MIDDLENOMICS_BUSINESS_PLAN

MIDDLENOMICS BUSINESS MODEL HAS BEEN VOIDED DUE TO A RECENT DECISION BY THE SUPREME

COURT TO NOT GRANT GENERAL BUSINESS METHOD PATENTS. IF THE BUSINESS MODEL WAS TESTED

AND SUCCESSFUL, IT WOULD BE IMMEDIATELY COPIED BY GOLDMAN SACHS, MORGAN STANLEY AND

EVERY OTHER INVESTMENT BANK. THIS BUSINESS PLAN IS FOR INFORMATIONAL PURPOSES ONLY.

2

SECTION TABLE OF CONTENTS PAGE #

1 Executive Summary 3

2 Executive Summary: Venture Capital Software 4

3 Market Size 5

4 Net Margin 7

5 Market Share 7

6 Value Added 8

7 Effects on Middle Market Companies 9

8 Patent 9

9 The Process 10

10 Valuation 12

11 Patent Valuation 13

12 VCS: Ratio Valuation 14

13 VCS: DCF Valuation 15

14 Pro Forma VCS Financial Summary 17

15 Pro Forma Six Year Financial Summary 21

16 ROI, IRR & NPV 21

17 NASDAQ: Requirements for Listing 22

18 Software Market 23

19 Competitive Advantage 23

3

1. Executive Summary

Middlenomics will package middle market companies too small to go public into securities. It will combine equity

in multiple middle market companies into single holding companies and conduct IPOs. The first deal is projected to

provide 44x ROI in two years (565% IRR) assuming an initial investment of 4m. Other deals are projected to provide

an average of between 3.3x ROI in two years (82% IRR) and 13.3x ROI in two years (264% IRR) depending on pricing

power. Initial pricing power could be overestimated depending on the behavior of competitors.

MARKET SIZE The market size will depend largely on the success of the first IPO. If middle market companies are valued at a

premium when packaged together and sold to the public, the majority of middle market companies will likely use

the innovation as their preferred exit option. The total US middle market (companies with revenues between five

million and one billion) capitalization was 4.2 trillion in 2007 – the last economic census. In 2010, there were

10,700 M&A deals totaling roughly 694b. 48% of middle market companies are owned by private equity by

valuation. The global market is estimated to be between 52b and 208b depending on pricing power.

NET MARGIN First Deal Small Cap – Market Average Valuation (1x Sales)

Market Cap $ 1,000,000,000 $ 300,000,000 $ 300,000,000 $ 300,000,000

Pricing Power 20% 20% 10% 5%

Net Margin 74% 70% 64% 53%

VALUE ADDED Traditional venture capitalists will be the Middlenomics closest substitute and best customer. Ratio and DCF are

the primary valuation models used for both private and public companies. Middle market companies generally sell

for three to five times earnings. The stock market values companies at an average of 14x earnings. Venture

capitalists discount future cash flows at a rate of 20%-80%. Stock market analysts discount future cash flows at an

average of 5%. The resulting difference in value is around 200%. Middle market companies may be able to sell

equity for about three times as much to the public then venture capitalists.

PRICING POWER Middlenomics assumes it can take between 5% and 20% equity in holding companies. It is closest to a SPAC

(Special Purpose Acquisition Company). SPAC managers take 20% equity from public investors then purchase

private companies. Middlenomics will take 20% equity from private companies then conduct IPOs. Middle market

business brokers generally charge between 5% and 12% of the sale price, depending on the size of the business.

Underwriters charge an average 7% of IPOs. Middlenomics will attempt to take 20% in its first deal and the market

will determine the rate after that.

POSSIBLE PATENT Middlenomics will employ a new business process. Business processes are patentable. However, a patent is not

certain due to the evolving nature of business process patent law. A provisional patent had been filed. The process

is new, nonobvious and useful, therefore satisfying the requirement for an application. A patent would not be

granted for three to five years.

