New Venture Finance

Syllabus Financing New Ventures

Summer 2013

General Course Information

Mondays, June 24 to August 12, 5:30 pm to 7:30 pm

Room BH 212, Genentech Hall, UCSF Mission Bay campus

Instructors:

 Stephanie Marrus, Director, Entrepreneurship Center at UCSF

Office of Innovation, Technology and Alliances

(Email: [email protected] 415-502-1612)

 Naeem Zafar, UC Berkeley, Haas School of Business faculty and Entrepreneur

(Email [email protected] 408-218-1920)

Administration: Kyra Davis, Marketing and Programs Coordinator, Entrepreneurship Center at UCSF

[email protected] 415 502 1612

Course materials will be made available on Dropbox.

Overview of the Course

This course will examine the range of options that a life science/healthcare company has for financing at the startup phase of its life cycle. In this difficult financing environment, ventures need to look to any and all sources of capital that will allow them to create value inflection points, reduce risk and position themselves for additional investment. The course will cover a range of funding sources including grants, angels, seed and venture capital and non-traditional sources such as foundations and crowdfunding.

We will take two perspectives: that of the entrepreneur and that of the investor. Some of the takeaways will be: how to navigate the investment world, capital sources appropriate for your venture, the investment criteria typical of a source, the inside story on venture capital, non-dilutive funding such as grants. We will touch lightly on business planning, basic finance and creating an investor presentation.

Syllabus: Financing New Venture (Marrus & Zafar, Summer 2013) r4 Page 1 The course will provide information to help set a plan of action to fund a company.

This is a non-credit, fee-based class that is open to UCSF, Stanford, Berkeley, QB3 and Industry. Charge by category is available at http://cbe.ucsf.edu.

We expect that you are committed to attend each class in the series. If you are going to miss a class or be late, please inform us ([email protected] ).

Modes of Learning

The class will blend readings, discussion and guest speakers from different parts of the financing world. You will maximize your learning by doing the readings and being prepared to participate in discussions.

Computers and Cell Phones in the Classroom

Our policy is that there are no cell phones on or open/connected computers in the classroom except when we need someone to locate a fact on the internet for class purposes. Thank you for adhering to this policy.

Assignments

Readings are assigned for each lecture; everything is available on the Internet. Please read the assignment before coming to class.

1 st Assignment (Due July 20 th )

Your written assignment is to research and articulate (in a one-page write-up) which VC fund will be ideal for you to pitch to and why. Your research will evaluate if this fund invests in your type of companies and which sector, stage and geographical focus do they have. Do they have partners that understand your space. What other companies have they invested in that makes them a good candidate for your company. This is due on July 20.

For general knowledge you should attention to company financings occurring this summer. We can examine, and possibly discuss in the class, who is funding new ventures, the type of companies being funded, amount raised, valuations and other details. Some good sources for this are:

 Healthbeat, http://venturebeat.com/tag/healthbeat/

 New York Times Deal book http://dealbook.nytimes.com/category/main-topics/venture-capital

 Venture wire -- http://pevc.dowjones.com

 The Funded -- http://thefunded.com/. Entrepreneurs rate venture firms

 CB Insights -- http://www.cbinsights.com/about.php. Venture capital and angel deals, free

Syllabus: Financing New Venture (Marrus & Zafar, Summer 2013) r4 Page 2  Industry newsletters Fierce Biotech http://www.fiercebiotech.com/search? keys=venture+capital (free)& BioWorld and Biocentury (paid).

Class-by-Class Syllabus

Class 1: June 24. The financing landscape and the business plan

Context for the class, with a review of the different financing vehicles and the overall market for funding life science/healthcare ventures. What do you need to get started; course outline; Partner's meeting! Creating a glossary of business terms. Peter’s case will be discussed (no prep needed).

The winning pitch from Berkeley’s Startup Competition: Resido Medical http://www.youtube.com/watch?v=rspZoK69zJc&list=EC1D3BFE9E88B73A37 (54:00)

Readings:

1. Bianca Male, Starting a Tech Company and Starting a Band are Pretty Much the Same Thing, Business Insider, May 2010. http://www.businessinsider.com/starting-a-tech-company-and- starting-a-band-are-pretty-much-the-same-thing-2010-5. A little humor from the tech startup world.

