www.cvg.org

Endowment and Foundation Venture Investing

Anlyan Center AuditoriumYale University

New Haven, Connecticut

May 10, 2012

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Welcome

Gregg LallierPartnerUpdike, Kelly & Spellacy

Welcome

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Deal Lead

CVG Sponsors

B Round

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Our SponsorsA Round

Venture Capital Sponsors

Professional Service Firms

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Gregg Lallier

PartnerUpdike, Kelly & Spellacy

Legislative Update 2012

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Panel Moderator

Stephen BlochGeneral PartnerCanaan Partners

CVG

www.cvg.org

» 20 year old global firm with offices in Silicon Valley | New York Corridor | India | Israel

» $3 Billion assets under management across 8 funds

» Technology + Healthcare focused

» Early-stage investments (Series A/B)

» 122 successful exits

» 164 years investing experience

» 142 years operating experience

» 4 former CEOs

» 3 MDs and 2 PhDs

About Canaan Partners

www.cvg.org

• $600 M closed January 2012• Diversification strategy

– 1/3 Healthcare, 2/3 Technology – 75% U.S., 25% India & Israel

• Primarily early-stage focus >75% of investments

• Lead or co-lead >90% of transactions

Canaan IX

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• How we find interesting opportunities– Network, network, network– Repeat entrepreneurs in 20% of our companies– Constant marketing to entrepreneurs in various forums

• What we look for in start-up companies– Large market opportunities– Teams that can execute and that have a track record– Highly-differentiated technologies

• Team-oriented assessment process– 1st and 2nd for each investment opportunity– ALL investments go through the same process– Weekly, monthly, and quarterly discussions of all investments

Business Approach

Business Models

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Venture Capital InvestorsFinance & Insurance,

25%

Endowments & Foundations, 21%

Individuals & Families, 10%

Corporations Operating Funds

(not pension), 2%

Private & Public Pension Funds, 42%

Facts and Figures

Source: 2004 NVCA Yearbook prepared by Thomson Financial using 2003 data

www.cvg.org

2006

2007

2008

2009

2010

2011

Israel

2006

2007

2008

2009

2010

2011

561 594 472 369 376 247

358 358328

275 295186

298468

395361 414

302

158183

189171 162

87

Europe

Active Private VC-backed companies*

Facts and Figures

*Private and independent VC-backed companies that received at least one round of financing in the prior six yearsSource: Dow Jones VentureSource

IT Products and

Services

Healthcare Other

n = 2419

n = 2750

n = 2968

n = 2877 n =

2606

n = 2890

n = 822

n = 1375

n = 1603 n =

1384 n = 1176

n = 1247

n = 69

n = 160

n = 183

n = 164

n = 117

n = 87

2006

2007

2008

2009

2010

2011

1,282 1,184 1,058 918 994 859

695 722705

707 711554

663 863884

798978

803

110199

230

183

207

203

United States

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2006

2007

2008

2009

2010

2011

Israel

2006

2007

2008

2009

2010

2011

207 215 192 158 17599

16 159

10 11

6

118 110109

94 97

76

65 4849

73 64

61

Europe

2006

2007

2008

2009

2010

2011

298342 318 297 309

222

5552

4945 53

46

277280

288290 285

225

6548 49 73 64

61

United States

Healthcare: Number of VC-backed Companies*

Facts and Figures

*Private and independent VC-backed companies that received at least one round of financing in the prior six years.Source: Dow Jones VentureSource

Biopharma

Medical Devices & Equipment

Healthcare Services

Medical Software & IS

n = 695

n = 722

n = 704

n = 705

n = 711

n = 554

n = 358

n = 356 n =

327 n = 274

n = 295

n = 186

n = 50

n = 45

n = 28

n = 25

n = 20

n = 49

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2006

2007

2008

2009

2010

2011

$2.0B $2.2B $1.7B $1.1B $2.2B $1.0B

$2.0B $2.0B $1.6B $1.3B$1.8B

$1.1B

$0.9B$3.0B

$1.9B $3.9B$$1.6B$$1.4B

Europe

2006

2007

2008

2009

2010

2011

Israel

Cumulative Capital Invested*

Facts and Figures

*Private and independent VC-backed companies that received at least one round of financing in the prior six yearsSource: Dow Jones VentureSource