4

2. Executive Summary: Venture Capital Software

Middlenomics first deal will be a software company called Venture Capital Software (VCS). It will start

with a software company because software companies have the highest valuation ratios, therefore

maximizing the value of the IPO and returns to shareholders.

Within public software companies, certain size companies have better valuations than others. Large and

mid cap software companies (>2b) are too large to be realistic. Small cap (300m-2b) software companies

have better ratios than micro cap (<300m) software companies. Small cap software companies have an

average price to sales ratio of 4.0 and an average price to earnings ratio of 65.1. Micro cap software

companies have an average price to sales ratio of 1.7 and an average price to earnings ratio of 23.7. To

maximize shareholder returns, VCS will be a small cap stock.

Also important to the value of the IPO is the venture capital characteristic. Venture capitalists have had

an average 27% rate of return before fees over the past 15 years (Cambridge Associates US VC Index).

The Russell 2000 has had an average rate of return of 6.25% over the same time period. The risks

associated with middle market investing are reduced when pooling companies into funds.

The (whole) stock market average price to sales ratio is one and the average price to earnings ratio is 14.

Although software companies are valued at premiums to the market, VCS will attempt to acquire equity

in companies totaling 300m in trailing twelve months revenue to ensure it is considered a small cap

stock.

Assuming a 1b public holding company value (the lowest valuation model (DCF)) and 20% equity, the

potential returns vastly exceed the average private equity home run rate of an 81% IRR. The following

tables represent VCS ROI and IRR (pre-tax).

ROI Time 0 Year 1 Year 2 IRR Time 0 Year 1 Year 2

44 $ (4,000,000) $ - $ 177,000,000 565% $ (4,000,000) $ - $ 177,000,000

5

3. Market Size

Middlenomics will service middle market (revenues between 5m and 1b) companies wishing to sell. It is

estimated that private equity owns 48% of middle market businesses by valuation.

According to data compiled by Baird and Dealogic, in 2010 there were 5,300 merger and acquisition

deals totaling 347b in the US. An additional 5,400 deals were listed as undisclosed. For the purpose of

projections, the 347b will be doubled to 694b. 2010 is the latest data available. It is safe to assume M&A

has increased in 2011. Middlenomics projects 25% (174b) of middle market companies wishing to sell

will use packaged securities. However, the actual percentage will largely depend on the success of the

initial IPO.

As of the last economic census (2007),

there were 369,122 middle market

companies. Of these, only 1,200 were

public companies. The total middle

market capitalization was 4.2 trillion.

The majority of middle market

companies had revenues of less than

100m. 174,000 companies had revenues

of between 5m and 10m. 156,000

companies had revenues of between 10m and 50m. 21,000 companies had revenues of between 50m

and 100m. The “lower middle market” can be defined as companies with less than 100m in revenues.

This segment represented over 95% of middle market companies and generally sells for 3-5x earnings.

Accurate worldwide middle market statistics do not exist. However, worldwide stock markets can be

used as a proxy. The size of the worldwide stock market is around 45t. The size of the US stock market is

about 15t. Although international stock markets are about twice the size of the US stock market,

Middlenomics market is not three times the size of the US market. The exchange rates of many

emerging economies such as India, China, and Brazil would cut into revenues and margins. However, the

economies representing the majority of worldwide stock markets such as most of Europe, Japan, and

Hong Kong are suitable for the securitization of packaged middle market companies. Conservatively

estimated, the worldwide market is twice the size of the US market.

The projected US market is 20% (projected pricing power) of 174b or 35b. Middle Market companies

generally sell for 3-5x earnings. The stock market values companies at an average of 14x earnings.


US Middle Market Cos. Wanting to Sell 9b 17b 26b 35b

Worldwide Middle Market Cos. Wanting to Sell 17b 35b 52b 69b

US Market Size 26b 52b 78b 104b

Worldwide Market Size 52b 104b 156b 208b

75%

25%

Traditional M&A

Market

Therefore, the market

size projections are at a

200% premium to middle

market companies

wanting to sell.

6

The competition will be investment banks and private equity firms. Both have employees capable of

packaging middle market companies into securities. Competitors do not require 13.3x ROI in two years.

