1. NVCA 4-Pillar Plan to Restore Liquidity
in the U.S. Venture Capital Industry
April 29/30, 2009
Dixon Doll
DCM Co-Founder and General Partner, NVCA Chairman
Mark Heesen
NVCA President
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2. Reinvigorating Liquidity in the U.S. VC Industry
The Background The Situation The Solution
● Liquidity Challenges
Job Creation
● Lack of IPOs Is
Harmful to Job Innovation
Creation and Overall
Economy I
Ecosystem
II
Enhanced
III
Taxation
IV
Regulation
Partners Liquidity
● Comprehensive Paths
Review of VC
Ecosystem Is Required
to Reinvigorate Our VC Industry U.S. Government
Financial Crisis & IPO Industry (once
Drought Revealed Markets Stabilize)
Systemic Issues
2

3. Venture Capital Fuels Job Creation
VC-Backed Companies 92% of Job Growth
Create Jobs Faster Occurs Post-IPO
Employment CAGR (2006 – 2008) VC-Backed Company Employment Growth
97% 94% 88% 76% 92%
Pre-IPO Post-IPO
12.1M Jobs Created
Sources: Left: Global Insight, 2009
Right: NVCA, Global Insight and Survey of Top 136 VC-Based Companies That Went Public 1970–2005
3

4. Numerous World-Leading Companies Were
First Funded or Founded During Downturns
1970s 1980s 1990s 2000s
F
4

5. Dramatic Decline in IPOs in the 2000’s
Number of Venture-Based IPOs vs. M&A Exits
1990s 2000s
1,776 IPOs M&A 392 IPOs M&A
IPOs 56% 44% IPOs 13% 87%
(’92 – ’00) (’01 – ’08)
Lack of IPOs Is Harmful to Job Creation and Economy
Source: Thomson Reuters/NVCA
5

6. IPOs in Decline This Decade
Number and Value of Venture-Backed IPOs in the U.S.
IPO Value ($B) Number of IPOs
* Base Year 1998 = 100
Sources: Qatalyst Partners, Securities Data Company (All U.S. venture-backed IPOs of > $10MM
from 1978 through 1991)
Dow Jones VentureSource (All U.S. venture-backed IPOs from 1992 through December 31, 2008)
6

7. The Recent Realities of Venture-Backed M&As
and IPOs
Longer Time to IPO and M&A
Median Age at IPO
4.5 9.6
Years Years
1998 2008
Median Age at M&A
3 6.5
Years Years
1998 2008
Source: Thomson Reuters, Dow Jones VentureSource
7

8. The Death of the Under $50M IPO
100
90
80
Transactions Raising $50M+
70
60
Percent of
50
Total IPOs
40
30
20
Transactions Raising Less Than $50M
10
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008*
80% of IPOs 20% of IPOs
Smaller than $50M Smaller than $50M
*Data Includes Corporate IPOs as of 10/31/08. (Excludes Funds, REITs, SPACs and LPs).
Source: Dealogic, Capital Markets Advisory Partners
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9. NVCA 4-Pillar Plan to Restore Liquidity in the
U.S. Venture Capital Industry
Job Creation
Innovation
I II III IV
Ecosystem Enhanced Tax Regulation
Partners Liquidity Incentives
Paths
VC Industry U.S. Government
9

10. NVCA Plan: Pillar I – Ecosystem Partners
Job Creation
I-Banks
Innovation
VC Firms Buy Side
Ecosystem
Entrepreneurs
Partners
Exchanges
I II III IV
Ecosystem Enhanced Tax Regulation
Partners Liquidity Incentives
Paths
Accounting
Law Firms
Firms
VC Industry U.S. Government
10

11. I
A Vacuum Exists for Small, Medium-Size Company IPOs
Implicit Post-IPO Company Valuation
($MM)
Boutique banks needed to
help cover unserved areas
$500
Would You Consider a
Boutique I-Bank To Be the
$400 Lead Book Runner for
Going Public on a U.S.
Stock Exchange?*
$300
NO MAN’S LAND
$200 32%
No
32%
Not Sure
36%
$100 Yes
IPOs not
Appropriate
$0 * Source: DCM Analysis /
$25 $50 $75 $100 Survey of Venture-Backed
Companies, 2009 –
Size of IPO Offering ($MM)1 Participants (N) = 108
21st Century Versions of “4 Horsemen” Required
: Assuming 25% of Company Sold in IPO
1
11

