www.cvg.org
Endowment and Foundation Venture Investing
Anlyan Center AuditoriumYale University
New Haven, Connecticut
May 10, 2012
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Welcome
Gregg LallierPartnerUpdike, Kelly & Spellacy
Welcome
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Deal Lead
CVG Sponsors
B Round
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Our SponsorsA Round
Venture Capital Sponsors
Professional Service Firms
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Gregg Lallier
PartnerUpdike, Kelly & Spellacy
Legislative Update 2012
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Panel Moderator
Stephen BlochGeneral PartnerCanaan Partners
CVG
www.cvg.org
» 20 year old global firm with offices in Silicon Valley | New York Corridor | India | Israel
» $3 Billion assets under management across 8 funds
» Technology + Healthcare focused
» Early-stage investments (Series A/B)
» 122 successful exits
» 164 years investing experience
» 142 years operating experience
» 4 former CEOs
» 3 MDs and 2 PhDs
About Canaan Partners
www.cvg.org
• $600 M closed January 2012• Diversification strategy
– 1/3 Healthcare, 2/3 Technology – 75% U.S., 25% India & Israel
• Primarily early-stage focus >75% of investments
• Lead or co-lead >90% of transactions
Canaan IX
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• How we find interesting opportunities– Network, network, network– Repeat entrepreneurs in 20% of our companies– Constant marketing to entrepreneurs in various forums
• What we look for in start-up companies– Large market opportunities– Teams that can execute and that have a track record– Highly-differentiated technologies
• Team-oriented assessment process– 1st and 2nd for each investment opportunity– ALL investments go through the same process– Weekly, monthly, and quarterly discussions of all investments
Business Approach
Business Models
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Venture Capital InvestorsFinance & Insurance,
25%
Endowments & Foundations, 21%
Individuals & Families, 10%
Corporations Operating Funds
(not pension), 2%
Private & Public Pension Funds, 42%
Facts and Figures
Source: 2004 NVCA Yearbook prepared by Thomson Financial using 2003 data
www.cvg.org
2006
2007
2008
2009
2010
2011
Israel
2006
2007
2008
2009
2010
2011
561 594 472 369 376 247
358 358328
275 295186
298468
395361 414
302
158183
189171 162
87
Europe
Active Private VC-backed companies*
Facts and Figures
*Private and independent VC-backed companies that received at least one round of financing in the prior six yearsSource: Dow Jones VentureSource
IT Products and
Services
Healthcare Other
n = 2419
n = 2750
n = 2968
n = 2877 n =
2606
n = 2890
n = 822
n = 1375
n = 1603 n =
1384 n = 1176
n = 1247
n = 69
n = 160
n = 183
n = 164
n = 117
n = 87
2006
2007
2008
2009
2010
2011
1,282 1,184 1,058 918 994 859
695 722705
707 711554
663 863884
798978
803
110199
230
183
207
203
United States
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2006
2007
2008
2009
2010
2011
Israel
2006
2007
2008
2009
2010
2011
207 215 192 158 17599
16 159
10 11
6
118 110109
94 97
76
65 4849
73 64
61
Europe
2006
2007
2008
2009
2010
2011
298342 318 297 309
222
5552
4945 53
46
277280
288290 285
225
6548 49 73 64
61
United States
Healthcare: Number of VC-backed Companies*
Facts and Figures
*Private and independent VC-backed companies that received at least one round of financing in the prior six years.Source: Dow Jones VentureSource
Biopharma
Medical Devices & Equipment
Healthcare Services
Medical Software & IS
n = 695
n = 722
n = 704
n = 705
n = 711
n = 554
n = 358
n = 356 n =
327 n = 274
n = 295
n = 186
n = 50
n = 45
n = 28
n = 25
n = 20
n = 49
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2006
2007
2008
2009
2010
2011
$2.0B $2.2B $1.7B $1.1B $2.2B $1.0B
$2.0B $2.0B $1.6B $1.3B$1.8B
$1.1B
$0.9B$3.0B
$1.9B $3.9B$$1.6B$$1.4B
Europe
2006
2007
2008
2009
2010
2011
Israel
Cumulative Capital Invested*
Facts and Figures
*Private and independent VC-backed companies that received at least one round of financing in the prior six yearsSource: Dow Jones VentureSource
IT Products and
Services
Healthcare Other
2006
2007
2008
2009
2010
2011
$14.3B$11.5B
$9.2B $7.1B $8.2B $6.8B
$9.0B$10.1B
$8.6B$7.7B
$8.1B$6.0B
$5.3B $6.7B
$8.2B
$8.2B
$14B
$8.2B
$1.3B $2.9B$4.6B
$2.4B
$3.9B
$3.0B
United States
$30B$31B $30B
$25B
$34B
$24B
$0.7B $1B $0.4B$0.6B $0.4B$0.8B
$5.6B $6.4B$7.1B$6.4B$4.0B
$7.9B
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2006
2007
2008
2009
2010
2011
Israel
2006
2007
2008
2009
2010
2011
$1.6B $1.5B $1.1B $0.9B $1.3B $0.8B
$0.3B $0.4B$0.4B $0.3B
$0.4B$0.4B
Europe
2006
2007
2008
2009
2010
2011
$4.9B$5.7B
$4.5B $3.9B $3.8B$2.6B
$0.8B$0.4B
$0.4B$0.4B
$1.4B
$0.4B
$3.0B
$3,.7B
$3.3B$2.9B
$2.5B
$2.5B
$0.4B
$0.3B
$0.4B
$0.4B$0.4B
$0.4B
United States
Healthcare: Cumulative Capital Invested*
Facts and Figures
*Private and independent VC-backed companies that received at least one round of financing in the prior six years.Source: Dow Jones VentureSource
Biopharma
Medical Devices & Equipment
Healthcare Services
Medical Software & IS
$9.0B
$10.1B
$8.6B
$7.6B$8.1B
$6.0B
$2.0B$1.6B$1.3B
$1.8B$1.2B
$2.1B
$0.2B $0.2B$0.1B$0.2B $0.1B$0.2B
www.cvg.org
Healthcare VC Fundraising Down Sharply
The Bad News…
2006 2007 2008 2009 2010 $-
$50,000
$100,000
$150,000
$200,000
236
222
145
62
38
Amount Raised ($M) # Funds
$ Ra
ised
(in m
illio
ns)
Data from Thomson Reuters
www.cvg.org
Healthcare VC Investments Holding Steady