2. Wilson Sonsini, Financing Trends for Q1 2013, http://www.wsgr.com/publications/PDFSearch/entreport/Q12013/private-company-financing- trends.htm

3. Steven Davidoff, NY Times Dealbook, Venture Capital’s Rocky Road for Entrepreneurs, May 2, 2013, http://dealbook.nytimes.com/2013/05/02/venture-capitals-rocky-road-for- entrepreneurs/

4. CB Insights, Medical Device Companies Winning Battle for Healthcare Venture Capital, http://www.cbinsights.com/blog/venture-capital/medical-device-companies-healthcare-vc

Class 2: July 1. Primer on Non-Dilutive Funding: Grants

Class will explore various options entrepreneurs have for seeking government grants and other sources of seed funding. What is the process of writing successful grants? How long will the process take? What are the obligations and benefits and pitfalls of seeking grants?

Readings:

1. SBIR Gateway, www.zyn.com/sbir/

Syllabus: Financing New Venture (Marrus & Zafar, Summer 2013) r4 Page 3 2. SBIR/STTR US Government site, www.sbir.gov

3. Bioentrepreneur, Non-Dilutive Financing for Biotech Startups, Oct 9, 2012,,http://blogs.nature.com/tradesecrets/2012/10/09/non-dilutive-financing-for-biotech- startups

4. Nature Biotechnology, David Beylin, Cara J Chrisman & Michael Weingarten, Granting you Success,2011, http://www.nature.com/bioent/2011/110501/pdf/bioe.2011.5.pdf

5. 100+ Places to Find Funding For Your Research Feb 18, 2013, http://oedb.org/library/features/100_places_to_find_funding_your_research/

Speakers:

Shauna Farr-Jones, PhD, Grant Writing Consultant and QB3 Academic Coordinator.

NCI (via Skype) [National Cancer Institute is the Grant Giver}

Shauna Farr-Jones, PhD, has a record of writing successful government grant and contract proposals on diverse life science topics, providing strategic input on both research and business plans. She has helped companies secure over $125 million in grant and contract funding from numerous government and philanthropic agencies including BARDA, EPA, NIH, DTRA, USDA, DARPA and the Bill and Melinda Gates Foundation. For eleven years, she has consulted for life science companies and universities identifying funding opportunities, preparing research plans, marketing plans, technical reports IND’s, NDA’s, white papers and proposals. She currently teaches grant writing at QB3, an incubator for life science companies funded by the State of California. She also assists life science companies and UCSF faculty to obtain funding. Previously, she was Senior Writer BioCentury Publications, where she analyzed and wrote about the biotechnology industry. She was a post-doctoral fellow at UCSF and has a PhD in Biochemistry from Tufts University

Class 3: July 8. Finance 101: creating a budget, breakeven, what you need to show an investor

How to estimate your funding needs. The class will show a bottom-up approach to estimating and creating a basic financial model.

Speaker: TBD (CFO for startups}

Reading:

Class 4: July 15. Angel Funding

This class will breakdown the angel funding process. Who are these angels and why do they invest? When to approach them and what should you expect?

Speaker: Allan May, Life Science Angels

Syllabus: Financing New Venture (Marrus & Zafar, Summer 2013) r4 Page 4 Mr. Allan W. May is a Co-Founder and Chairman of Life Science Angels, Inc. He was also the and Co-Chairman of Device Screening Committee and Medical Device Committee at the firm. Mr. May is a Managing Director at Emergent Medical Partners. In 2007, Mr. May joined Dr. Thomas Fogarty, in co-founding Emergent Medical Partners. Mr. May is also a Co-Founder and Managing Director at Emergent Medical Ventures. He is the Chairman and Chief Executive Officer of Vascular Architects Inc. At the firm, Mr. May provides overall direction and management and also serves as a primary spokesperson.

Reading

1. May, Sudek and Wiltbank, Angel Investing: a Catalyst for Innovation, Angel Resource Institute, Oct. 2011, http://www.angelcapitalassociation.org/data/Documents/Press %20Center/Super%20Angels%20Report%20-%20ARI%2010-18-11.pdf

2. Wiltbank and Boeker, Returns to Angel Investors in Groups, November 2007, http://www.angelresourceinstitute.org/data/Documents/Resources/AngelCapitalEducation/RSC H_-_ACEF_-_Returns_to_Angel_Investor_in_Groups.pdf

3. Good News for Startups: Angel Investment Trends for the Full Year 2012, April 16, 2013, http://www.angelcapitalassociation.org/data/File/pdf/Halo_Report_2012_press_release.pdf

Class 5: July 22. Venture Capitalists and Series A Funding

Who are the VCs and why do they invest? When to approach them and what should you expect? How long is the process and when is the right time to approach VCs.