12. Major I-Banks and Big 4 Accounting Firms I
Dominate U.S. IPOs
Nov. 2007 Recent VC-Backed IPOs Feb. 2009
IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO IPO
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
I-Bank
at IPO
Audit Firm
at IPO
Investment Bank Audit Firm
IPO Managed by Major I-Banks Traditional Big 4
IPO Co-Managed by Boutique and Major I-Banks Traditional Non-Big 4
IPO Managed by Boutique Bank Only
15 Out of 21 Recent IPOs Led by Major I-Banks
and Big 4 Accounting Firms
Source: NVCA, Thomson Reuters
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13. I
Accounting Firms Examined More Closely
NVCA Recommends Use of New Terminology “The Global Six” in
Describing Major International Accounting Organizations Qualified to
Support Venture-Backed Portfolio Companies
The Global Six
● Deloitte LLP ● KPMG LLP
● Ernst & Young LLP ● PricewaterhouseCoopers LLP
● Grant Thornton LLP ● BDO Seidman LLP
Recent Research Performed by Capital Markets Advisory Partners
(an Independent Advisory Firm) and Validated by the Above Six Firms, Shows
All Six Organizations Have Created Global Accounting Networks Operating in
More than 90 Countries Worldwide.*
* Source: “Which Audit Firms are Accepted by Wall Street?
A Reference Guide by Capital Markets Advisory Partners, 2009, Version 1.0
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14. I
NVCA Promoting Alternate Ecosystem Partners
Investment Banks Accounting Firms
● NVCA Organizing Workshops ● NVCA Meeting with “Global Six”
With Boutique Banks and Large Accounting Firms to Discuss
Facilitate I-Banks to Identify and Address Needs of VC-backed Companies
Needs of Emerging Growth and Ways To Provide Better
Companies Worldwide Support
● NVCA Encourages Joint Book ● NVCA Encourages Obtaining
Running (Major Bank and Bids From Global Six and Non-
Encourage Boutique Bank Partnership) with Global Six Accounting Firms as
Fee Sharing as a Desirable Desirable Practice in IPO
Practice Planning
NVCA Actions Can Create More Competitive Ecosystem
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15. I
Other Ecosystem Partner Recommendations
● I-Banks and VCs need to cultivate and
nurture new buyers / funds
specializing in venture IPOs
● Accounting Firms encouraged to
provide lower-cost services to IPO
candidate portfolio companies
15

16. NVCA Plan: Pillar II – Enhanced Liquidity Paths
Job Creation
Innovation
I II III IV
Ecosystem Enhanced Tax Regulation
Partners Liquidity Incentives
Paths
VC Industry U.S. Government
16

17. II
Current Liquidity Mechanisms
Public
Sellers Current I-Banks
(Portfolio Companies) Market Buyers
(Institutional/Strategic)
● Too Many ● Restricted Analyst and ● Public Market Jitters
Companies Below I-Banker Collaboration ● Short Selling Increases
Critical Mass ● Undergoing Massive Market Volatility
● Too Few Organizational Changes ● Minimum Bite Size
Transformative
Companies ● Due Diligence Burden
Distribution System Is Broken
17

18. II
Enhanced Liquidity Mechanisms
● In Addition to Major I-Banks we Need Innovative Boutique Banks
Serving Emerging Growth Companies
● Use of New Private Market Platforms
– InsideVenture
– PORTAL Alliance (NASDAQ) Enhancements
– SecondMarket
– Xchange
– Other
● Additional Use of Global Financing / Fundraising and International
Stock Exchanges
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19. Enhanced Liquidity Mechanisms – Example
II
Public
Sellers New Liquidity Platforms
(Portfolio Companies) Market Buyers
(Institutional/Strategic)
● VC-Backed Private Market Platform
● Access to Long- ● Enforced Membership Criteria ● Pre-Screened Deal Flow
Term Investors – Last Round of Financing $20-200MM ● Efficient Due Diligence
● Accelerated Fund – Seeking to Go Public in 6-18 Months ● Increased Visibility
Raising ● In-House Vetting Process,
Including Company Information
Portal, Conferences
New Platforms Will Increase VC Ecosystem Liquidity
19

