VC101: Venture Capital Overview

November 2020

oup.vc CONFIDENTIAL AND PROPRIETARY 1

Osage University Partners Overview
Unique Venture Fund That Partners With Research Organizations To Invest in Their Spin-outs by
Exercising Their Participation Rights
• Invest in early, middle, and late stage spinouts in all sectors, including life science, software, advanced
materials, semiconductors, clean energy, and more

Partner Universities Share in OUP Profit and Benefit From Significant Support in Launching and
Promoting Start-Ups
• Institutions share in OUP’s fund profit in return for assigning Participation Rights
• OUP provides programmatic support to TTOs and their start-ups to promote funding activity, hiring,
strategic partnerships, and the overall entrepreneurial ecosystem
• OUP shares proprietary data with partners on start-up progress, financing trends, licensing, and more

OUP Has Built Strong Momentum with Multiple Exits

• Strong fundraising track record, raising ~$600 million across 3 funds since 2010
• Closed > 100 investments in university spinouts, #1 funder of university spinouts
• 18 IPOs and 5 successful acquisitions of portfolio companies to date
• 17-member team (including 6 PhDs and 1 MD) with strong focus on high quality execution
• Team based in three locations, including Bay Area

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VC Overview

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 VC Fund Organization Basics
GENERAL PARTNERS
VENTURE FUND STRUCTURE

GENERAL PARTNERS (GPs)

• GPs are the “Venture Capitalists” and they raise the capital
from LPs, manage the funds, and make investment decisions
(investment committee)
• GPs are assisted by Principals, VPs, Associates, and Analysts
who do the ‘heavy lifting’

VENTURE VENTURE CAPITAL FUND

• GPs raise a fund from Limited Partners (investors) based on a
CAPITAL FUND unique strategy, expertise in a sector, investment track record
• Fundraising takes months to a year plus

LIMITED PARTNERS LIMITED PARTNERS (LPs)

• LPs provide capital as needed (capital calls)
Family Offices
Pension Fund

• Typical venture LPs include Insurance Companies,

Endowment

Worth Ind.
Company
Insurance

High Net

Endowments, Pensions, and HNWIs

• 5-10% of a portfolio is allocated to alternative investments,
including venture, which are illiquid, riskier assets with
higher return potential

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VC Compensation & Economics

2 – 2.5% MANAGEMENT FEES

• GPs receive an annual MANAGEMENT FEE, which is a percentage of
per year total capital committed to the fund
• Typical fees are 2-2.5% (i.e. on a $100M fund, $2-2.5M/year)
• MANAGEMENT FEES are used for fund administration (salaries,
operations, and everything else)

VC
FUND

CARRIED INTEREST
• LPs receive all returns (profits from exits) until 100% of committed
20/80 SPLIT capital, plus interest (often 6-8%), is returned to LPs
OF PROFITS • Thereafter, profits are split 80% to LPs and 20% to GPs
• the 20% going to GPs is called “Carried Interest”

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VC Firm Life Cycle
FUND LIFE
• Funds have 10 year lives, often able to extend for 2 years, after which they are liquidated
• Investments are typically made in years 1-4 allowing investments to mature and exit within the 10 year fund
life, referred to as the Investment Period
• Investments requiring >4 years to mature and exit are likely to be made only in the first few years of
the Investment Period

INVESTMENTS
• Funds typically reserve $2-3 for every $1 they invest for future rounds of investment in each company
• if a fund invests $2M in an early round, it will reserve $4-6M for follow-on rounds

SUBSEQUENT FUNDS
• Funds will typically raise additional capital, a new fund, once 80% of capital is committed and reserved
• VCs are motivated to raise subsequent funds to make new investments and earn additional management
fees/greater potential for upside on carried interest

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Capital Formation

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Funding Sources
SOURCE FUNCTION
STRATEGIC GROWTH

VENTURE RAPID
CAPITAL SCALING

CROWDFUNDING MARKET TRACTION

ANGELS AND High

Net PROOF OF
ACCELERATORS Worth
VENTURE CONCEPT
PHILANTHROPY

FRIENDS AND PRE-FUNDED

FAMILY STARTUP

SCIENCE
GRANTS PROJECT

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VC By the Numbers

The majority of startups, and most academic startups, do not

require and will not get institutional venture capital

VCs consider 100s of businesses for one investment

OUP tracks ~7,000 companies yet will make only ~40

investments in each Fund – <1% of companies considered

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The Likelihood of Getting your Startup Funded by a VC

28%

36%

48%

35%

59%

Source: “How Do Venture Capitalists Make Decisions?”

