National Venture Capital Association Venture Capital’s Voice: Public Policy & American Competitiveness Robert E. Grady Managing Director, The Carlyle Group Chairman, NVCA Chicago, Illinois December 6, 2006

The Role of Venture Capital in the US Economy

Venture Capital has grown up Source: 2004 NVCA Yearbook, prepared by Venture Economics, page 18

Venture Capital Has Been Good for Investors Investment Horizon Performance - as of 6/30/06 11.7 6.2 10.2 5.6 NASDAQ 9.8 6.6 9.2 6.7 S&P 500 13.4 8.9 16.3 27.3 All Buyouts 16.5 20.8 9.0 16.2 All Venture 20 Year 10 Year 3 Year 1 Year Fund Type

Venture Capital: America’s Job-Creating Engine In 2003, venture-backed companies: Provided 10.1 million US jobs (9.4% of all US employment) Had sales of $1.8 trillion (9.6% of all US GDP) 10% of US economy on < 2% of capital invested since 1970 VC-backed companies outperformed during economic softness: Between 2000 and 2003: US private sector jobs down 2.3%... Venture backed companies grew jobs by 6.5% Sales nationally up 6.5% Sales at venture backed companies up 11.6% Source: Venture Impact 2004 by Global Insight (Wharton/DRI)

In 2003, venture-backed companies:

Provided 10.1 million US jobs (9.4% of all US employment)

Had sales of $1.8 trillion (9.6% of all US GDP)

10% of US economy on < 2% of capital invested since 1970

VC-backed companies outperformed during economic softness:

Between 2000 and 2003:

US private sector jobs down 2.3%...

Venture backed companies grew jobs by 6.5%

Sales nationally up 6.5%

Sales at venture backed companies up 11.6%

Venture capital is invested broadly in the US Source: NVCA and Thomson VentureXpert, 2006. 1970 1980 1990 2005

Jobs in All 50 States California 2.5MM Texas 899,000 Massachusetts 712,000 Pennsylvania 604,000 Georgia 551,000 Tennessee 543,000 New York 471,000 Washington 400,000 Virginia 333,000 Illinois 235,941 Source: Venture Impact 2004 by Global Insight

California 2.5MM

Texas 899,000

Massachusetts 712,000

Pennsylvania 604,000

Georgia 551,000

Tennessee 543,000

New York 471,000

Washington 400,000

Virginia 333,000

Illinois 235,941

VC’s Contribution to Productivity : Annual Productivity Growth: 1970s vs. 1990s Source: U.S. Bureau of Economic Analysis, 2006. 1 Growth in output per person Growth in output per person

Market Trends: Venture Capital Today

VC Fundraising 1996 – 2006 (thru Q3) Source: VentureXpert™ Database by VE & NVCA

Computer Hardware Sales Source: U.S. Bureau of Economic Analysis, 2006.

Computer Software Sales Source: U.S. Bureau of Economic Analysis, 2006 .

RFID Hardware Sales Source: Gartner, Sept 2005.

Venture Capital Investment Q1 2002 – Q3 2006 Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report; Data: Thomson Financial

Cell Phone Users Source: IDC, April 2005. (# in mils)

Mobile Device Explosion Source: IDC, April 2005 (# in mil) Source: Motorola, October 2006 Time to achieve 1st billion users: 20 years Time to achieve 2nd billion users: 3 years Time to achieve 3rd billion users: 2 years

Rapid Growth in Medical Devices Market size: $63.8 billion (2004) Key Growth Drivers: Tech innovation Aging of population Rise in wealth Physician/patient acceptance CAGR of 11.7% from 2004-2011, to $139.9 billion Source: Frost & Sullivan ($ in billions) U.S. MEDICAL DEVICE INDUSTRY: REVENUE FORECASTS, 2001 – 2011

Market size: $63.8 billion (2004)

Key Growth Drivers:

Tech innovation

Aging of population

Rise in wealth

Physician/patient acceptance

CAGR of 11.7% from 2004-2011, to $139.9 billion

Software as a Service/”On Demand” CAGR (’04-’09): 28% (IDC) Benefits: Pricing Measurability Security Manageability U.S. On-demand software revenues Source: IDC $ in mil 2004-09 CAGR: 28%

CAGR (’04-’09): 28% (IDC)

Benefits:

Pricing

Measurability

Security

Manageability

Tech IPOs Enter 6 th Year of Darkness Source: America’s Growth Capital

Venture Exit Counts- IPOs and M&A by Year Source: Thomson Financial/National Venture Capital Association

M&A vs. IPO for Venture Exits Source: National Venture Capital Association.