The Good News…
2006 2007 2008 2009 20100
200
400
600
800
1000
1200
1400
1600
1800
2000
1067 1004 998895
1051
671630 677
608
717
152
147 114
93
100
Biotechnology Medical Devices and Equipment Healthcare Services
Num
ber o
f Inv
estm
ents
Data from Thomson Reuters
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Liquidity: IPO Market Rebounding
Five Year
Data from Thomson Reuters
2006 2007 2008 2009 20100
5
10
15
20
25
30
35
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
17
21
13
12
10
10
2
3
1
1
1
Biotech Medical Devices & Equipment Healthcare Services Total Amt
Num
ber o
f IPO
's
Tota
l $ R
aise
d (in
mill
ions
)
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Liquidity: M&A Activity Increasing
Five Year
Data from Thomson Reuters2006 2007 2008 2009 2010
0
10
20
30
40
50
60
70
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
2924
19 19
32
21
23
1419
21
9
5
3
4
12
Biotech Medical Devices & Equipment Healthcare Services Total Amt
Num
ber o
f Dea
ls
Tota
l $ V
alue
(in
mill
ions
)
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Panelist
Lynne GarnerPresident and TrusteeThe Donaghue Foundation
Introduction
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Who is Donaghue
• Who is Donaghue, our grant programs, and what we need help with
• Impact investing from our perspective
• How can entrepreneurs help Donaghue and similar foundations
• Final thoughts
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The Patrick and Catherine Weldon Donaghue Medical Research Foundation
• Private foundation; Current assets $62M• >$83M in grants• Investments:
– 2.8 cash– 58.7 equities– 33.1 fixed income– 2.4 real estate– 2.8 commodities
• No alternatives
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Donaghue’s purpose
“to provide financial assistance for research in the fields of cancer, health disease and/or other medical research to promote medical knowledge which will be of practical benefit tothe preservation, maintenance, and improvement of human life”
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Grant Programs
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Ex: Program for Research Leadership
• Team-based award – team often includes someone from outside academic community
• 4 years - $220,000 each year• 3 components to application: research, knowledge
uptake, team-building• Non-researcher on review committee to “kick the
knowledge uptake tires”
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New grant program – R3
• $30K-$50K for 18 month• Purchase consultation to bridge from research to
users– Market analysis, focus group of potential users– Graphic design & digitizing intervention materials– Programming for use in HER– Develop prototype
• Applications would not get a research-methods review
• Open to former Donaghue grantees
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Beyond Grant Programs
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Opportunities to gain expertise
Social marketingSharyn Sutton PhD, AARP Foundation
Effective communicationsChip Heath, PhD Stanford University
Venture capital investmentGuy Fish, MD, Fletcher Spaght Ventures
Scaling up evidence -based programs Peggy Hill, MS, National Replication office, Nurse-Family partnership
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Grantees with specific “after the grant” projects
Donaghue grant-7 yrs, $3MStudy interventions reduced falls through risk factor identification, and changing provider, health care organization and patient practices
Donaghue grant-4 yrs, $.9MFaith-based weight loss intervention program developedby/for African -American women effective inproducing modest, sustained outcomes
Donaghue grant-5 yrs, $1.2MStudy primary care based physician interventionsimproved asthma management & reducedmedical cost s for high riskchildren
Donaghue grant-2 yrs. $245KUse of medical simulation to improve leadership & teamwork in addressing patient safety issues
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Initiatives to advance the scale-up field, contribute to community building
Funders Forum Generate discussion/action by funders of health interventions
Scale up conferenceParticipate in collaborative, multi-stakeholder efforts
Commissioned white papersSurvey of university technologytransfer offices
Scale-up of evidence-based communityHealth programs
Market receptivity to adopting interventions
Think Tank supportAcademic researchers & community- based physicians discuss collaborating to Improve patient care
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Impact Investing
Mission-related investing
Program-related investing
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IRS rules for private foundations
• Restrictions on self-dealing
• Must annually distribute 5% for charitable purposes
• Limit on their holdings in private businesses
• Investments must not jeopardize charitable purpose
• Expenditures must further charitable purpose
“Should a private foundation be more than a private investment company that uses some of its excess cash flow for charitable purposes?” Luther Ragin, F.B. Heron Foundation
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Mission Related Investing – the 95%
• Most foundations invest in fund of funds• Questions regarding MRIs (esp. for single-fund
investments)– How does the investment align with mission? – Structure of investment and level of risk?– What due diligence is needed to evaluate?– What benchmarks are used to monitor?