20. NVCA Enhanced Liquidity II
Mechanism Recommendations
I. Liquidity Platforms II. Portfolio Companies III. Pro-Active M&A
• Venture Firms • Raise Rounds From • Venture Firms
Encouraged to Use Global Financing Encouraged to Pro-
Enhanced Liquidity Sources actively Explore M&A
Mechanisms Such as • Explore Global M&A Roll-Up of Smaller
InsideVenture and • Explore IPOs on Intl. Portfolio Companies
Others Stock Exchanges to Achieve IPO
Critical Mass
• Consider Longer Lock-
Ups to Increase
Demand for Venture-
Backed IPOs
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21. NVCA Plan: Pillar III – Tax Incentives
Job Creation
Innovation
I II III IV
Ecosystem Enhanced Tax Regulation
Partners Liquidity Incentives
Paths
VC Industry U.S. Government
21

22. III
NVCA Pro-Growth Taxation Recommendations
New Preserve
● Adopt New Tax Incentive to ● Keep Long-Term Capital Gains Tax
Stimulate IPOs Rate Globally Competitive
– One Time Only
● Preserve Meaningful Differential
– 10% Capital Gains Tax Rate for IPO Between Ordinary Income and
Purchaser and Investors Long-Term Capital Gains Tax Rates
– Only Applicable for Holding Periods >
2-3 Years
● Promote Tax Incentives for Venture
Capital Investments of Certain
● Consider a Longer Holding Period for Types and Sizes (e.g. Cleantech,
Long-Term Capital Gains Life Sciences)
Special IPO Program Will
Increase Government Revenues
22

23. NVCA Plan: Pillar IV – Regulation
Job Creation
Innovation
I II III IV
Ecosystem Enhanced Tax Regulation
Partners Liquidity Incentives
Paths
VC Industry U.S. Government
23