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Know Your Investor: VCs Invest at Different Stages (Life Science)
Tx

Company Early pre- IND enabling NDA / PMA /

Early clinical Late clinical
formation clinical / IND-ready Commercial

Tx only

All LS

crossover
investors

alternative
models
Note: These are examples. There are many more VCs and there are always nuances
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 Know Your Investor: VCs at Different Stages (Tech)
Institutional Strategic

Company Prototype
Formation
Traction Product Market Fit Scale & Growth
Product

alternative
models

Note: These are examples. There are many more VCs and there are always nuances
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Founders’ Equity
Formation, Dilution, Industry averages

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Initial Founders Equity Allocation
Example Initial Cap Table • Initial full time CEOs/Lead Founders typically get
the largest chunk of ownership (30-60%)

20%
40%

• Investors typically like to see an initial team in

40% place before investing – co-founding scientists, C-
level execs, VPs

Lead Founder/CEO Co-Founders/Employees

Option Pool
• Initial option pool to incentivize new hires typically
refreshes at every financing round (15-25%)

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 Typical pre-financing equity
• Titles range from CTOs, CEOs, and Chief Scientist
• Many are part time, but spend at least 30% of time
Position Range % at startup
Founding CEO 30-60% • Get 20% median and 25% mean initial equity
• The most highly compensated are founding scientist
Active Founding Scientist 20-25% CEOs, which is rare
• Active founding scientist are more typical in tech
Passive Founding Scientist 1-5%
companies
University Founding Equity 2-30%

Professional CEO (Series ~A/B) 5-10%

2-5% • Titles range from nothing, Advisor, Scientific

C-Level
Advisory Board to Chief Scientist
Lead Engineer / Scientist 1-2% • Spending very little time at startup and some are not
in touch with their companies at all
Engineer (5+ years) 0.66-1.25% • Get less than 5% initial equity

Engineer (Junior) 0.2-0.66%

Ind. Board Member/Advisor 1%

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 Scenario: typical ownership through rounds
Lead Founder/CEO Co-Founders/Employees
Option Pool Investors
100%
90% 20%
80%
47%
70% 20% 60%
68%
60%
50%
30% 13%
40%
10%
30% 20% 8%
20% 15%
12%
30%
10% 20% 15% 12%
0%
Se e d Se r i e s A Se r i e s B Se r i e s C
(2 0 % d ilu tio n ) (3 3 % Dilu tio n ) ( 2 5 % D i l u ti o n ) (2 0 % Dilu tio n )
$ 1 M o n $ 4 M Pr e $ 5 M o n $ 1 0 M Pr e $ 1 5 M o n $ 4 5 M Pr e $ 2 0 M o n $ 8 0 M Pr e

The average successful startup raises $41M in 4 rounds of financing exiting at

around $240M value, with lead founders having around 12% ownership

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Key Takeaways of Equity Ownership
• A small piece of a big pie…
• Dilution is the necessary compromise of getting to a large exit
• Remember the Golden Rule
• Investors get paid out first
• Investors are always doing the math

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Making the Pitch

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Initial Interactions & Pitch Decks
VCs receive MANY pitch decks
• The cliché is true – you only get one chance to make a first
impression
• Get introduced by a trusted friend or advisor

• Make your initial interaction (phone call, pitch deck, executive

summary) clear, concise and compelling:
− Who you are
− Data justifying your enthusiasm and commitment
− Why data are compelling
− Addressable market
− Comparable companies as evidence of exit value
− Funding and accomplishments to date
− Use of financing proceeds

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A Pitch Deck to Impress Investors
Elevator Pitch Capital
1 •
•
Define your company and what it does
What are you seeking from investors?
65 • What capital are you seeking, and use of
proceeds

Go-To Market Strategy

2 Leadership & Boards
• Background of executives, founders, advisors 7 •

•
Identify importance of your unique economics
early on
What will sales process look like?

Key Data Slides

6 Milestones
3
•
•
Key experimental results
Exactly where you are at in the product/service
development process
8 •

•
Tie the financing / capital needs to the
operational goals
Plan for multiple rounds and include on this
• Next once you secure financing slide

4
Pipeline / Products Slides
• When you will accomplish what in the future
7
9
Ask
• Use of Funds
• What are you raising?

Competition
• What’s on the market? What previously failed?

5 •
What’s in the pipeline?
How does your product fit into the competitive 108 Summary
• Summary of opportunity
landscape?

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Practical Suggestions for Pitching
Do not hide anything substantive; it won’t stay hidden for long
• You will lose credibility
• Your lack of transparency and forthrightness will be shared with other VCs
Follow good presentation guidelines
• Be clear, concise and compelling
• Do not over populate / over complicate slides
Pause to allow for questions
When you do not know an answer, say so
• If you can find out the information, let the questioner know you will get back to them with
the information following the presentation

REMEMBER! You may be an expert on your company and the technology, but this
may be the first time an investor is seeing this

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Lessons Learned about Raising Capital
Targeting investors
• Target investors -- investment strategy (sector), stage, and availability
of funds
• Unless you’re a ‘rock star’ with prior entrepreneurial success, fund raising
is a challenging, potentially grueling and long process
• Be prepared for rejection -- VCs say “no” far more often than “yes”
• Early stage companies often represent new stories, technologies and
approaches
• Multiple meetings will be needed
Private placement agent may be used to identify potential investors
and arrange meetings, but investors will want to work directly with
founders
• Pros: can run an efficient process and identify potential investors
• Cons: cost; founders will still need to be personally involved

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Due Diligence

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Evaluating Risk and Opportunity

Is this a good idea?