• Easier for you; harder for us
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Program Related Investing – the 5%
• Provides grant with returns• Purpose of investment must advance charitable
mission• Investment return cannot be primary purpose• Same questions as for MRIs• Easier (and more advantageous) for us; probably
harder for you
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Considerations for both MRIs and PRIs
• How does investment further the mission?• Is it an investment for income (95%) or a program
(5%)?• Jeopardizing investment rule – risk may be too high
and/or return too small• Cost of monitoring the investment• How does it fit with the foundation’s overall assets
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Emerging models
• B corps - “Firms with benefits” The Economist 1/7/12• Social Impact Exchange – creating capital markets to fund
high-impact non-profit ventures• Social Impact Bonds – NYT Economix blog
http://nyti.ms/gxBwqQ• MX.com – “a marketplace for healthcare innovations”
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Can entrepreneurs help us?
• Significant capital & business expertise is required to launch evidence-based innovations
• Assist in the challenge of monetizing social, clinical innovations
• Partner in a more problem-solving philanthropic enterprise by promoting new paradigms, methods, rewards
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Final thoughts
• Foundations have a social mission• Are challenged in getting their “products” sustainably
implemented• Have limited resources to spend on seed-capital
investing• If your innovation can help with a foundation’s social
mission, you may have a match
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Panelist
Kevin EdwardsVice President of Finance and Chief Investment OfficerThe University of Connecticut Foundation Inc.
CVG
www.cvg.org
• 501(c)(3) tax exempt corporation • Institutionally related foundation separate from University• Mission exclusively to provide private financial support to the University of
Connecticut– Fundraising and stewardship – Asset management
• Volunteer Board of Directors including ex-officio University representatives• Board delegates work to established committees
– Investment Committee manages portfolios; recommends policy changes– Staff and outside consultants support and bring recommendations
• Assets $387 million at December 31, 2011 – Endowment $320 million (includes all endowment supporting UConn)– Non-endowed and other $67 million
• Sole Shareholder of UConn Research & Development Corp.– Tech transfer of University IP
The UConn Foundation - Organization
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Growth, 72%
Inflation hedge; 14%
Risk minimizing, 14%
Asset Allocation at December 31, 2011
Long-term Pooled Investment Portfolio
Downside and inflation protection with growth to meet goals
Diversified risk
Equity-like riskHigh yield debt 5% Global equities 26%Private capital 16%Real estate 7%Opportunistic 5%
Lower risk hedged strategiesLong/short equities 9%Global macro 3%Event driven 3%
TIPS 5%Natural resources 8%
Investment grade debt 5%Relative value 6%Cash 2%
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Venture Capital Program
• ~25% of Private Capital program (3%-4% of total endowment)
• Fund of Funds – Primary and Secondary
• Diversification by vintage year and manager
• International exposure increasing – 32% of latest fund outside US– China approximately half of non-US exposure
• IT dominates with Life Sciences and Energy rising
• Denominator effect still an issue
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Venture Capital Environment
• Capital inflows to funds rose slightly in 2011 – late stage dominant
• New fundraising flat year over year (2011 vs. 2010)
• Investment rose: software, biotech, med. devices, alt. energy
• Exits similar to 2005 – 2006; IPO’s down from 2010; M&A flat
• Valuations highest since 2000 – driven by late stage
• New company formation upward trending near 2006-2008 levels
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UConn Economic Development Programs
UConn Research and Development Corp• Commercialize University IP• Tied into University Office of Economic Development• 100% focused on business formation
– Work with faculty through proof of concept to full operations– Raise funding – Grants, Angel, Venture, Internal Fund– Identify entrepreneurs and management teams
Knowledge Portal and Incubation Programs• Tech Knowledge Portal assists existing companies with tech issues• Incubators - infrastructure and support to help create businesses
– Facilities – labs, office space– Access to faculty experts, research, student employees/interns
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Discussion
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Q & A
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Liddy Karter
Executive DirectorCrossroads Venture Group
Closing
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