They may drive down the price

to their required rate of return.

For a deal with private equity

characteristics, competitors

require about 1.5x ROI in two

years or 2%-3% equity in

packaged securities. However,

pricing power will be mostly

determined by the customer.

The customer will likely keep ROI

at 3.3+ (5% Equity).

Middle market companies will

likely select the service provider

that offers them the most

money for their equity. In other

words, they will select providers

based on their potential stock

price minus fees. A stock can

easily move five percent in a

single day. Middle market

companies will give up more

equity in exchange for a higher

stock price. This factor will likely

keep the packaged securities

cost at 5%-20% equity.

Investment banks introduced

and manage SPACs. Under the

SPAC business model,

investment banks take 20%

equity in a publically traded

fund. Competition has not

brought down the price of

SPACs.

0%

5%

10%

15%

20%

25%

Year 1 Year 2 Year 3 Year 4 Year 5

Pricing Power

20%

80%

0%

20%

40%

60%

80%

100%

Equity

SPACs

Public

SPAC Managers

208b 208b

52b 52b 52b

$-

$50,000,000,000

$100,000,000,000

$150,000,000,000

$200,000,000,000

$250,000,000,000


Worldwide Market Size

7

4. Net Margin

VCS Small Cap – Market Average Valuation (1x Sales)

Market Cap $ 1,000,000,000 $ 300,000,000 $ 300,000,000 $ 300,000,000


Revenue $ 200,000,000 $ 60,000,000 $ 30,000,000 $ 15,000,000

Expenses $ 4,000,000 $ 4,000,000 $ 4,000,000 $ 4,000,000

Bonuses $ 23,000,000 $ 6,900,000 $ 3,450,000 $ 1,725,000

EBT $ 173,000,000 $ 49,100,000 $ 22,550,000 $ 9,275,000

Earnings $ 147,050,000 $ 41,735,000 $ 19,167,500 $ 7,883,750

Net Margin 74% 70% 64% 53%

All expenses are incurred prior to the recognition of any revenue. Revenue comes in one payment (the

IPO). Bonuses are incurred during the IPO and account for 11.5% or revenue. Net margins assume a 15%

capital gains tax rate. The tax rate can be decreased from 35% to 15% by keeping stock in holding

companies for one year or more.

5. Market Share

Market Size 10% Market Share 5% Market Share

Worldwide 52b 5.2b 2.6b

US 26b 2.6b 1.3b

* Figures assume 5% pricing power

2.6b

49.4b

5% Worldwide Market Share Middlenomics will have the

ability to obtain 5% market

share in year six with no

additional capital. Middlenomics

will need 4m for every two year

deal. Assuming VCS projections

are accurate; Middlenomics will

have the ability to launch 44

new deals in year three and 146

deals in year five. The 146 deals

will total 2.2b in revenue and

represent roughly 5% of the

projected market.

8

6. Value Added

Venture capitalists sometimes use the DCF valuation model. They usually use discount rates of 20%-

80%.

The following table is an example of a VC DCF approach to valuing a company. The example is based on

a VC discount rate of 27% (VC average return - Cambridge Associates VC Index over Past 15 Years). The

example assumes the company will last 10 years, have year one cash flows of $10,000,000, and grow

20% per year.

NPV Year 1 Year 2 Year 3 Year 4 Year 5

$ 61,821,289 $ 10,000,000 $ 12,000,000 $ 14,400,000 $ 17,280,000 $ 20,736,000


$ 24,883,200 $ 29,859,840 $ 35,831,808 $ 42,998,170 $ 51,597,804

The following table illustrates the DCF value of the same example using a VCS 5.15% discount rate

(discussed in section 11: VCS: DCF Valuation on page 12). The stock market average discount rate is 5%.

NPV Year 1 Year 2 Year 3 Year 4 Year 5

$ 185,004,080 $ 10,000,000 $ 12,000,000 $ 14,400,000 $ 17,280,000 $ 20,736,000


$ 24,883,200 $ 29,859,840 $ 35,831,808 $ 42,998,170 $ 51,597,804

Middle market company owners can likely sell their equity for about 200% more to the public than a VC.