Storm Clouds Confronting the U.S. Venture Capital Industry (partial list) Stock Option Expensing and 409(A) U.S. Budget Priority Setting and the R & D Enterprise The Search for Talent and H-1B Visas The Next Generation and K-12 education Sarbanes-Oxley Smooth Functioning of the Capital Markets

Stock Option Expensing and 409(A)

U.S. Budget Priority Setting and the R & D Enterprise

The Search for Talent and H-1B Visas

The Next Generation and K-12 education

Sarbanes-Oxley

Smooth Functioning of the Capital Markets

What We Are Doing About It: NVCA’s Public Policy Agenda

“ MAGNET USA” : A Competitiveness Agenda for America Invest in R & D Federal commitment to sustained funding for basic science Attract the Best and the Brightest Companies need access to hire key talent Reverse unduly onerous post-9/11 procedures Increase Caps on H1B Visas Reform K-12 Education Long-term approach to attracting talent to math and science Market-oriented reforms for teachers Improve Our Capital Markets “ Sliding Scale” Sarb-Ox Implementation for Small Firms Steps to Ensure Research for Small Companies Announced at NVCA Annual Meeting April 2006

Invest in R & D

Federal commitment to sustained funding for basic science

Attract the Best and the Brightest

Companies need access to hire key talent

Reverse unduly onerous post-9/11 procedures

Increase Caps on H1B Visas

Reform K-12 Education

Long-term approach to attracting talent to math and science

Market-oriented reforms for teachers

Improve Our Capital Markets

“ Sliding Scale” Sarb-Ox Implementation for Small Firms

Steps to Ensure Research for Small Companies

Announced at NVCA Annual Meeting April 2006

NVCA Public Policy Philosophy Bi-partisan Approach PAC Giving to Pro-Growth Members of Both Parties $929K Given in 2006 Cycle 181 Candidates Supported Federal Focus Cooperation with Regional Associations on State Issues Policies that Support Capital Formation, Company Formation and Innovation The Voice of High Growth Companies, and the Firms That Back Them, in Members’ States and Districts Is Critical

Bi-partisan Approach

PAC Giving to Pro-Growth Members of Both Parties

$929K Given in 2006 Cycle

181 Candidates Supported

Federal Focus

Cooperation with Regional Associations on State Issues

Policies that Support Capital Formation, Company Formation and Innovation

The Voice of High Growth Companies, and the Firms That Back Them, in Members’ States and Districts Is Critical

Sarbanes-Oxley/Capital Markets Reform NVCA Board Meetings at White House Sept 14, 2006 Chief of Staff Josh Bolten Chief Economic Advisor Allan Hubbard OMB Director Rob Portman Deputy Domestic Policy Advisor Tevi Troy Met with SEC Chairman Christopher Cox October 2, 2006 NVCA Represented on SEC Advisory Committee on Small Businesses (Ted Schlein, Kleiner Perkins) Press Outreach and Education WSJ, NY Times, Business Week, San Jose Mercury, etc. Regional Roundtables

NVCA Board Meetings at White House Sept 14, 2006

Chief of Staff Josh Bolten

Chief Economic Advisor Allan Hubbard

OMB Director Rob Portman

Deputy Domestic Policy Advisor Tevi Troy

Met with SEC Chairman Christopher Cox October 2, 2006

NVCA Represented on SEC Advisory Committee on Small Businesses (Ted Schlein, Kleiner Perkins)

Press Outreach and Education

WSJ, NY Times, Business Week, San Jose Mercury, etc.

Regional Roundtables

Sarbanes-Oxley/Capital Markets Reform NVCA/Business Week Research on Sarb-Ox Companies with revenues between $1 million and $5 billion (n=763) 77% SOX not improved transparency of financials 83% SOX not improved confidence in company 77% SOX not improved corporate governance 76% SOX not improved discovery of weaknesses 49% SOX diverts resources from core business

NVCA/Business Week Research on Sarb-Ox

Companies with revenues between $1 million and $5 billion (n=763)

77% SOX not improved transparency of financials

83% SOX not improved confidence in company

77% SOX not improved corporate governance

76% SOX not improved discovery of weaknesses

49% SOX diverts resources from core business

Commission on Capital Markets Reform (“The Scott Commission”) Correct Identification of the Problem Declining competitiveness of US capital markets High cost of regulation and litigation Correct Principles in Addressing Problems Weigh costs and benefits in regulation Better definition of “material weakness” A “Popgun” for a Solution No fix for micro and small caps No “design only” standard No legislation recommended Weaker than SEC Advisory Committee CEOs of PWC and Deloitte were on the panel

