Off to See the Wizard Ignite Presentation 12/6/07

Off to See the WizardIgnite Presentation

12/6/07

DFJ Portage Venture Partners, LLC

One Northfield Plaza, Suite 530 Northfield, IL 60093

847/ 446-9460

-2-DFJ Portage Fund I 04/24/23 05:28

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 IRRCompany 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 EquipEnterprise NetworkSemi EquipmentEnterprise HWSemiconductorApplication SWIT ServicesInfrastructure SWConsumer CommunMaterial scienceConsumer hardwareInternet/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

Documents

Off to See the Wizard Ignite Presentation 12/6/07