IT Products and

Services

Healthcare Other

2006

2007

2008

2009

2010

2011

$14.3B$11.5B

$9.2B $7.1B $8.2B $6.8B

$9.0B$10.1B

$8.6B$7.7B

$8.1B$6.0B

$5.3B $6.7B

$8.2B

$8.2B

$14B

$8.2B

$1.3B $2.9B$4.6B

$2.4B

$3.9B

$3.0B

United States

$30B$31B $30B

$25B

$34B

$24B

$0.7B $1B $0.4B$0.6B $0.4B$0.8B

$5.6B $6.4B$7.1B$6.4B$4.0B

$7.9B

www.cvg.org

2006

2007

2008

2009

2010

2011

Israel

2006

2007

2008

2009

2010

2011

$1.6B $1.5B $1.1B $0.9B $1.3B $0.8B

$0.3B $0.4B$0.4B $0.3B

$0.4B$0.4B

Europe

2006

2007

2008

2009

2010

2011

$4.9B$5.7B

$4.5B $3.9B $3.8B$2.6B

$0.8B$0.4B

$0.4B$0.4B

$1.4B

$0.4B

$3.0B

$3,.7B

$3.3B$2.9B

$2.5B

$2.5B

$0.4B

$0.3B

$0.4B

$0.4B$0.4B

$0.4B

United States

Healthcare: Cumulative Capital Invested*

Facts and Figures

*Private and independent VC-backed companies that received at least one round of financing in the prior six years.Source: Dow Jones VentureSource

Biopharma

Medical Devices & Equipment

Healthcare Services

Medical Software & IS

$9.0B

$10.1B

$8.6B

$7.6B$8.1B

$6.0B

$2.0B$1.6B$1.3B

$1.8B$1.2B

$2.1B

$0.2B $0.2B$0.1B$0.2B $0.1B$0.2B

www.cvg.org

Healthcare VC Fundraising Down Sharply

The Bad News…

2006 2007 2008 2009 2010 $-

$50,000

$100,000

$150,000

$200,000

236

222

145

62

38

Amount Raised ($M) # Funds

$ Ra

ised

(in m

illio

ns)

Data from Thomson Reuters

www.cvg.org

Healthcare VC Investments Holding Steady

The Good News…

2006 2007 2008 2009 20100

200

400

600

800

1000

1200

1400

1600

1800

2000

1067 1004 998895

1051

671630 677

608

717

152

147 114

93

100

Biotechnology Medical Devices and Equipment Healthcare Services

Num

ber o

f Inv

estm

ents

Data from Thomson Reuters

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Liquidity: IPO Market Rebounding

Five Year

Data from Thomson Reuters

2006 2007 2008 2009 20100

5

10

15

20

25

30

35

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

17

21

13

12

10

10

2

3

1

1

1

Biotech Medical Devices & Equipment Healthcare Services Total Amt

Num

ber o

f IPO

's

Tota

l $ R

aise

d (in

mill

ions

)

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Liquidity: M&A Activity Increasing

Five Year

Data from Thomson Reuters2006 2007 2008 2009 2010

0

10

20

30

40

50

60

70

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

2924

19 19

32

21

23

1419

21

9

5

3

4

12

Biotech Medical Devices & Equipment Healthcare Services Total Amt

Num

ber o

f Dea

ls

Tota

l $ V

alue

(in

mill

ions

)

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Panelist

Lynne GarnerPresident and TrusteeThe Donaghue Foundation

Introduction

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Who is Donaghue

• Who is Donaghue, our grant programs, and what we need help with

• Impact investing from our perspective

• How can entrepreneurs help Donaghue and similar foundations

• Final thoughts

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The Patrick and Catherine Weldon Donaghue Medical Research Foundation

• Private foundation; Current assets $62M• >$83M in grants• Investments:

– 2.8 cash– 58.7 equities– 33.1 fixed income– 2.4 real estate– 2.8 commodities

• No alternatives

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Donaghue’s purpose

“to provide financial assistance for research in the fields of cancer, health disease and/or other medical research to promote medical knowledge which will be of practical benefit tothe preservation, maintenance, and improvement of human life”

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Grant Programs

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Ex: Program for Research Leadership

• Team-based award – team often includes someone from outside academic community

• 4 years - $220,000 each year• 3 components to application: research, knowledge

uptake, team-building• Non-researcher on review committee to “kick the

knowledge uptake tires”

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New grant program – R3

• $30K-$50K for 18 month• Purchase consultation to bridge from research to

users– Market analysis, focus group of potential users– Graphic design & digitizing intervention materials– Programming for use in HER– Develop prototype

• Applications would not get a research-methods review

• Open to former Donaghue grantees

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Beyond Grant Programs

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Opportunities to gain expertise

Social marketingSharyn Sutton PhD, AARP Foundation

Effective communicationsChip Heath, PhD Stanford University

Venture capital investmentGuy Fish, MD, Fletcher Spaght Ventures

Scaling up evidence -based programs Peggy Hill, MS, National Replication office, Nurse-Family partnership

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Grantees with specific “after the grant” projects

Donaghue grant-7 yrs, $3MStudy interventions reduced falls through risk factor identification, and changing provider, health care organization and patient practices

Donaghue grant-4 yrs, $.9MFaith-based weight loss intervention program developedby/for African -American women effective inproducing modest, sustained outcomes

Donaghue grant-5 yrs, $1.2MStudy primary care based physician interventionsimproved asthma management & reducedmedical cost s for high riskchildren

Donaghue grant-2 yrs. $245KUse of medical simulation to improve leadership & teamwork in addressing patient safety issues

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Initiatives to advance the scale-up field, contribute to community building