$ Difference $ 123,182,791

% Difference 199%

9

7. Effects on Middle Market Companies

1) Diversify Investment

Middle market company owners will be able to diversify their investment from one

company into 20% equity in their subsidiary and equity in a holding company.

2) Gain Liquidity

The equity in holding companies will be liquid. Stockholders will be able sell shares on a

public exchange.

8. Patent

- The United States Patent and Trademark Office

Patent Must be a: Middlenomics

Process

Machine

Article of Manufacture

Composition of Matter

Patent Must be:

New

Nonobvious

Useful

Subsidiary20%

Equity in Holding

Company

Subsidiary100%

A provisional patent has been filed.

The innovation has a chance to

possess a 17 year sustainable

competitive advantage with a

patent. A patent would not be

granted until year three to five.

Business process patent law is not

clear and is likely to change by the

time of the patent hearing in three

to five years. A patent valuation is

on page 13.

10

9. The Process

Step Time Table Action

1 1st – 3rd Months File Non Provisional Patent Application

2 1st – 3rd Months Hire Employees

3 4th – 15th Months Find and Value Middle Market Companies and Distribute Equity

4 13th – 15th Months Hire Conglomerate Managers

5 16th – 24th Months Road Show

6 24th Month Initial Public Offering

1) File Non Provisional Patent Application

A patent application will be filed before introducing the business model to the market.

2) Hire Employees

Headhunters will be hired to find Middlenomics first 17 employees.

1 Primary Underwriter

1 Founder

2 Lawyers

2 Accountants

2 Assistants

10 Analysts

The primary underwriter will manage the IPO process. If successful, the primary

underwriter will earn 10.5m+ in two years. He or she will be paid $250,000 per year and

own one percent in VCS. He or she will aid in finding and valuing middle market

companies and run the road show and IPO. The primary underwriter will have a large

impact on the value of the IPO. It is important to find an extremely qualified primary

underwriter.

Lawyers will manage the transfer of equity from middle market companies to holding

companies. Accountants will consolidate the financials. Assistants will help the founder

and primary underwriter manage the company. Analysts will find and value middle

market companies. All employees are given equity in VCS as a bonus structure.

3) Find and Value Middle Market Companies and Distribute Equity

Middle market software companies will be found in part through the Software and

Information Industry Association, which publishes monthly software funding requests.

The valuation of each company will determine its ownership in VCS. It will attempt to

acquire equity in companies with as much revenue as possible to minimize valuation

costs. However, VCS will have at least 10 subsidiaries to mitigate the risks inherent in

middle market companies.

11

Under US law, a holding company must own at least 80% of its subsidiaries to qualify for

consolidated financials and avoid double taxation. Therefore, VCS will own 80% of all its

subsidiaries. The remaining 20% may remain with the original shareholders. This

ownership structure will act as an incentive for management to continue to maximize

shareholder value in each company.

4) Hire Conglomerate Mangers

VCS will be managed as a conglomerate. Conglomerate managers will be similar to

venture capital fund managers. They will let some companies fail while re-investing in

other companies growth. They will remove subsidiary managers and hire subsidiary

managers to benefit VCS shareholders. Conglomerate managers will be chosen by the

board of directors which will be made of subsidiary owners. VCS subsidiaries will fund

conglomerate managers.

5) Road Show

The road show creates interest in VCS. It involves presentations by underwriters to

potential buyers. The road show will involve 10-50 underwriters. The primary

underwriter will manage this process. He or she will network with other underwriters to

create as much interest as possible. Stock in VCS will be sold to banks and funds prior to

the IPO in order to determine the offering price. This process generally takes three to

nine months. Underwriters take an average of 7% of the IPO in commission. The primary

underwriter is already being paid by VCS. Other underwriters commissions will be paid

by VCS subsidiaries.