Speaker: Ken Haas, Executive Partner, Abingworth

Ken has spent 25 years in the management of both early-stage and public high technology and biotechnology companies. He was part of the founding management team at IntelliGenetics, one of the world’s first bioinformatics companies and, from 1992 to 2001, was CEO of IntelliCorp, a publicly-traded enterprise software company. At the beginning of his career he practiced as an attorney in the business and technology group of Heller, Ehrman, White & McAuliffe, and has been Co-Chair of the Advisory Council to the Neuroscience Institute at Stanford. Ken’s current and past directorships include Gynesonics, Intellikine and Pathwork Diagnostics. He received his BA from Harvard College, an MA from the University of Sussex, a JD from Harvard Law School and attended the Advanced Management Program at Harvard Business School. Ken has been with Abingworth since 2004 and is based in Menlo Park.

Readings:

1. Brook Byers, Relationship between Venture Capitalists and Entrepreneurs, http://matdid1.fgvsp.br/CFC/Claudio_Vilar_Furtado/CGAE%20-%20FINAN%C3%87AS%20DE

Syllabus: Financing New Venture (Marrus & Zafar, Summer 2013) r4 Page 5 %20EMPREENDIMENTOS%20E%20PRIVATE%20EQUITY/MATERIAIS%20DO %20CURSO/Relationship%20Between%20Venture%20Capitalist%20and%20Entreprenuer.pdf

2. USVP, Financing a Company at USVP, http://www.usvp.com/html_vers/financing.html

3. Mark Suster, Understanding a VC’s Seed Funding Policy is Critical, http://www.bothsidesofthetable.com/2010/08/01/my-seed-funding-policy/

Class 6: July 29. Valuation, dilution, term sheets

We will discuss the process of getting funding from an entrepreneurs point of view. How to get a term sheet and how to negotiate the terms? What is the impact of dilution on the entrepreneur? How is your company valued?

Speaker: Curtis Mo, DLA Piper (Law firm)

Curtis Mo is a partner in DLA Piper's Corporate and Securities group, based in Silicon Valley. Mr. Mo is recognized as a leading corporate and securities lawyer in Silicon Valley. He has represented emerging growth companies, major public companies, investment banks, venture capital funds and private equity funds in hundreds of public offerings, mergers and acquisitions, buyouts, venture capital financings and other complex transactions. He has extensive experience in corporate governance matters and regularly acts as general outside counsel to public and private companies at all stages of development, particularly in the technology, life sciences, clean energy technology and consumer sectors

Reading:

1. Scott Walker, Demystifying the VC Term Sheet, Venturebeat, 9/12/11, http://venturebeat.com/2011/09/12/demystifying-the-vc-term-sheet-%E2%80%93-the- investors%E2%80%99-option-to-walk/

2. National Venture Capital Association, sample term sheet: http://www.google.com.mx/search? q=venture+capital+term+sheets&rls=com.microsoft:en-us&ie=UTF-8&oe=UTF- 8&startIndex=&startPage=1&redir_esc=&ei=UzDuT6XzMuj56wH7hcn8Ag

3. FundingPost.com panel, What Venture Capital Investors Want in a Term Sheet, http://www.youtube.com/watch?v=JF-7nRnpJfQ (video)

4. How to value your startup (The Entrepreneur ) http://www.entrepreneur.com/article/72384

5. Putting a value on your startup (Forbes) http://www.forbes.com/sites/tomtaulli/2012/01/03/putting-a-value-on-your-startup/

Syllabus: Financing New Venture (Marrus & Zafar, Summer 2013) r4 Page 6 6. Bill Payne, Kauffman Foundation, Valuation of Pre Revenue Companies: The Venture Capital Method, http://www.entrepreneurship.org/en/resource-center/valuation-of-prerevenue- companies--the-venture-capital-method.aspx

Class 7: August 5. Alternative sources of funding, crowdsourcing, foundations, Corp. Venture

If you are not successful getting money from Angels or VCs life is not over. There are many other sources of getting funded. We will explore corporate venture groups, foundations and other new sources that have popped up recently.

Speaker: Graeme Martin Ph.D., President and CEO, Takeda Ventures

Dr. Martin is President and CEO of Takeda Ventures, Inc, with day-to-day responsibility for operations. He brings more than 30 years R&D experience in large Pharma as well as Biotech, and was responsible for three IND submissions one of which led to the launch of Zomig® now marketed worldwide for the acute treatment of migraine. Dr Martin joined TVI in 2003, and has been responsible for building a portfolio of strategic investments representing more than US$45MM under management. He received his Bachelor of Science degree in Pharmacology from the University of Bath, UK and his doctorate from University College, London, UK.

