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Developments in Startup Funding – Beyond VC

Jon Medved

Israeli High Tech InvestmentA great decade gets even better

Source: IVC Quarterly Survey, Q3 2013, IVC Research Surveys 2010-2012

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

500

1000

1500

2000

2500

Israeli high-tech capital raising

Israeli VC Share Other Investors

Hun

dred

s of

Mill

ions

of $

2013 highest in a decade

Israeli VC share at 24%; at an all-time low

Trends: Israeli M&A

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

2

4

6

8

10

12

14

16

18

0

10

20

30

40

50

60

70

80

90

100

16.4

0.52

1.1 1.9 2.7

10

3.5 2.7 2.61.2

5 5.5

7.6

63

25

60

5862

79

93

8884

73

23

63

50

80

Volume # of Deals

$ Bi

llion

s # of Deals

M&A of Israeli firms

Trends: Israeli M&AAverage M&A size increasing

“Recently, we are seeing Israeli companies grow, and become world leaders in their areas. We are seeing companies with revenues of over $100 million. We did not see these in the past. They were being sold much earlier, often pre-revenue.”

Rubi SulimanPwC High-Tech Partner

Source: PWC Israeli Exit Report 2012

“…the average deal size has grown nearly 3½ times, from $32 million in 2008.”

Wall Street JournalIsraeli 2012 Tech Exits Top $5.5B

Jan 7th, 2013

2008 2009 2010 2011 2012 20130

20

40

60

80

100

120

32 35

51

81

111

83

Average M&Aprice by year

Mill

ions

of $

2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q40

100

200

300

400

500

Series A Deals Seed Deals

# global startup financings – CB Insights 2013

Seed deal explosion

The role of angel investment – angels vs “crunch”

Series A funding

“[the crunch]… will result in over 1000 seeded startups being orphaned…”

CB Insights BlogDecember 19, 2012

“Companies we never really got to know are simply starting to fade away…”

Pando DailyNovember 20122009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4

0

100

200

300

400

500

Series A Deals Seed Deals

# global startup financings – CB Insights 2013

Seed deal explosion

The role of angel investment – angels vs “crunch”

Series A funding

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Massolution: Crowdfunding portals will raise $5.1 billion in 2013 – nearly double the amount raised in 2011

• Consumer Lending• Rewards-based• Donations• Venture Capital

Market Disruption: Crowdsourcing in Finance

Source: Deloitte TMT Predictions 2013 “Let's get together: crowdfunding portals bring in the bucks”

“Venture capital-type crowdfunding is the wild card for 2013. It could raise more than a billion dollars …”

Source: Massolution Crowdfunding Industry Overview 2013

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Crowdfunding as the new seed round

Israelis master the art of crowdfunding

Pressy: the standardization of crowdfunding your startup

$700K raised on Kickstarter – November 2013

Israeli team that realized there is a rhyme and reason to getting funding on Kickstarter – even more so than going person to person to angels. Getting off the ground is a systematic process that can be “hacked”. Everything from the product focus to the customer pitch had been optimized so that they passed half a million dollars within the first day.

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Crowdfunding as the new seed round

Donation-based crowdfunding’s impact

Pebble: the big splashKickstarter: $10.3M / May 2012

E-Paper Watch with deep smartphone integration

Proved the ability for a great idea that major brands ignore to get off the ground via online donation crowdfunding

Donation crowdfunding is a way to pre-sell and to prove the existence of a market

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Crowdfunding as the new seed round

Donation-based crowdfunding’s impact

Ouya & Star CitizenOuya: $9M on Kickstarter August 2012

Star Citizen: $38M ongoing on multiple channels

The multi-billion dollar video game industry is being turned on its head by the ability for small players to win the faith of video gaming audiences and fund development with pre-sales of their products. This has changed the hardware and software side of things.

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Crowdfunding as the new seed round

Donation-based crowdfunding’s impact

A campaign from an angel’s perspective:

Team that knows how to market itself

MVP or better has already launched

Product in the hands of consumers

Initial user-base is likely a “tribal” one – highly dedicated to the “cause” of the product and happy to give feedback.

Seed

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Crowdfunding as the new seed round

Donation-based crowdfunding’s impact

Andreesen, KPCB, GE back crowdfunded NY Startup QuirkyNovember 2013Internet of things company first gets mass appeal via several high profile campaigns

Now the deals are de-risked, venture

capital steps in

Andreesen, Spark, Matrix Partners back Oculus Rift with $75M Series B… then Facebook acquires the company for $2BDecember 2013 … March 2014After raising $2.4M from Kickstarter, Oculus Rift gets the attention of major investors

Naturally, this plays into the rise of equity

crowdfunding platforms

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Crowdfunding from the general public coming to a town near you…

How does Title III crowdfunding factor into things?

Do these trends mean that the JOBS Act and Title III crowdfunding

are about to unlock a major investment class?

