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Prepared for Technology Awareness Forum January 19, 2005

Nanotechnology: A Look Into the Invisible Future. Prepared for Technology Awareness Forum January 19, 2005. Agenda. Venture Capital Industry Funding Environment for Nanotech Is the VC Industry Interested in Nanotech Venture Firms Investing in the Category What Venture Capitalists Look for

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Prepared for Technology Awareness Forum January 19, 2005

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  1. Nanotechnology: A Look Into the Invisible Future Prepared for Technology Awareness Forum January 19, 2005

  2. Agenda • Venture Capital Industry • Funding Environment for Nanotech • Is the VC Industry Interested in Nanotech • Venture Firms Investing in the Category • What Venture Capitalists Look for • Capturing the Attention of Venture Investors • Summary

  3. Venture Capital Industry

  4. Venture Capital Investments($ in 000s) ~ ~ $50,000 $45,000 $54.5 B Est. $20.0 B $40,000 $105.9 B $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 2002 2003 2004 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1980 1981 1982 1983 1984 1999 2000 2001 Source: Thomson Venture Economics

  5. Uninvested Venture Capital“Overhang” still Significant $53.4 Billion Source: SVB Estimates & Venture Economics

  6. Overhang AnalysisAvailable Cash/Investment Rate Current Overhang / Expected Investment

  7. Capital Raised by Venture Funds

  8. Early-Stage as a % of All Venture Capital

  9. Venture Capital and Nanotechnology

  10. Deals / Companies / VC Firms2001 - 2004

  11. Avg. per Deal / Company / VC Firm2001 -2004

  12. Nanotech Investments by VCs2001 - 2004

  13. Good News $200 Million Annually

  14. Not So Good News Only 1% of Venture Investments

  15. Federal Funding Nano R&D $116M in 1997 to $961M in 2004 An 8x Increase….

  16. Draper Fisher (10 deals) Harris & Harris group (9) Ardesta/MEMS Tech (4) NGEN Partners (NextGen Partners) (4) Sevin Rosen (4) Zero Stage (4) Alloy Ventures (3) Arch Venture Partners (3) CB Health Ventures (3) Eastman Ventures (3) Morgenthaler (3) New Enterprise Associates (3) SBV Venture Partners (Sigefi, Burnette & Vallee) (3) Leading Nanotech Investors

  17. Top Ten > 25% of Market

  18. Top Ten Venture Investor vs.Industry Average

  19. Which Way is the Wind Blowing? • Bulk of the Investments • Tools • Distant Second • Optics • Close Third • Bio/Pharma; Materials; and, Solar/Power

  20. What Venture Capitalists Look For

  21. 1954 Vision for Home Computer

  22. Old User Experience

  23. Google Amazon.com Apple Computer Genentech eBay Samsung Electronics Yahoo! Electronic Arts Pixar Cisco Systems New User ExperienceTop 10 Wired 40

  24. Management Relevant domain expertise Fundable Product/Service Explicit customer need Clear and compelling value proposition (ROI) Market Size (> $100M) and sustainable business drivers Target segment well defined Validation Customers, customers, customers Maturity of the distribution plan Deal Reasonable valuation and terms Raising enough money to hit meaningful milestones Mini Due Diligence ProcessIs it “Venture Capable”

  25. Management

  26. Investing In Talent Factors considered most important by investment professionals (Weighted importance out of 100*) Management Team 37 24 Market Sector Business Model 20 Proprietary Product/Service 19 Source: Spencer Stuart/NVCA VC-backed Leadership survey

  27. “As a founder, think hardest about the team. Are these the people I want to be in trouble with for the next 5, 10, 15 years of my life? Because as you build a new business, one thing’s for sure: you will get into trouble.”John Doerr, Kleiner Perkins Caufield & Byers

  28. Product/Service

  29. Sustaining vs. Disruptive Technologies • Sustaining Technology • Foster improved product performance • Disruptive Technology • Bring to the market a very different value proposition The Innovator’s Dilemma – Clayton Christensen

  30. Sustaining Technology B A Sustaining vs. Disruptive Technologies Cost Sustaining Technology • Improves performance along an existing utility curve Performance

  31. B Disruptive Technology A Sustaining vs. Disruptive Technologies Cost Disruptive Technology • Moves the market to new utility curve Performance

  32. Market

  33. Market Characteristics • Worth Winning • $250 million • Sustainable Drivers • Y2k • Well Defined • Subsegment

  34. Validation

  35. Seeing the FutureBeta Users, Customers and Distribution

  36. Deal

  37. Return Expectations 5-10x your investment or 30%+ IRR

  38. Sherpa Pocket Guide to Success Quick Go vs. No Go Decision (4x in 5 Years = 32% IRR)

  39. Summary

  40. “It is not the strongest of the species that survives, nor the most intelligent; it is the one that is most adaptable to change.” Charles Darwin, British Naturalist

  41. Sherpa Partners, LLC5050 Lincoln Drive - Suite 490Minneapolis, MN 55436 Rick Brimacombwww.sherpapartners.comDirect: 952-942-1074Main: 952.942.1070

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