6) Initial Public Offering VCS will sell shares to the public through the NASDAQ Stock Exchange. Subsidiaries

seeking capital for growth and shareholders wanting to sell their equity will sell stock

through the IPO. The NASDAQ was chosen as opposed to the NYSE because most

technology companies are listed on the NASDAQ. Because VCS will be a software

company, it is likely to be worth the most money on the NASDAQ.

12

10. Valuation

Estimations of the Middlenomics value are not accurate due to an unknown market size, market share

and pricing power. 5% pricing power is used for the purpose of valuation projections.

Market Share 5% 10% 15% 20% 25% 50% 75% 100%

Market Size 52b 52b 52b 52b 52b 52b 52b 52b

Net Margin 53% 53% 53% 53% 53% 53% 53% 53%

DCF Value 55b 109b 164b 219b 273b 547b 820b 1.093t

DCF valuations assume:

* 2.5% growth rate (inflation) * 5% discount rate * 15% Capital Gains Tax * The business is assumed to last in perpetuity

Patent Time Value

Pending < 3-5 Years % of Patent & Market Share in Perpetuity

Denied > 3-5 Years Dependent Upon Market Share

Approved > 3-5 Years Patent – 1.958t & Market Share in Perpetuity

109b

37b

22b16b 12b 10b 8b

$0

$20,000,000,000

$40,000,000,000

$60,000,000,000

$80,000,000,000

$100,000,000,000

$120,000,000,000

5% 10% 15% 20% 25% 30% 35%

10% Market Share Valuation at Different Discount Rates

NPV

13

11. Patent Valuation

ESTIMATED ANNUAL CASH FLOWS Calculations Assumptions

Estimated Market Size 208b 20% Pricing Power

Net Margin 70% Capital gains tax rate

Annual Cash Flows 146b

DCF Patent Valuation

NPV 1.958t

Cash Flow Year 1 146b

Patent Valuation Assumes:

* 2.5% annual growth rate (inflation) * 5% discount rate * 17 years of protection

1.958t

1.357t

1t

775b 625b

520b 444b

$-

$500,000,000,000

$1,000,000,000,000

$1,500,000,000,000

$2,000,000,000,000

$2,500,000,000,000

5% 10% 15% 20% 25% 30% 35%

DCF Patent Valuation at Different Discount Rates

NPV

14

12. VCS: Ratio Valuation

Because young software companies often have sporadic earnings, the price to sales ratio is the best

metric used for valuation.

Two pure public venture capital firms exist in the US (KKR & CSWC). Both measure sales as dividends

plus interest leaving a price to sales ratio unreliable. Gains on sales of companies are placed on the

income statement under other income. KKR has a price to earnings ratio (trailing twelve months) of 3.55

and CSWC has a ttm P/E of 175.73. KKR is priced at 2x book value (mostly investments). CSWC is priced

at ½ book value (mostly investments). Both invest in diverse industries. Because venture capital funds

return more than the stock market on average, a VC characteristic should increase the value of a stock.

However, there are not enough public VC firms to quantify this characteristic. Existing public VC firms

measure profitability by the buying and selling of private companies.

1.7

4.0

5.1

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Micro Cap Small Cap Mid & Large Cap

Software Price to Sales by Market Cap

23.7

46.4

37.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0


Software Price to Earnings by Market Cap

VCS sales will be actual sales

by the software companies it

owns. It will have an

estimated 300m in ttm sales.

Using the average small cap

price to sales ratio, VCS will be

worth 1.2b.

Small cap software companies

have a price to earnings ratio

of 46.4 with the top four out

of 32 P/E ratios removed. All

of these ratios are over 100. If

these four companies were

left in the calculation, the

small cap software industry

has an average P/E of 65.1.

15

13. VCS: DCF Valuation

NPV Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

$ 1,001,738,673 $ - $ - $ 30,000,000 $ 30,000,000 $ 30,000,000 $ 1,125,000,000

VCS will mimic a venture capital software fund by having a portfolio of middle market companies. VCs make money by buying and selling equity

in middle market companies. On average, five out of 10 of the companies will fail, 3.5 out of 10 companies will break even (sell for or earn as

much as has been invested in the companies), and 1.5 out of 10 companies will account for all the returns (home runs). VC’s have an average IRR

of 27% over the past 15 years (Cambridge Associates VC Index). Home runs (individually) produce an average ROI of 30 in an average of six years.

