Stephanie McCoy

March 9, 2010

I. Venture Capital Process

II. Venture Capital Investing Trends

III. Industry Compensation

IV. Dos and Don’ts

Agenda

I. Venture Capital Process

Venture Capital Process

SelectingStructuring

& Syndication

SelectingStructuring

& Syndication

FundRaising

FundRaising

SourcingSourcingCreating

ValueCreating

ValueExitingExiting

Commitment Sources

Source: Venture Economics

Other22.0%

Foundations &

Endowments15.0%

Families & Institutions

19.0%

Pension Funds18.0%

Banks & Insurance

11.0%

Corporations15.0%

FundRaising

FundRaising

SourcingSourcing

Key Sources For Transactions

Relationships with Entrepreneurs

Limited Partner Investors

Other Venture Capital Firms

Accountants

Bankers

Attorneys

Investment Bankers

Investment Criteria

Market Potential and Size

Quality of Management

Product/Services

Sustainable Competitive Advantage

Financial Drivers

SelectingStructuringSyndication

SelectingStructuringSyndication

Creating Value

• Build Independent Boards

• Guide Strategy

• Facilitate Strategic Relations

• Recruit Key Managers

• Raise Additional Debt and Equity

Creating Value

Creating Value

Realization of Gains

• Sale/Merger of Portfolio Company

• Sale of Portfolio Company Securities (Public Offering)

• Private Placement of Portfolio Securities

ExitingExiting

Venture Portfolio Company Returns

Source: Venture Economics

1-2x Return30%

Losses40%

10x Return2%

5-10x Return8%

2-5xReturn20%

ExitingExiting

Timing of Winners and Losers

Source: Venture Economics

0

10

20

30

40

50

60

70

0 to 3 3 to 7 7 to 10

Write-Offs

5x or Better

Years

Per

cen

tag

e o

f C

om

pan

ies

63%

12%

37% 32%

56%

ExitingExiting

Length of Time to Liquidate a Venture Capital Fund

0%

5%

10%

15%

20%

25%

30%

<= 10 11 to 12 13 to 14 15 to 16 17 to 18 > = 19

Years to Liquidate

% o

f F

un

ds L

iqu

idate

d

Source: NVCA – Adam Street PresentationData sample size = 64Data as of 9/30/05

II. Venture Capital Investing Trends

Equity Difficult For Companies to Obtain

Fewer deals are getting funded compounded by smaller investment sizes

PWC Moneytree

Credit Virtually Unavailable

28% Annualized

Decline

Federal Reserve: loans to commercial and Industrial

In the first half of 2009, companies consumed more capital than they raised for the first time in 60 years

• IPO market has become virtually shut to smaller issuers (less than $50 million offering)

IPO Market Unavailable for Small Companies

Grant Thorton and Thompson Reuters

Going, Going, Gone

2009 Estimated

American Bankruptcy Institute

III. Industry Compensation

Venture Capital Fee Structure

1. Management Fees

- Typical Venture Fund receives 2% of the Fund annually for salaries and operating expenses

2. Carried Interest

- 20% of realized value

Entrepreneur Compensation

Salary and Stock Compensation by Title

Title SalaryMBO

BonusTotal Comp % of Stock

Chief ExecutiveFounder $180 $0 $200 7.45%

Non-Founder $230 $65 $300 5.00%

Chief Operating OfficerFounder $195 $0 $200 3.67%

Non-Founder $200 $20 $225 1.80%

CFO-Finance ExecutiveFounder $150 $12 $153 2.19%

Non-Founder $165 $11 $180 0.80%

Chief Technical OfficerFounder $160 $0 $175 3.75%

Non-Founder $175 $0 $186 1.03%

IV. Dos and Don’ts

How Not to Get a VC’s Attention

1. Address Plan to “Dear Sir”

2. Management team is all ex venture capitalists

3. After reading the summary, have no idea what the company does

4. Project profitability in 6 months

5. Plan sent from jail

6. Projections exceed Microsoft’s

7. “There is no competition”

8. Plan comes from an out of work consultant

9. Guaranteed Exit in 3 months

10. Provide VC ownership of 10% or less

How to Get a VCs Attention

• A Compelling Story• An Unfair Advantage• Pinching Pennies• Entrepreneurs have Skin in the Game• The Team has Done it Before• Command of the Key Business Metrics• Big Vision• Winning Attitude• A CEO Who Can Sell• Undeniable Customer Pain that will be Relieved• An Elevator Pitch that is Easily Repeatable

Stephanie McCoy

March 9, 2010