Is this a good investment?
Is this the best team?
Is this the right round?

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The Disconnect

Entrepreneurs Investors

Getting to Getting to
YES NO*
*Deals are “triaged” to quickly identify the most attractive opportunities
and those of no interest

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What Factors Drive Success and Failure for Investors?

Success
• Team
• Business Model
• Technology
• Market
• Timing
• Luck

Failure
• Team
• Business Model
• Technology
• Market
• Timing
• Luck

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FACTORS CONTRIBUTING TO
SUCCESSFUL INVESTMENTS (%)

All Sectors Life Science

1% 1%
6% 4%
3%
7%
12%

6%
42%
7% 3%

2% 56%

9%

7% 31%
3%

Team Business model Technology Market Industry Timing Luck Board of directors My contribution

Source: “How Do Venture Capitalists Make Decisions?”

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Osage University Partners Proprietary Information 27
FACTORS CONTRIBUTING TO FAILED
INVESTMENTS (%)

All Sectors Life Science

1% 4%
3% 3%
5%
9%
7%
34%
3%
10%

3%
54%

8%

36% 10%
10%

Team Business model Technology Market Industry Timing Luck Board of directors My contribution

Source: “How Do Venture Capitalists Make Decisions?”

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Osage University Partners Proprietary Information 28
For OUP – it’s the Team
Tech Life Science

Team Team
Science and
Market Opportunity
Clinical Data

Capital Capital
Market Regulatory &
IP Competition Technology Structure & IP Competition Structure &
Opportunity Reim. Exit Analysis
Exit Analysis

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VCs’ Questions on the Team
What’s their track record?
• Have they done this before? Have they been successful?
• Is their skill set relevant for this company?
• What skills do they lack?
Do they have the right plan and priorities for the company?
• Can they clearly articulate those goals?
• Can they hire the right people to accomplish those goals?
• Will they be able to raise additional capital?
Are they easy to work with?
• Is there a personality fit?
• Are they a team player?
• Are they receptive to feedback and criticism?
• Are they trustworthy and intellectually honest?

Reference calls with former employees, board directors, etc.

Extensive background checks

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Capital structure review
How much money has been raised?
• What milestones were accomplished with that capital?
• Did they meet their deadlines?
• Review the cap table
Is this a strong syndicate of investors?
• How much do they have reserved for this investment?
• What’s the stability/timeline of their fund?
• Who are the previous investors?
• Will they invest in this financing?
What is the purpose of this financing?
• Detailed review of use of proceeds. Is the right amount of money being raised to
get to a value inflection point? If so, quantify the value being created
• What’s the pre-money valuation? Is it the right valuation?

A clean, straightforward capital structure is optimal

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Investment Memos

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The Investment Memo & Investment Committee
What?
• Internal document to evaluate the deal dynamics, company history, interactions and
technology
Why?
• Uncover red flags that will require further diligence
• Allows entire team to raise objections to the deal
When?
• Work-in-progress continually updated
• Final investment memo is typically presented to investment committee for approval to
invest
Who?
• Analysts and associates for partners’ review
• VC fund’s investment committee reviews

The Final Step – presenting to the investment committee

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Key questions addressed in the investment memo
Component Questions?
Investment thesis Why invest in this company/technology at this time?
Is this the right mix of experience and domain expertise to make the company
Management team successful?

Pros, cons, risks, red flags Why invest now? Why not invest? What other diligence is required?

Is this the best technology? Who else is innovating in this space? What
Competition problem is it solving? What will the market look like at product launch?

Development timeline
Are the milestones attainable within the current budget? Does the current
Milestones budget bring the company to a significant value inflection point?
Budget
Term sheet summary Are the terms favorable for an investment at this time?
Cap table Who will own what after closing and at exit?

Exit Analysis If the sun, stars, and moon align, how much will it be worth? To whom? When?

Due Diligence Responses to questions regarding risks and red flags

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 Thank You
Summary
Osage University Partners (OUP) invests in startups that have licensed technologies from
universities and research institutions. OUP has partnered with over 90 institutions to invest in
pioneering technologies and visionary entrepreneurs targeting large market opportunities. The
Fund invests across a range of technology sectors and company stages, and typically co-
invests with other leading venture funds.

Contact Address
Kirsten Leute, Partner, University Relations | kleute@oupvc.com 50 Monument Rd, Suite 201
Bala Cynwyd, PA 19004
484.434.2255
oup.vc

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