VCS will not sell its companies because they will be already owned by the public. However, a DCF valuation can be projected as if the companies

are experiencing exits because VC’s are often selling home runs to the public. Therefore, the public value of the home runs will equal their sale

price. Discounting sale prices yields roughly the same result as discounting future cash flows.

The following table depicts the average returns of a 300m VC fund.

Traditional VC Time 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Company 1 $ (30,000,000) $ - $ - $ - $ - $ - $ -

Company 2 $ (30,000,000) $ - $ - $ - $ - $ - $ -

Company 3 $ (30,000,000) $ - $ - $ - $ - $ - $ -

Company 4 $ (30,000,000) $ - $ - $ - $ - $ - $ -

Company 5 $ (30,000,000) $ - $ - $ - $ - $ - $ -

Company 6 $ (30,000,000) $ - $ - $ 30,000,000 $ - $ - $ -

Company 7 $ (30,000,000) $ - $ - $ - $ 30,000,000 $ - $ -

Company 8 $ (30,000,000) $ - $ - $ - $ - $ 30,000,000 $ -

Company 9 $ (30,000,000) $ - $ - $ - $ - $ - $ 225,000,000

Company 10 $ (30,000,000) $ - $ - $ - $ - $ - $ 900,000,000

Total $ (300,000,000) $ - $ - $ 30,000,000 $ 30,000,000 $ 30,000,000 $ 1,125,000,000

IRR = 27% $ (300,000,000) $ - $ - $ 30,000,000 $ 30,000,000 $ 30,000,000 $ 1,125,000,000

*The discount rate

used is discussed on

the next page.

16

Stock market analysts discount cash flows at the risk free rate (2.0%) plus the risk premium (stock

market return risk premium (geometric average of stock market returns – risk free rate) x beta).

Assuming a stock market return assumption of 5% and a beta of 1.15 (the largest software beta by

market cap), VCS would be discounted at 5.15%. This gives VCS a DCF value of about 1b.

DISOUNT RATE = 5.15%

DISOUNT RATE = 2.0% (RISK FREE RATE) + (5% (STOCK MARKET PREMIUM) – 2% (RISK FREE RATE) * 1.15

(BETA)

1.12

1.09

1.15

1.04

1.06

1.08

1.10

1.12

1.14

1.16


Software Beta by Market Cap

17

14. Pro Forma VCS Financial Summary

VCS FINANCIAL SUMMARY Month 1 Month 2 Month 3 Month 4 Month 5 Month 6

Revenue $ - $ - $ - $ - $ - $ -

Patent $ 30,000 $ - $ - $ - $ - $ -

Headhunters $ 50,000 $ - $ - $ - $ - $ -

Founder Salary $ 8,333 $ 8,333 $ 8,333 $ 8,333 $ 8,333 $ 8,333

Founder Assistant $ - $ - $ - $ 2,917 $ 2,917 $ 2,917

Primary Underwriter Salary $ - $ - $ - $ 20,833 $ 20,833 $ 20,833

Primary Underwriter Assistant $ - $ - $ - $ 2,917 $ 2,917 $ 2,917

Lawyers (2 Employees) $ - $ - $ - $ 33,333 $ 33,333 $ 33,333

Accountants (2 Employees) $ - $ - $ - $ 16,667 $ 16,667 $ 16,667

Valuations (10 Employees) $ - $ - $ - $ 41,667 $ 41,667 $ 41,667

Payroll Burden $ 1,667 $ 1,667 $ 1,667 $ 25,333 $ 25,333 $ 25,333

Travel $ 5,000 $ 5,000 $ 5,000 $ 16,667 $ 16,667 $ 16,667

Office $ - $ - $ - $ 10,000 $ 10,000 $ 10,000

Office Equipment $ - $ - $ - $ 100,000 $ - $ -

Various $ 35,000 $ 35,000 $ 35,000 $ 35,000 $ 35,000 $ 35,000

EBT $ (130,000) $ (50,000) $ (50,000) $ (313,667) $ (213,667) $ (213,667)