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Crowdfunding from the general public coming to a town near you…

How does Title III crowdfunding factor into things?

Challenges as a startupCost of raising is impractical – one estimate puts a $100K raise at almost $30K legal fees and other costs

Restrictions on round size, who you can let in, and time frame can prevent effective follow-ons with bigger investors.

Direct investment – nightmare cap tables

Challenges as an investorDirect investment means no manager, disorganized control of the investment

What happens when your company hits the limitations of the Title III funding and can’t raise an additional round?

What about board representation?

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Crowdfunding from the general public coming to a town near you…

How does Title III crowdfunding factor into things?

Does the future of this type of raise indicate a path to a “mini” IPO for companies?

Will lobbyists trying to fix Title III JOBS Act fundraising before it is “dead on arrival” (TechCrunch, Feb ‘14) succeed in keeping the administrative costs of raising under Title III reasonable for entrepreneurs?

Plus… focus on Title III misses the enormous and largely untapped accredited investor opportunity.

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The Accredited Investor Opportunity

8 million accredited households in the US are eligible to invest in private securities, have the sophistication to be solicited for these types of investments.Given potential updates to the accredited definition, this investor class may soon

expand its ranks. Meanwhile, only a handful of these households have ever invested in private companies. Smart firms are taking note…

Carlyle lowered its minimum commitment to $50,000 – Time Magazine says they’re allowing “everyone to be a Mitt Romney” by participating in PE deals

Carlyle lowered its minimum commitment to $50,000 – Time Magazine says they’re allowing “everyone to be a Mitt Romney” by participating in PE deals

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Updates from the VC-Crowdfunding worldA maturing industry is winning over major players

Virgin America PartnershipFebruary 2014Sharing hot consumer brands with Virgin Airline’s amenities procurement team

GE Ventures – OurCrowd PartnershipNovember 2013Exclusive dealflow sharing agreement allowing GE Ventures allocation in crowdfunding rounds

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“The Crowdfunding Economy is About to Pop”

24 September 2013

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Global leader in equity crowdfunding, just one year after founding Raised $40M for 36 companies 18 companies with over $1m raised Truly Global Reach: 5 of last 10 companies funded are from outside Israel First follow-on deal funded in 4 hours, 12 follow-on deals total Largest equity crowdfunded deal - $3.5M for a round on our site Approaching 4000 Accredited investors, over 400 active, many high

profile/strategic Average active investor committed to over $100K on site Experienced investment team - 150 years combined VC experience

OurCrowd Overview

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Investment amount 2013: $26.4M Investment amount Q1 2014: >$13M New accredited investors for March 2013 : 400 Accredited Investors now from 53 countries Biggest deal so far, Biocatch: $3.5M indicated (raised in 3

weeks)

OurCrowd: Moving Up and Fast

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Angel Investing Venture Capital

• Legal issues/termsheets handled by firm• Exposure to top dealflow• Professional due diligence• Preemptive/other rights

• Independence, self-selection• Low fees• No large upfront commitment• Relative speed and ease

• Large Commitment• Hefty management fees• Carried interest fees• No control, no choice

• Very limited dealflow• Term sheet negotiations• Limited due diligence capabilities• No protection, no rights

OurCrowd offers the professionalism and experience of a venture fund, plus the flexibility and choice of angel investing

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OurCrowd’s Investment Model

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OurCrowd’s Leadership TeamJon Medved Co-Founder & CEO Washington Post: "one of Israel’s leading high tech

venture capitalists” 12 exits >$100M Co-founder, CEO of VRNG Founder & GP Israel Seed Partners, $260M AOM

Elan Zivotofsky General Partner Investments 15yrs experience in Israeli investing Managing Partner at Prelude Israel Former Head of Technology Banking, Lehman Brothers

Israel Top-ranked Israeli tech research analyst for Goldman

Sachs

Steven Blumgart Co-Founder & Chairman Co-director of Glencore's aluminum division Senior executive, management committee at

Glencore 1998-2012

Pini Lozowick General Partner General Partner at Alta Berkeley Among first employees at Broadcom, Dir.

Marketing Chairman of Provigent Founder and GM of Verisense 5 exits; total value $3B

Geoff Levy Chair of Advisory Committee Extensive experience in law, banking and investing Non-Executive Chairman of Monash Private Capital,

Specialty Fashion Group and Cromwell Property Group Non-Executive Deputy Chairman of Investec Bank

(Australia) Limited

Gadi Mazor General Partner & CTO Serial entrepreneur in mobile/wireless US Senate Advisory Board RIM entrepreneur of the year 2013 Ex-8200

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Mentor Program

Eli Campo- GM Israel @ LivePerson (NASDAQ LPSN)- SVP @ Shopping.com/Ebay Israel

Raanan Gewirtzman- CEO Broadlight (sold to Broadcom $200M)