Reading

Class 8: August 12. Business plan, executive summary and the art of the pitch

What do investors need to see to get attracted to your venture. We will explore the basic material and also learn how to present these effectively. From a 30-second elevator pitch to full investor presentation will be discussed. ~ 10 Students will be asked to volunteer to give their 2 minute pitch and receive real time feedback.

Speaker: Steve Worland, PhD, President and CEO, Effector Therapeutics. Effector was cofounded by UCSF professor Kevan Shokat and recently raised a $45 million Series A financing from a syndicate of top tier vc’s. Steve has 25 years of experience in the pharmaceutical industry and was CEO of publicly traded Anadys Pharmaceuticals, which was acquired by Roche in 2011 after having progressed product candidates into the clinic for hepatitis C and cancer, served as President, Pharmaceuticals and Chief Scientific Officer at Anadys prior to being named CEO and held successive leadership positions at Agouron Pharmaceuticals, Warner-Lambert and Pfizer.

Reading

Syllabus: Financing New Venture (Marrus & Zafar, Summer 2013) r4 Page 7 Instructor’s Bio

Stephanie Marrus

Stephanie is Director of the Entrepreneurship Center at UCSF, which is part of Office of Innovation, Technology and Alliances. She is connected to venture capital communities in California and Boston. She has been affiliated with Stanford University’s Technology Ventures Program (STVP) and has been Professional Faculty at UC Berkeley teaching Entrepreneurship.

During a 25-year plus career, she has been involved as a corporate executive, business consultant and mentor with hundreds of companies in science- and technology-based industries, many with their technological roots at MIT, Harvard, the University of California and Stanford. Her consulting clients have included venture capitalists, CEOs, National Science Foundation grantees and foreign government entities. In addition to her business career, she served as Deputy Secretary of Economic Affairs for a Massachusetts governor where she took the lead on economic development and business policy. She has been President of a medical research foundation and serves on the Advisory Board of a social venture startup accelerator.

Her corporate positions in life sciences have included CEO of a drug delivery company, VP Corporate Development for a tissue regeneration company and Director of Corporate Communications for a biotech drug company.

She has translated her business experience to the classroom and teaches experiential courses in entrepreneurship and bio-entrepreneurship. Her academic titles have included Faculty in the Center for Entrepreneurship in Technology at UC Berkeley, Entrepreneur-in-Residence at the Haas School of Business, UC Berkeley; Guest Lecturer, Stanford Technology Ventures Program; Adjunct Professor, St. Petersburg State University Graduate School of Management, Russia; and Entrepreneur-in-Residence, King Abdullah University of Science and Technology, Jeddah, Saudi Arabia.

Ms. Marrus is the author of a book on strategic planning, Building the Strategic Plan, published by John Wiley and sold worldwide. Her views on entrepreneurship in emerging markets have been published in the Wall Street Journal, the Moscow News and AmericaEconomia.

She holds an MBA from the Wharton School, University of Pennsylvania, an MA from Columbia University and an AB from Cornell University.

Naeem Zafar

Naeem has been teaching at Berkeley-Haas School of business since 2005. He has taught entrepreneurship and New Venture Finance. He is also the co-founder and CEO of Bitzer Mobile, a company that provides software for secure enterprise mobility. Naeem started his own business at the

Syllabus: Financing New Venture (Marrus & Zafar, Summer 2013) r4 Page 8 age of 26 and subsequently went on to start, or work at, six startups. His first job out of Brown University with a degree in electrical engineering was to design chips and electronic systems. Twenty years, two kids, one IPO and three CEO stints later, he founded Startup-Advisor, a company focused on educating and advising entrepreneurs on all aspects of starting and running a business (www.Startup- Advsior.com ).

Naeem works frequently with the US State Department in promoting innovation and entrepreneurship across the world on starting entrepreneurial ecosystems throughout the world. He is on the International advisory board for the North African initiative at the Aspen Institute. He has travelled to 76 countries to understand cultures and how business is done and considers himself a global citizen.

Naeem has authored five books on entrepreneurship on topics ranging from conducting market research to seeking the right funding to successful ways to start a business. These books are available on Amazon.com, iTunes store and from www.FiveMountainPress.com

More information can be found on www.NaeemZafar.com .

Syllabus: Financing New Venture (Marrus & Zafar, Summer 2013) r4 Page 9