Prerequisites For International Growth Investments

NORDIC SEED CAPITAL SUMMIT

MAY 2011

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AGENDA

  HIGHLAND BACKGROUND

  WHAT GROWTH INVESTORS LOOK FOR?

  WHAT SHOULD YOU LOOK FOR?

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BACKGROUND

  Formed in 1988

  $3 billion under management & 8 funds

»  Backed 230 companies; over 100 IPOs and M&A

  Venture growth & early stage focused investment strategy

»  tech | internet | life sciences

  Global presence

»  Offices in Boston, Silicon Valley, Geneva, London & Shanghai

  Europe Focus & Strategy

»  Venture Growth

»  Internet & Digitial Media and Information & Communications Tech

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GLOBAL INVESTMENT AMBITION

In Any Geography & Regardless of Sector…

…We look for extraordinary entrepreneurs… with a burning desire to succeed… who can inspire others and build their companies from

the garage to the Fortune 500… reinventing themselves and their companies along the way…

NOTABLE WINS

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Nasdaq: CKFR $86,4000,000

Electronic bill pay systems

Nasdaq: BFRE $67,200,000

Performance-based online marketing

Nasdaq: AVID $56,000,000

Video editing systems

Nasdaq: ASKJ $42,000,000 Online Search

$567,000,000 Acquired by Cisco Systems Broadband VPN solutions

Nasdaq: CONR $78,000,000 Acquired by J&J for $1.4B

Drug eluting stents

$1,100,000,000 Acquired by AOL

Advanced mapping solution

Acquired by Staples Specialty retailer

Nasdaq: SYBS $49,600,000

Relational database management software

$295,000,000 Acquired by Lucent

Switching equipment

Nasdaq: VPRT $120,200,000

Internet-based printing

Nasdaq: STAR $126,000,000

Acquired by Cisco $2.9B Infrastructure Products

Nasdaq: LULU $32,760,000

Specialty apparel retailer

$5,400,000,000 Acquired by Terra

Networks Global internet network

$355,000,000 Acquired by Tellabs

Optical access solutions

Acquired by Apple Mobile advertising

platform

Acquired by HP Database engine

technology

$411,100,000 NYSE: QIHU

Chinese-based Internet company

$278,000,000 Acquired by Apple Low power chips

Acquired by AOL Online advertising

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LEVERAGING A GLOBAL PLATFORM

Reputation & Brand

Portfolio Companies

Highland Capital Partners

Network & Knowledge

Back Office & IT

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EUROPE STRATEGY

  Venture growth focus »  Growth capital »  Proven business models »  Attractive returns profile

  Focus on Internet & Technology »  Disruptive e-commerce »  Internet advertising technologies & platforms »  Mobile “everything” business models & technologies »  Big data, virtualization, cloud computing

  Geographic focus »  Proactive in: UK, Germany, Nordics, Israel, France, Spain »  Reactive in: Eastern Europe and Russia

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» Online eyewear retailer

» Online photo sharing, storing and printing

» Semiconductor wireless infrastructure

» Online private sales club

» Online shoe retailer

» Social games developer

HIGHLAND EUROPE PORTFOLIO

» United Kingdom

» France

» United Kingdom

» Spain

» France

» Germany

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AGENDA

  HIGHLAND BACKGROUND

  WHAT GROWTH INVESTORS LOOK FOR?

  WHAT SHOULD YOU LOOK FOR?

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  Team » “A” Players » Capital efficient » Speed and Agility » PSD

  Deal » Financial model » Price & Ownership » Structure

GROWTH STAGE FILTER

  Product or Service »  Unique / Differentiated »  Value Prop & Defensible

»  Customers Buying

  Market »  Size, Growth, Proximity »  Competition »  Ripe for disruption »  How big can you be?

