Off to See the Wizard Ignite Presentation 12/6/07 DFJ Portage Venture Partners, LLC One Northfield...

Off to See the Wizard

Ignite Presentation12/6/07

DFJ Portage Venture Partners, LLC

One Northfield Plaza, Suite 530 Northfield, IL 60093

847/ 446-9460

-2-DFJ Portage Fund I 04/18/23 20:03

Blog:www.vcconfidential.com

Draper Fisher Jurvetson Portage

Network Resources35 offices100+ partners500+ portfolio companies$7B under management



Cash Is King, Burn Is An Anchor

“All companies that go out of business do so for the same reason - they run out of money.”

-- Don Valentine, founder of Sequoia

Simple framework for decision making:

• Determine when $0 cash (glue month in mind)

• Understand key drivers of CF (WC, salary, rent, etc)

• Bankrupt and profitable…how?

• Evaluate how every decision moves the Ground Zero date

• Use downside scenario for burn mngt ($0 rev??), and upside scenario to drive sales team/compensation



When To Go for Venture (or Not)?

Angel/Self Fund

• Low cash needs

• Life style business

• Linear growth

• Niche business

• No plans to sell

• No interest in biz partners

Venture Funding

• Significant cash needs

• Exponential growth

• Large market opportunity

• Cooperative w/investors

• Finite exit horizon

• Benefits from additional domain knowledge & networks

Most in this room should not go for venture money-- not a good use of time, will end in tears



How to Go for Venture

Get a qualified, personal introduction Do your homework on the firm, partner & industry

• You better know the industry/risks better than they

Know the likely push backs & have responses

• Don’t get defensive!

Don’t come across naïve• We have no competition• Our financials are conservative• First mover/patents/etc are barriers

Maintain contacts, network like crazy

• Most likely, won’t get $ that round or that company



Like Hollywood, the Story Is Key

Grandmother test• Do industry friends (& granny) get your value proposition

You’re selling soap• How clearly do people see vertical application & use• “Aren’t you just like…” (must kill this in 30 secs or trouble)

Inertia is your enemy• Market inflection is the driver between hero & idiot• Ideal: don’t change routines, don’t change mental map

Study Spielberg & Bruckheimer



The Mind of the VC

VC’s like to:

• Run in Packs (themes)

• Stay close to familiar domains (add value)

• Avoid sectors of past failure

• Use pattern recognition

- Graveyard test

- Analogs/binder tab

• Need 10x return

• SO, DO YOUR HOMEWORK…VISIT WEBSITE/GOOGLE ON PAST DEALS & BIO

Gary Snoman



Why 10x…Are VC’s Just Greedy?

Deal Invested $ Distributed $ Multiple IRR

Company 1 1,000,000$ 500,000$ 0.5 -29%Company 2 1,000,000$ 100,000$ 0.1 -54%Company 3 1,000,000$ 100,000$ 0.1 -44%Company 4 1,000,000$ 1,000,000$ 1.0 0%Company 5 1,000,000$ 1,300,000$ 1.3 7%Company 6 1,000,000$ 2,000,000$ 2.0 19%Company 7 1,000,000$ 3,000,000$ 3.0 44%Company 8 1,000,000$ 5,000,000$ 5.0 31%Company 9 1,000,000$ 6,000,000$ 6.0 57%Company 10 1,000,000$ 11,000,000$ 11.0 82%

Total 10,000,000$ 30,000,000$ 3.0 31%



Pigs Fed, Hogs Slaughtered

Aggressively concerned about dilution

Overpromise to get high valuation

Reality sets in…slow growth, niche market

Investors nervous about post-$, pissed about

overpromise

Management replaced, crisis hits (poor

numbers & no mngt)

Cramdown financing hurts everyone

ValuationDeathSpiral

• Don’t fool yourself• Don’t go VC when you should go angel• Raise just what you need• Valuation: don’t be penny wise…



Enterprise Out, Consumer InWill Swing Back in the Coming Years

-100% -50% 0% 50% 100%

Telecom Equip

Enterprise Network

Semi Equipment

Enterprise HW

Semiconductor

Application SW

IT Services

Infrastructure SW

Consumer Commun

Material science

Consumer hardware

Internet/Consumer

Source: Goldman Sachs



The Great Reckoning

The financial crisis … is back with a vengeance. I’ve never seen financial insiders this spooked — not even during the Asian crisis of 1997-98.

This time, market players seem truly horrified — because they’ve suddenly realized that they don’t understand the complex financial system they created.

- Paul Krugman, NYT



The Rebirth

Past 100 years: US highway system, microwave oven, antibiotics, recombinant DNA, airflight/jets, space program, global electric & phone systems, universal access to education, integrated circuit, articial heart, fusion/atomic bomb, polio vaccine, electron microscopes, cell phones, radio, television, air conditioning, lasers, imaging, fiber optics, nylon, radar, PC, etc…

Sources: TIME, April 13, 1998; genealogy newsletter, http://ftp.rootsweb.com/pub/roots-l/messages/01jan/141803

“The next 20 years of change will be equivalent to the past 100 years of change.” -- Ray Kurzweil Accelerating Returns

Destructive Capitalism Has Always Driven Innovation

Off to See the Wizard Ignite Presentation 12/6/07 DFJ Portage Venture Partners, LLC One Northfield...

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