Solekai Systems Confidential 1

Trends in Access to Capital

An Entrepreneurs Guide to Navigating the Valley of Death

in San Diego

Seed Capital Sources

■ The Problem Definition & Space

■ The Entrepreneur, Team, Friends & Family

■ “Real” & “Pretend” Angels

■ Angel Networks – TCA - Keiretsu

■ Seed Debt & Equity – Express Ventures

■ Venture Funds – EIR Programs for Investments up to $500,000

Express Ventures Business Case

■ San Diego Needs More Early Stage Capital

■ Who is better positioned to raise it and then invest it than entrepreneurs who have had personal success?

■ Go to the technology community for the money as both an investment, and as a “give” to the entrepreneurial community.

■ Use the Investors as “Deal Flow”

■ Use the Investors and our personal networks to find Tier I Series A follow on Investors for our Deals very quickly.

■ Only invest in “Pre Series A” Round, do NOT reserve capital for subsequent rounds for defensive investing assuming up economy or “abandoning bad deals”

Express Ventures

■ Partner Joe Markee – Founder Copper Mountain & Figure 8 Wireless

■ Raised $7,400,000 in late 2005 from 47 high profile, well connected, Technology People in San Diego

■ Goal to start 8-10 new Local companies

■ Provide “the first capital into the deal”

■ Help the companies find Series A Venture Capital 6-12 months after our money

Express Ventures Criteria

■ “Power-Point” stage thru “Almost Ready”

■ $500K - $1 Million – “Pre Series A”

■ Southern California Based (SD Preferred)

■ Technology Focused Deals (No Life Sci.)

■ Defensible Invention, Business or Channel

■ Likely to close Series A round within 9-12 months

■ Focus on Strong Management Teams

Express “Lessons Learned”

■ “Don’t try this at home”… Seed Fund = very difficult

■ 6-9 month Series A goal = 12-24 months in reality

■ 8 Deals originally funded by Express Ventures

■ 7 of the 8 deals required additional “bridge” $ before A or between A and B rounds

■ 2 are “Stone Cold Dead”, one after raising a significant A

■ 5 of our 8 deals have closed series A, tier II & tier III VC firms

■ 2 all the way to series B, $10MM & $16MM

■ 2 still have not closed an A and are running very late

■ Good News for San Diego - $40,000,000 + following our $7,400,000 (so far) - 5.4 X multiplier (so far)

■ We might make our money back, and might even return a profit to our investors !

Bay Area vs. San Diego

■ Southern California surpassed Boston for #2 Venture Region

■ Best Startup infrastructure in the WORLD – Connect Springboard, CommNexus NextStage, SDSIC, SDVG,

■ Now we have EvoNexus, the most important new unique regional advantage for startup entrepreneurs

■ Entrepreneurs on “second or third” deal have no problem finding funding. (Small number)

■ San Diego has lost much of it’s “Resident” Venture Industry

■ Most “pre-series A” & Seed in San Diego is still very hard.

■ San Diego is strong on Ideas, Technology, and Research

■ Bay Area leads in “World Class Management Talent”

■ Bay Area leads in “Real” Angels, EIRs & Venture Infrastructure

■ Net/Net - San Diego is the 2nd best place in the whole world, to launch a Software or Technology business