Cash / Assets $ 3,870,000 $ 3,820,000 $ 3,770,000 $ 3,456,333 $ 3,242,667 $ 3,029,000

# Employees Salary % Bonus (of revenue) $ Bonus Patent $ 30,000 One Time

1 Primary Underwriter $ 250,000 5% 10m Headhunters $ 50,000 One Time

2 Lawyers $ 200,000 0.25% 500k Travel $ 200,000 Annually

1 Founder $ 100,000 - $ - Office $ 120,000 Annually

2 Accountants $ 100,000 0.25% 500k Office Equipment $ 100,000 One Time

10 Analysts $ 50,000 0.5% 1m Various $ 420,000 Annually

2 Assistants $ 35,000 0.25% 500k Payroll Burden 20% Of Payroll

18


Revenue $ - $ - $ - $ - $ - $ -

Patent $ - $ - $ - $ - $ - $ -

Headhunters $ - $ - $ - $ - $ - $ -

Founder Salary $ 8,333 $ 8,333 $ 8,333 $ 8,333 $ 8,333 $ 8,333

Founder Assistant $ 2,917 $ 2,917 $ 2,917 $ 2,917 $ 2,917 $ 2,917

Primary Underwriter Salary $ 20,833 $ 20,833 $ 20,833 $ 20,833 $ 20,833 $ 20,833

Primary Underwriter Assistant $ 2,917 $ 2,917 $ 2,917 $ 2,917 $ 2,917 $ 2,917

Lawyers (2 Employees) $ 33,333 $ 33,333 $ 33,333 $ 33,333 $ 33,333 $ 33,333

Accountants (2 Employees) $ 16,667 $ 16,667 $ 16,667 $ 16,667 $ 16,667 $ 16,667

Valuations (10 Employees) $ 41,667 $ 41,667 $ 41,667 $ 41,667 $ 41,667 $ 41,667

Payroll Burden $ 25,333 $ 25,333 $ 25,333 $ 25,333 $ 25,333 $ 25,333

Travel $ 16,667 $ 16,667 $ 16,667 $ 16,667 $ 16,667 $ 16,667

Office $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

Office Equipment $ - $ - $ - $ - $ - $ -

Various $ 35,000 $ 35,000 $ 35,000 $ 35,000 $ 35,000 $ 35,000

EBT $ (213,667) $ (213,667) $ (213,667) $ (213,667) $ (213,667) $ (213,667)

Cash / Assets $ 2,815,333 $ 2,601,667 $ 2,388,000 $ 2,174,333 $ 1,960,667 $ 1,747,000








19


Revenue $ - $ - $ - $ - $ - $ -

Founder Salary $ 8,333 $ 8,333 $ 8,333 $ 8,333 $ 8,333 $ 8,333


Primary Underwriter Salary $ 20,833 $ 20,833 $ 20,833 $ 20,833 $ 20,833 $ 20,833


Lawyers (2 Employees) $ 33,333 $ 33,333 $ 33,333 $ - $ - $ -

Accountants (2 Employees) $ 16,667 $ 16,667 $ 16,667 $ - $ - $ -

Valuations (10 Employees) $ 41,667 $ 41,667 $ 41,667 $ - $ - $ -

Payroll Burden $ 25,333 $ 25,333 $ 25,333 $ 7,000 $ 7,000 $ 7,000

Travel $ 16,667 $ 16,667 $ 16,667 $ 16,667 $ 16,667 $ 16,667

Office $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

Various $ 35,000 $ 35,000 $ 35,000 $ 35,000 $ 35,000 $ 35,000

EBT $ (213,667) $ (213,667) $ (213,667) $ (103,667) $ (103,667) $ (103,667)

Cash / Assets $ 1,533,333 $ 1,319,667 $ 1,106,000 $ 1,002,333 $ 898,667 $ 795,000








