ follow on capital • Consistent follow on investing • 2 exits; 1 license deal; 1 IPO filing; 3 failures • Members backgrounds: • CEOs, Chairmen, Founders, Senior Executives of Life Science Companies 80% • Practicing Physicians/Scientists 15% • Women comprise 17%

  24. LSA Organzational Structure • Member led group • Single employee (administrator) • For Profit structure (pays taxes) • ~100 active members • Members commit to invest min $50k/yr • Members commit to participate in due diligence • Members commit to refer deals • 20+ venture capital members • 20+ Sponsors and corporate members

  25. LSA Investment Process • Limited formal investment dinners/companies • 5-6 dinners per year; 1-2 companies per dinner • Extensive deal screening/diligence • Biotech, medical device, and Dx screening committees • 24 meetings per year each committee • Substantial due diligence in between meetings • Investment luncheon post dinner meeting • Active investing (LSA member involvement) • Formal Term Sheet/Convertible Note

  26. LSA Investment Structure • Individual investment decision, but….. • Pooled investment vehicle • Individual LLC per investment • In series to reduce legal costs/taxes • LLC acts as single investor for communications • Increases ability to negotiate terms • Follow-on; anti-dilution; board representation, etc • Information more readily available to investors • Greater public recognition of LSA participation

  27. LSA Investment Targets • Medical devices, biopharma, diagnostics • No Services; Software/IT; Nutraceuticals • Seed, A round deals (First money in) • Deals where $200k-$1M can achieve meaningful milestones (i.e., increase valuation!) • Founders listen and value experience and help • IP filed or pending, Freedom to Operate (informal) • Some proof of concept, working prototype, or animal or in vivo data • Initial presentation and financials prepared

  28. LSA Investment Targets (cont’d) • If Medical Device: • Clear regulatory pathway • Existing reimbursement coverage • If Biopharma: • Within one year of IND • Validated target • Clearly understood mechanism of action • If Diagnostic: • Test result directly impacts therapeutic decision • Test used to identify disease early as well as to predict and monitor drug response

  29. LSA Metrics (Q1 2005 -1H 2010) • Deals Initial Raised • Screened Diligence Diligence Present Money • @350/30 mo @45-50 15-20 36 30 • (some deals handled “ad hoc” or “offline’) • Average # new deals/year: 6 • Average # follow-ons: Has risen as portfolio grows- 8 in 2010 • Average investment: ~$350k but ranges from $150k - $800k • Average Investors per deal: 13 • Geography: • Local– 60% So California– 30% • East Coast– 5% Northwest– 5%

  30. Emergent Medical Ventures • $70 million medical device fund • Three general partners • 85% of medical device exits are <$120 million

  31. Strategic Focus • Focus Capital on Technology and Commercialization • Versus Infrastructure • Prove you can build it and it works first • Used focused, targeted sales ramp • Target Low Total Capital to POC/Exit • Avoid large or complex clinical trials • Seek proof of human efficacy OUS • Low Initial Capital Allows Two-Step Approach to Exits • Understand market value after early rounds; don’t keep going • Accept early >5x return except where further investment • clearly justified by clinical results/market need

  32. Thoughts on Working with Universities • “The Idea” has little value without money, teams, knowledge and knowhow, not to mention significant new IP • Average Device company needs >$20-80M/6 years • Average Biotech needs >$60M/10 years • Startups cannot get financed if there exist onerous license terms or substantial front end cash requirements • Investors are interested in seeing whether it can be built/developed and whether it will work • Universities are increasingly acting as partners in the early stage relationship with investors • Strong trend towards university equity participation • Increasing prevalence of Innovation and Entrepreneurship programs including seed capital

  33. Angel Funding forUniversity Innovations:Outlook & Opportunities for 2011 University - Angel Group Relationship Barry Rosenbaum Senior Fellow, Univ. of Akron Research Foundation www.technologytransfertactics.com - 877-729-0959 34