Profile Role Role in companies Relationship

- seasoned entrepreneurs- experience with board seats

- active role in diligence- pre-funding review of companies

- directors in OC companies- also availability for consultation

- biannual mentor-company event started June 27th

Some recently joined mentorsDov Rubin- Co-founder of NDS (sold to Cisco, $5B)- CEO Itamar Medical

Ron Moritz- GM @Microsoft- SVP CTO @Symantec- SVP Chief Security Strategist @CA

Mike Berman- President Cardiology @ Boston Scientific- Serial entrepreneur in medical device space

Warren Adelman- CEO GoDaddy- VP at McAfee- VP at Bigfoot International

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New recent mentor additions:• Applango: Hannan Carmeli (Former President and Co-CEO

ClickSoftware,Nasdaq traded enterprise software company), joined as OC director

• Crosswise: Josh Wexler (Head of Buyer Cloud for Rubicon Project, leading provider of advertising automation solutions), joined as OC director

• Boatbound: Victor Mizrachi (Formerly chief scientist at Ciena), joining as OC director

OurCrowd’s Mentors & Advisors

OurCrowd’s Portfolio

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Serial Entrepreneurs/Strong Backgrounds

Bob Rosenschein

Founded Answers.com ($127M exit), Accent Software ($400M on NASDAQ)

Dr. Amit Goffer & Larry Jasinski

Founded Odin Medical Technologies (acquired by Medtronic)

CEO Soteira (acquired by Globus), Cortek (acquired by Alphatec)

Jeff Pulver & Jacob Ner-DavidVoIP pioneer, founded Vonage, VOX, FWD, investor in Twitter and Foursquare

Founded Delta Three ($1.8B NASDAQ), founded Nomadiq

Benny Landa & Aviv Ratzman

Indigo, major global force in digital printing; HP acquisition ~$800M

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Serial Entrepreneurs/Strong Backgrounds

Richard Demb

Founded GC Zone, Founded Popcorn Indiana (acquired by Goldman Sachs)

Eitan Bauch & Avi Yehuda

Collectively sold startups to Intel, F5, Salesforce.com

Zvi Schrieber

Founded TradeUM ($500M exit), Unicorn (acquired by IBM), Lightec (acquired by GE)

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Customers

Distributors

Partners

Other markets

Press contacts

Next round funding, venture debt, loans, equity

Not just capital – we’re creating opportunities“I am excited about the value that OurCrowd brings to early stage investors who invest in startup companies. Not only did we raise our seed round on OurCrowd in a week, but we had people from all over the world invest in Zula thanks to this platform”Jeff PulverCo-Founder, Zula

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Co-investing with leading angel investors

Gigi Levy888Amdocs

Moshe LichtmanMicrosoft

Rami LipmanMicrosoft Israel

Benny LandaIndigo

Yigal JacobyAllot Communications

Ajay ShahSilverlake SumeruShah Capital Partners

Gideon Ben ZviBriefcam

Tzachi SultanClal Underwriting

Mort MeyersonDellEDS

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Announcing Strategic Co-Investment Agreement with General Electric Ventures

Sue Siegel, GE Ventures CEO :“OurCrowd has created a unique platform for dynamic early stage origination and funding. They offer a quality investment environment and the partnership will give GE increased access to early innovation.”

• GE will co-invest with OurCrowd in select early stage companies in the areas of energy, healthcare, software and advanced manufacturing

• Investing on the same terms as our members/investors.• First time major corporation has made such a commitment to an

equity crowdfunding platform• Huge validation for OurCrowd.

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Portfolio Reserve: A New Way to Build an OurCrowd Portfolio

Funded accounts to invest across OurCrowd with opt-out functionalityMaking it easy to build a real portfolio, one set of docs, auto-invest, but maintaining discretionAutomatically starting deals with $400K spoken for – powerful tool to build immediate demand for rounds

• Launch: Sep. 2013• Minimum commitment: $100K• Total Value: $5M• Allocation per deal: $400K• Already have had re-fills from satisfied investors

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Press Coverage in 2013

“The 5 Most Important New Companies You Need to Know”Forbes Online | April 2nd

“An Israeli company trying to change the way startups are funded”CNN Business 360 | April 30th

“Medved's latest mission is to blow up the exclusivity around tech fundraising”Bloomberg BusinessWeek | August 1st

"The most interesting investment of the week goes to OurCrowd”WSJ | Feb 8th

“The platform has been an enormous success…the ultimate win-win-win situation, brought to you by an new and improved Israel – innovative & confident.”

“Crowdfunding for real investors”thestreet.com | November

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Press Coverage in 2014

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Summary

Meeting a demand for a better online way to invest in startups

Platform works—Raised record sums for 36 companies online

Industry-leading performance to date – worldwide leadership

Strong Israeli base, global investor reach into 53 countries

50% of last ten new deals originate from outside Israel

Recruited industry-leading team

Strong and impressive initial portfolio

16 companies have completed additional funding rounds after initial funding

Have provided real value-add for our startups

Achieving strong traction in a gigantic market