Compelling Growth Story

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TEAM

  Hire A Players and remember A players hire A players, B players hire Cs

  Balance culture fit and need for diversity of new backgrounds

  Hire resourceful problem solvers

  Trust your gut, you have spent 30+ years developing it

  Search beyond local geography

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  We don’t buy the “there’s a gap in the market” line, we want to know if there is a market in the gap!

  Growth investors generally spend a lot of time validating market »  Size, Growth & Proximity (is company too early to market?) »  Competition »  Ripe for disruption »  How big can you be?

  And they will do this by talking with a lot of your customers and their own contacts

  Investor has to believe in market potential and that you will be among the leaders

MARKET

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PRODUCT

  Unique & Differentiated? »  IP is good but does not guarantee success »  Execution, execution, execution

  Defensible? »  IP or Execution play »  First mover »  Economies of scale »  Capital intensity

  Value Proposition »  Must be easy to understand »  Better stand up to scrutiny

  Never perfect…have to be commited to constant evolution »  Don’t be afraid to test and get feedback

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FINANCIAL PLAN & DEAL

  1, 3, 5 perspective is very important »  1 Year budget, 3 Year Plan, 5 Year perspective »  Key metrics and model drivers must be realistic relative to current

performance »  50% Rule (combination of EBITDA & Growth NOT less than 50%)

  In Internet relatied businesses, customer analytics are crucial »  INTERNET: LTV perspective, Cohort Analysis, Contributon, etc) »  ICT: Bookings, Sales, Growth, Pipeline, Customer Concentration, etc.

  Deal »  Price & structure are very important to growth investors, look for win/win »  Valuation: Profit/Revenue dilemma »  Public market comps and precedent transaction multiples guide disucssions

  Banker or no Banker? »  Totally depends, a good banker can be very helpful, a bad one disasterous

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DOs

1.  Know what you are talking about

2.  Develop a solid pitch deck

3.  Do you pass the elevator test?

4.  Do you pass the airplane test?

5.  Target the right audience

6.  Know exactly what you are asking for and why?

7.  Have a vision of where you are going?

8.  Show apetite for making money in the day-to-day business

9.  Articulate your apetite for making money on exit

10. Demonstrate your focus on building a world class business

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DO NOT

1.  Target growth investors with pre-revenue business

2.  Hit the road to fund raise until you are ready

3.  Pretend business model is de-risked when it is not

4.  Claim that founding team can take the company all the way

5.  Show a plan with steeper revenue curves than MS or Google

6.  Pitch a financial plan with big discontinuities

7.  Postpone answers to questions as you pitch

8.  Ask for substantially more or less capital than you really need

9.  Pretend you know which one or two companies will buy you

10. BS: no surprises in the due diligence process, tell investor what to expect

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THE DEAL….A TYPICAL DEAL SCENARIO

Deal A

  Raise: €10M   Valuation: €30M Pre-Money   Liq Pref: 1X, Participating   You sold 25%?

  €100M Exit   VC return: €32.5M   You sold 32.5%   So what’s the “effective” Pre-Money

»  €10M / .3250 = €30.76M post   Effective Pre-Money: €20.76M   €50M Exit, “effective” pre is €15M

Deal B

  Raise: €10M   Valuation: €22M Pre-Money   Liq Pref: 1X   You sold 31.25%?

  €100M Exit   VC return: €31.25M or 31.25%   So what’s the “effective” Pre-Money

»  €10M / .3125 = €32.00M post

  Effective Pre-Money: €22.00M   €50M Exit, “effective” pre is €22M

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Agenda

  Who We Are

  What growth investors look for

  What you should look for in a growth investor

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WHAT SHOULD YOU LOOK FOR?

1.  Trust

2.  Remember airplane test? …can you hang with these people?

3.  Remember elevator test? …..do they really get it?

4.  Enthusiastic supporter

5.  Knowledgeable

6.  Balance of operating and investing experience

7.  Relevant network

8.  Relevant board experience

9.  A cool hand in good times & bad times…reference this

10. Ability to shape or help with exit at right time

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