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Revenue $ - $ - $ - $ - $ - $ 200,000,000

Founder Salary $ 8,333 $ 8,333 $ 8,333 $ 8,333 $ 8,333 $ 8,333


Primary Underwriter Salary $ 20,833 $ 20,833 $ 20,833 $ 20,833 $ 20,833 $ 10,020,833


Lawyers (2 Employees) $ - $ - $ - $ - $ - $ 1,000,000

Accountants (2 Employees) $ - $ - $ - $ - $ - $ 1,000,000

Valuations (10 Employees) $ - $ - $ - $ - $ - $ 10,000,000

Payroll Burden $ 7,000 $ 7,000 $ 7,000 $ 7,000 $ 7,000 $ 4,607,000

Travel $ 16,667 $ 16,667 $ 16,667 $ 16,667 $ 16,667 $ 16,667

Office $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

Various $ 35,000 $ 35,000 $ 35,000 $ 35,000 $ 35,000 $ 35,000

EBT $ (103,667) $ (103,667) $ (103,667) $ (103,667) $ (103,667) $ 172,296,333

Cash / Assets $ 691,333 $ 587,667 $ 484,000 $ 380,333 $ 276,667 $ 172,573,000








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15. Pro Forma Six Year Income Financial Summary

SIX YEAR FINANCIAL SUMMARY Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

# Deals 1 1 44 44 146 146

Market Share - - 1% 1% 5% 5%

Revenue $ - $ 200,000,000 $ - $ 660,000,000 $ - $ 2,190,000,000

Expenses $ 2,400,000 $ 1,600,000 $ 106,200,000 $ 70,400,000 $ 350,400,000 $ 233,600,000

Bonuses $ - $ 23,000,000 $ - $ 75,900,000 $ - $ 251,850,000

EBT $ (2,400,000) $ 175,400,000 $ (106,200,000) $ 513,700,000 $ (350,400,000) $ 1,704,550,000

Net Income (Capital Gains) $ 1,448,867,500

Net Income (Ordinary Income) $ 1,107,957,500

Cash / Assets $ 1,600,000 $ 177,000,000 $ 70,800,000 $ 584,500,000 $ 234,100,000 $ 1,938,650,000

All earnings contributed to growth Expenses of 4m per deal

Each deal takes two years 11.5% of revenue bonus structure

16. ROI, IRR & NPV

Figures assume a year six IPO. Six years is the average holding period of Angel Investor home runs. Middlenomics is priced at 14x earnings (the

stock market average). The value of the exit will depend on a patent, market size and market share.

ROI Time 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

5,071 $ (4,000,000) $ - $ - $ - $ - $ - $ 20,284,145,000

IRR Time 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

314% $ (4,000,000) $ - $ - $ - $ - $ - $ 20,284,145,000

NPV Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

$15,136,341,307 $ - $ - $ - $ - $ - $ 20,284,145,000

*Figures assume year six (capital gains) net

income

*Figures assume the IPO will sell for 14x

year six earnings

*NPV is discounted at 5%

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17. NASDAQ: Requirements for Listing

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18. Software Market

In 2011, 24% of all US VC funds

went into software companies.

This equates to 6.7b. There were

1,004 software deals which

averaged $6.7m. Assuming

software companies accounted

for 24% of US M&A in 2010, the

US software market is between

6b (5% pricing power) and 25b

(20% pricing power).

19. Competitive Advantage

The firm that can provide middle market companies with the best stock prices will have a competitive

advantage. This will be determined by intellectual capital. The firm with the best employees will be able

to offer middle market companies the highest valuations. High valuations will lead to high percent

equity in packaged securities and greater market share.

18.2%

$0

$5,000,000,000

$10,000,000,000

$15,000,000,000

$20,000,000,000

$25,000,000,000

$30,000,000,000

$ Amount

2011 Non-SoftwareCompanies Funded

2011 SoftwareCompanies Funded

24%

MIDDLENOMICS_BUSINESS_PLAN

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