  34. Strategic Imperative • Be recognized nationally for technology transfer and commercialization of research • Recently won prestigious i6 award from the Department of Commerce • Outperform national benchmarks for number of spinout startup companies • Partner with industry to advance UA’s research and technology transfer goals • Expand UA’s capacity to form strategic partnerships with- • Industry, other educational institutions, and local government • To support innovation and capital investment in the region • Senior level university leadership at UA is critical to success

  35. Univ. of Akron Research Foundation • Separate 501C3 non profit established in 2001 to manage intellectual property of The University of Akron • Portal between business and UA to facilitate research and tech transfer • Can hold equity in startup companies • Leverages partnership to commercialize new technologies • Provides access to capital through ARCHAngels investment Network • Vice President of Research and President of the University of Akron Research Foundation – George Newkome • Markets the role of Tech Transfer in technology commercialization across the university research community

  36. UARF Tech Transfer Team • Experienced and business oriented Tech Transfer Team • University of Akron Employees • Associate VP Ken Preston – ex TRW • Associate VP Wayne Watkins – from Chemical Industry • Director Marketing Sue Dollinger – ex Dow • Senior Fellows • Gordon Schorr – ex Goodyear • Barry Rosenbaum – ex ExxonMobil

  37. UARF TTO Support for Startups • Identification, development, and maintenance of a protectable patent portfolio • A range of business support services- • Formation of startup companies • Strategic business plans • Financial analysis • Market assessment • Access to early stage capital • Access to entrepreneurial mentorship/validation partners through a regional ecosystem • Senior Fellows model at UARF has been effective • Sponsorship of ARCHAngel investment Network & pre-seed Innovation Fund

  38. Role of UARF Senior Fellows • Entrepreneurship • Vet internal UA and external technology opportunities • Link start ups to validation partners • Student engagements to support start ups • Create/manage pre seed Innovation Fund and ARCHAngels investment network • Innovation • Open innovation to create extended network • Innovation services to regional businesses • Technology Commercialization • Bring market focus for technology valuation • Access commercial mentors/business partners • Drive early stage start ups: possible equity stakes

  39. Univ. of Akron- Innovation Fund • In partnership with Lorain County Community College, Youngstown University, and Cleveland State University • Provide pre seed grants to regional technology based start ups • $25,000 proof of concept and $100,000 market validation grants • Funded by Ohio Third Frontier and partnering universities

  40. ARCHAngel Investment Network • Sponsored by UARF • Forum for entrepreneurship & innovation in the region • More than 450 members of the community • Presented more than 50 new startups since 2005 • Companies raised approximately $75M follow on funding • Business leader mentors provide support • Brought angels & regional business leaders to the podium • Engaged hundreds of students and young entrepreneurs • Changing the culture in Northeast Ohio

  41. Angel Funding forUniversity Innovations:Outlook & Opportunities for 2011 Panelist Discussion www.technologytransfertactics.com - 877-729-0959 42

  42. Outlook • Has the economy affected angel investing activity… • Nationally • In your regions • What are your long-term expectations for the scope of angel investing in the U.S.?

  43. University-Angel Interaction • How many university-affiliated angel groups are there? • Are economic conditions affecting the level of campus entrepreneurship… • From faculty • By students

  44. Intellectual Property • How important are patents when evaluating a university technology startup? • Does the level of foreign patent protection affect the desirability of a deal?

  45. Technology Licensing • Are license terms (royalties, patent reimbursement) reasonable given the risks inherent in a startup? • Have you turned down deals due to a difficult licensing process or onerous terms?

  46. Inventor Involvement • How much inventor involvement do you prefer to see in a spinout company? • Is know-how an important factor in product development? • Are faculty well-prepared to ”let go” of their technologies?

  47. University/Inventor Shareholding • Are shareholder rights and responsibilities well understood by- • Tech transfer offices • Inventors • How much does dilution affect the discussion?

  48. Audience Q&A • Utilize the chat box to the bottom left of your screen to submit a question to the panel. Please address your question to a specific presenter. OR • Press 01 on your touchtone phone and this will place you into the phone queue.

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