Funders Forum Generate discussion/action by funders of health interventions

Scale up conferenceParticipate in collaborative, multi-stakeholder efforts

Commissioned white papersSurvey of university technologytransfer offices

Scale-up of evidence-based communityHealth programs

Market receptivity to adopting interventions

Think Tank supportAcademic researchers & community- based physicians discuss collaborating to Improve patient care

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Impact Investing

Mission-related investing

Program-related investing

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IRS rules for private foundations

• Restrictions on self-dealing

• Must annually distribute 5% for charitable purposes

• Limit on their holdings in private businesses

• Investments must not jeopardize charitable purpose

• Expenditures must further charitable purpose

“Should a private foundation be more than a private investment company that uses some of its excess cash flow for charitable purposes?” Luther Ragin, F.B. Heron Foundation

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Mission Related Investing – the 95%

• Most foundations invest in fund of funds• Questions regarding MRIs (esp. for single-fund

investments)– How does the investment align with mission? – Structure of investment and level of risk?– What due diligence is needed to evaluate?– What benchmarks are used to monitor?

• Easier for you; harder for us

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Program Related Investing – the 5%

• Provides grant with returns• Purpose of investment must advance charitable

mission• Investment return cannot be primary purpose• Same questions as for MRIs• Easier (and more advantageous) for us; probably

harder for you

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Considerations for both MRIs and PRIs

• How does investment further the mission?• Is it an investment for income (95%) or a program

(5%)?• Jeopardizing investment rule – risk may be too high

and/or return too small• Cost of monitoring the investment• How does it fit with the foundation’s overall assets

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Emerging models

• B corps - “Firms with benefits” The Economist 1/7/12• Social Impact Exchange – creating capital markets to fund

high-impact non-profit ventures• Social Impact Bonds – NYT Economix blog

http://nyti.ms/gxBwqQ• MX.com – “a marketplace for healthcare innovations”

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Can entrepreneurs help us?

• Significant capital & business expertise is required to launch evidence-based innovations

• Assist in the challenge of monetizing social, clinical innovations

• Partner in a more problem-solving philanthropic enterprise by promoting new paradigms, methods, rewards

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Final thoughts

• Foundations have a social mission• Are challenged in getting their “products” sustainably

implemented• Have limited resources to spend on seed-capital

investing• If your innovation can help with a foundation’s social

mission, you may have a match

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Panelist

Kevin EdwardsVice President of Finance and Chief Investment OfficerThe University of Connecticut Foundation Inc.

CVG

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• 501(c)(3) tax exempt corporation • Institutionally related foundation separate from University• Mission exclusively to provide private financial support to the University of

Connecticut– Fundraising and stewardship – Asset management

• Volunteer Board of Directors including ex-officio University representatives• Board delegates work to established committees

– Investment Committee manages portfolios; recommends policy changes– Staff and outside consultants support and bring recommendations

• Assets $387 million at December 31, 2011 – Endowment $320 million (includes all endowment supporting UConn)– Non-endowed and other $67 million

• Sole Shareholder of UConn Research & Development Corp.– Tech transfer of University IP

The UConn Foundation - Organization

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Growth, 72%

Inflation hedge; 14%

Risk minimizing, 14%

Asset Allocation at December 31, 2011

Long-term Pooled Investment Portfolio

Downside and inflation protection with growth to meet goals

Diversified risk

Equity-like riskHigh yield debt 5% Global equities 26%Private capital 16%Real estate 7%Opportunistic 5%

Lower risk hedged strategiesLong/short equities 9%Global macro 3%Event driven 3%

TIPS 5%Natural resources 8%

Investment grade debt 5%Relative value 6%Cash 2%

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Venture Capital Program

• ~25% of Private Capital program (3%-4% of total endowment)

• Fund of Funds – Primary and Secondary

• Diversification by vintage year and manager

• International exposure increasing – 32% of latest fund outside US– China approximately half of non-US exposure

• IT dominates with Life Sciences and Energy rising

• Denominator effect still an issue

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Venture Capital Environment

• Capital inflows to funds rose slightly in 2011 – late stage dominant

• New fundraising flat year over year (2011 vs. 2010)

• Investment rose: software, biotech, med. devices, alt. energy

• Exits similar to 2005 – 2006; IPO’s down from 2010; M&A flat

• Valuations highest since 2000 – driven by late stage

• New company formation upward trending near 2006-2008 levels

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UConn Economic Development Programs

UConn Research and Development Corp• Commercialize University IP• Tied into University Office of Economic Development• 100% focused on business formation

– Work with faculty through proof of concept to full operations– Raise funding – Grants, Angel, Venture, Internal Fund– Identify entrepreneurs and management teams

Knowledge Portal and Incubation Programs• Tech Knowledge Portal assists existing companies with tech issues• Incubators - infrastructure and support to help create businesses

– Facilities – labs, office space– Access to faculty experts, research, student employees/interns

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Discussion

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Q & A

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Liddy Karter

Executive DirectorCrossroads Venture Group

Closing

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