24. IV
Barriers to Going Public on U.S. Stock Exchanges
Exit Route Preference Top 3 Barriers to Going Public
and Expectation # of Responses Answered as a Top 3 Issue
(n=108) (Participants = 108)
Compliance Requirements
(Sarbanes-Oxley, Audit, Governance)
M&A
Increased Volatility in the Public Markets
M&A Better Alternative
(Faster Process, More Liquidity)
Investment-Banking Related Issues (Analyst
Coverage, Requires High Rev Threshold)
Transaction Costs of Going Public (Legal,
Banker Fees, Non-Compliance Related Costs)
IPO
Higher Perceived Litigation Risk from
U.S. Investor Base
Other
Current Regulation Has a Major Impact on How
Emerging Companies Consider their Exit Route
Source: DCM Analysis/Survey of Venture-Backed Companies, 2009
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25. IV
Uncoordinated Regulations Severely Harm
Small Companies
Regulations Original Intent Unintended Impact
● Reduce Fraud ● Prohibitively Expensive for Small Companies
Sarbanes ● Restore Confidence ● Extended Time to IPO
Oxley ● M&A More Attractive
● Eliminate I-Bank Conflict ● Sell Side Analyst Exodus
“Spitzer of Interest ● Reduced Analyst Coverage and
Decree” Aftermarket Support
● Equal Information Access ● Communication Gap Grows Between Small
Reg. Fair for All Investors Caps and Potential Buyers
Disclosure
● Faster Development of ● Restrictions Limit Usefulness
Rule 144A Private Placements
Regulations Need Updating to Eliminate
Unintended Consequences
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26. IV
NVCA Recommendations for Regulatory Changes
Pre-IPO Post-IPO Private Placement
• Permit À La Carte • Suspend Minimum Market Cap • 144A – Expand Definitions of
Disclosure System Requirements Qualified Institutional Buyers
• Permit Confidential • Prohibit Short Sales of Newly • 144A – Relax Requisite Holding
Registration Filings Issued Company Shares for at Periods and Volume
Least 12 Months Restrictions
• Phase in SOX 404
Requirement For Small • Expand Usage of Form S-3 to • NASDAQ/Portal Alliance – Open
Companies Enable Offerings Beginning 90 It Up to Private Companies and
Days Post IPO Accredited Investors
• Permit Research Analysts to
Better Collaborate with Both • Eliminate Restrictions on Use of
the Issuer and Investment S-3 for Certain Primary Offerings
Bankers During the IPO of Non-accelerated Filers
Process • Revise Requirement
• Relax Financial Statement for Obtaining Shareholder
Requirements Approval to Sell Securities Below
Market or Book Value
• Educate CFOs on Reg FD
Restrictions and Allowances
NVCA Requests Full SEC Review of Recent Laws
to Streamline Small Company IPO Process
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27. NVCA 4-Pillar Plan Summary
Job Creation • Request Full SEC Regulatory
• Stimulate Ecosystem
Review to Streamline Small
Competition : I-banks
Innovation Company IPO Process
(Majors/Boutiques), Law
Firms, Acctg. Firms • Eliminate Harmful Spitzer
(Global Six - Lower Settlement Provisions
Costs) • Relax SOX 404 Compliance
• Encouraging Joint Book
Running with Shared
I II III IV Restrictions and Permit
Optional Extended Lock-ups
Ecosystem Enhanced Tax Regulation
Economics Partners Liquidity Incentives • Expand usability of NASDAQ
• Cultivate New Buyers / Paths PORTAL Alliance to private
Funds for IPOs companies and accredited
investors
VC Industry U.S. Government
• Use New Platforms for Linking Buyers and Sellers • Adopt New Tax Incentive to Stimulate IPOs:
(Like InsideVenture) One Time Only
• Encourage Use of Global Funding Sources for New • Keep Long-Term Capital Gains Rate Competitive
Rounds, M&A and IPOs • Promote Tax Credits for VC Investments of Certain
• Utilize Pro-Active M&A to Achieve Critical Mass Types/Sizes (e.g. Cleantech)
• Consider Longer Holding Period for Long-Term capital Gains
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28. NVCA Expresses Its Appreciation
● The NVCA Board of Directors ● Harry W. Kellogg, Jr., Silicon Valley Bank
● Hassan Ahmad, Sonus Networks ● Stan Lapidus, Helicos
● Mike Brooks, Venrock ● Bob McCooey NASDAQ
● Stuart Cable, Goodwin Procter ● Michael Millman, JP Morgan
● James L. Callinan, RS Investments ● Chuck Newhall, NEA
● Frank Currie, Partner, Davis Polk & Wardwell ● Duncan Niederauer, NYSE Euronext
● Scott Cutler, NYSE Euronext ● Sandy Robertson, Robertson Stephens
● Ash Dahod, Starent Networks ● James D. Robinson III, RRE Ventures
● Mona DeFrawi, InsideVenture ● Bill Schnoor, Goodwin Procter
● Paul Deninger, Jefferies & Co. ● Antoinette Schoar, MIT
● Susan Page Estes, Global VC Coverage, UBS ● Larry Sonsini, Wilson Sonsini Goodrich & Rosati
AG ● David Topper, JP Morgan
● Irwin Federman, USVP ● Brian Truesdale, Deutsche Bank
● Leslie Wolff Golden, Ridgewood Capital ● David Weild, Markets Advisory Partners
● Bob Grady, The Carlyle Group ● Thom Weisel, Thomas Weisel Partners
● Bill Hambrecht, W.R. Hambrecht + Co. ● Rian Wren, Neutral Tandem
● Felda Hardymon, Harvard Business School
Thanks to DCM, Highland Capital Partners, the NYSE
and Wilson Sonsini for their generosity in hosting the
Blue Ribbon dinners
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29. Thank You
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