yoav leitersdof: early stage venture investments

Web.Start Zagreb May 2008

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BIO SNAPSHOT –YOAV ANDREW LEITERSDORF

Managing partner of YL Ventures European & Israeli early stage tech VC w/Silicon Valley presence Unique medium-size exit strategy to known acquirers

Founded, grew and successfully sold 3 tech businesses Movota (London) – Cofounder, MD & CEO (exit Bertelsmann ‘05) ExchangePath (New York) – Cofounder & CTO (exit CMGI ‘99) PcEntertainer Magazine (Tel Aviv) – Founder & CEO (exit ‘93)

VC Associate at Draper Fisher Jurvetson

15 yrs coding, engineering & telecom experience

MBA (Columbia University); studied at IMD, Switzerland

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MOVOTA LTD. –18 MONTHS FROM INVESTMENT TO EXIT

Company founded: London, March 2004

Capital: $1MM from founders and several investors

Business: Mobile software for TV broadcasters & producers

Product: Mobile games synchronized with TV game shows

Customers: BBC, RTL, SBS, Endemol, FremantleMedia…

Months 1-6: invention, product development, prototyping

Months 7-12: proof of concept deployments with the BBC

Months 13-18: minor revenues, expansion, exit negotiations

Acquired: Bertelsmann AG, September 2005

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MOVOTA LTD. –PRODUCTS AND CUSTOMERS

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EXCHANGEPATH LTD. –2.8 YEARS FROM INVESTMENT TO EXIT

Company founded: New York, January 1997

Capital: $3MM from angel investors

Business: Person-to-person & micro online payment system

Product: Online payments for data & auction items

Customers: MasterCard International, Hoovers, 20 others

Consumers: 25,000 accounts

Revenues: Minor, product in Beta (pre-breakeven)

Acquired: CMGI, September 1999, $25MM

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PROBLEMS WITH TODAY’SEARLY-STAGE VENTURE CAPITAL

Funds are too large; entrepreneurs are too frugal!

VCs look for billion-Euro exits; founders want to make 1st million

Average time-to-exit: 5.8 years; investors in VC get impatient

Multiple rounds of VC investment; founders get diluted to <5%

1-2 portfolio companies win; another 8-9 completely lose

Funds launched in 1999 & 2000 have negative returns

At 2008, the IPO window is still closed to all but a few

Is early stage venture capital in trouble? Is there another way?

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EARLY EXITS APPEALING TO FOUNDERS –LESS CAPITAL AND DILUTION REQUIRED

Date Company Acquirer Price Funding Comments

17 Apr ‘08 Sphere AOL Undisc $4MM 3 years* start to exit

28 Feb ‘08 Yadata (Israel) Microsoft $25MM $2.5MM 1.5 years* start to exit

5 Feb ‘08 Foxytunes (Israel) Yahoo! $40MM <$1MM 3 years* start to exit

4 Feb ‘08 Goowy AOL Undisc <$1MM 4 years* start to exit

12 Dec '07 Multimap (UK) Microsoft $50MM $6MM $25MM went to founder

Microsoft, Google, Yahoo! & AOL acquired 57 companies Q1 ’07 to Q1 ‘08 (inc.),vast majority of which are valued at under $100MM or “value undisclosed”

9 Dec ‘05 Del.icio.us Yahoo! $30MM Undisc 2 years* start to exit

20 Mar ‘05 Flickr Yahoo! $40MM <$1MM 3 years* start to exit

Motivation for the founders?

Lower probability of $200MM exit owning 5%-10% of the company in 5-7 yrs

Higher probability of $50MM exit owning 40%-60% of the company in 2-3 yrs

OPTION A

OPTION B

* Note YL Ventures typicallyinvests 1 year after the start

Founders’ Share = $15MM

Founders’ Share = $25MM

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INTRODUCING:THE YL VENTURES (“YLV”) WAY

1. Seek good valuation opportunities that YLV can improve quickly, with low burn, to maximise near-term exit value Back start-ups suited as corporate divisions rather than standalones Stage-invest to fund 24 months of burn-rate through to acquisition Guide company strategy and provide access to customers & partners

2. In parallel, introduce qualified, pre-identified acquirers for speedy, successful (IRR/x) sale

Time (and capital)

En

terp

rise

Val

ue

5+ Years~24 Months

HyperGrowth

Venture Chasm Home Run1-2 per Portfolio

Most YLV deals exit here

Some YLV exits

YLV investment

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YLV EXIT STRATEGY

Start Early

Exit Aptly

Manage companies towards accelerated exits Identify potential acquirers prior to investing using strategic fit Iteratively fine-tune company strategy to acquirer tastes Recruiting customers/partners that can later be acquirers

Exit ‘sweet spot’ is $20MM-$80MM, with potential for more Acquirer motivation: technology, products & management Valuation basis: revenue potential, not revenue history 1-2 portfolio companies will take longer and exit at over $200MM

Earn O

utP

eriod

Sourcing &Negotiations

Q-1 t0 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12Q-2

RiskControlStage

Expansion Stage –deployments,US presence,more features

Management Earn Out –

acquirer synergies,revenue growth

BridgeFundingStage

$ Invested: $500K-$1MM $500K- $1M $500K $ Exit: $20MM-$80MM

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YLV SOURCING STRATEGY

Internet, telecom (mobile) & digital media software

Europe & Israel (70% cheaper than Silicon Valley)

Deep tech intellectual property

Technological expertise & unquestionable ethics

R&D is complete and product ready for deployment

Bootstrapped operations / low burn rate

The fund can establish a clear M&A exit route

Sectors

Geography

Technology

Management

R&D

Finances

Exit

Blog scanning: primary deal sourcing strategy (monthly funnel routine)

The firm’sresearchers

scan blogs anddatabases

Associateand analyst

filter 100’s ofopportunities

Managing Partnerauthorizes sending‘radar emails’ out toseveral companies

Interestedcompanies

submitdocumentation

Bestprospectsinvited to a

meeting

Best of thebest start

duediligence

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SUMMARY

Early stage venture capital is going through a shakeup

Venture capitalists are rethinking their exit strategies

Not all start-ups are destined to be the next Google

Corporations are hungry for external talent & innovation

Accelerated medium-sized strategic exits might just work!

More at www.YLVentures.comRefer start-ups to [email protected]

Yoav Andrew LeitersdorfManaging Partner