Correct Identification of the Problem

Declining competitiveness of US capital markets

High cost of regulation and litigation

Correct Principles in Addressing Problems

Weigh costs and benefits in regulation

Better definition of “material weakness”

A “Popgun” for a Solution

No fix for micro and small caps

No “design only” standard

No legislation recommended

Weaker than SEC Advisory Committee

CEOs of PWC and Deloitte were on the panel

Will the US continue as the home of the capital markets? # 2005 New Listings 2005 Average Deal Size for New Listings ($ mil)

Immigration and H1-B Visas Research on Contribution of Foreign-born Nationals to US Economy: “ American Made” National Foundation for American Policy Released November 15, 2006 Press Coverage: CNBC, WSJ, Bloomberg, AP, NY Times, NPR, Miami Herald, San Diego Union Tribune, etc. Copies Provided to All Members of Congress

Research on Contribution of Foreign-born Nationals to US Economy:

“ American Made”

National Foundation for American Policy

Released November 15, 2006

Press Coverage:

CNBC, WSJ, Bloomberg, AP, NY Times, NPR, Miami Herald, San Diego Union Tribune, etc.

Copies Provided to All Members of Congress

Highlights of “American Made” 25% of venture-backed companies which have come public since 1990 were founded by foreign-born nationals 40% in high tech sector Includes Intel,Yahoo,Google,Yahoo,Sun,Ebay Total market cap of such companies > $500 billion 47% of responding privately-held venture-backed startups were founded by foreign-born nationals 46% of immigrant entrepreneurs came to the U.S. as students 69% became American citizens

25% of venture-backed companies which have come public since 1990 were founded by foreign-born nationals

40% in high tech sector

Includes Intel,Yahoo,Google,Yahoo,Sun,Ebay

Total market cap of such companies > $500 billion

47% of responding privately-held venture-backed startups were founded by foreign-born nationals

46% of immigrant entrepreneurs came to the U.S. as students

69% became American citizens

Immigration: Where We Stand Senate bill would raise H1-B cap from 65,000/yr. to 115,000/yr. Also exempts Masters and Ph.D. students from cap No House provision Candidate for lame duck action – now unlikely

Senate bill would raise H1-B cap from 65,000/yr. to 115,000/yr.

Also exempts Masters and Ph.D. students from cap

No House provision

Candidate for lame duck action – now unlikely

Declining number of H1-B visas Source: Bureau of Consular Affairs, U.S. Department of State. (‘000s)

R&D Funding NVCA has supported bi-partisan authorizing legislation and “competitiveness” initiatives by both parties Appropriations likely subject to Continuing Resolution – could be same as FY ’06 Participation in Tech Transfer Conference at BU

NVCA has supported bi-partisan authorizing legislation and “competitiveness” initiatives by both parties

Appropriations likely subject to Continuing Resolution – could be same as FY ’06

Participation in Tech Transfer Conference at BU

Education NVCA focus has been bi-partisan legislation to increase supply of math and science teachers and offer scholarships for math and science teachers Outreach to multiple groups across the nation: National Foundation on Teaching Entrepreneurship BUILD FIRST (For Inspiration and Recognition of Science and Technology) New Schools Entrepreneurship Week USA Big Ideas essay event

NVCA focus has been bi-partisan legislation to increase supply of math and science teachers and offer scholarships for math and science teachers

Outreach to multiple groups across the nation:

National Foundation on Teaching Entrepreneurship

BUILD

FIRST (For Inspiration and Recognition of Science and Technology)

New Schools

Entrepreneurship Week USA

Big Ideas essay event

Legislative/Regulatory Challenges Ahead Sarb-Ox Reform Immigration Reform Education Reform Basic Research Funding FDA and CMS Reauthorization Hedge Fund Registration/Regulation

Sarb-Ox Reform

Immigration Reform

Education Reform

Basic Research Funding

FDA and CMS Reauthorization

Hedge Fund Registration/Regulation

How We Can Work Together Members Care About Job Creation in Their States Entrepreneurs Funds Local Press Education and Features Regional Roundtables Role of Venture Capital in the US Economy Still Not Well Understood in Washington or in State Capitals

Members Care About Job Creation in Their States

Entrepreneurs

Funds

Local Press Education and Features

Regional Roundtables

Role of Venture Capital in the US Economy Still Not Well Understood in Washington or in State Capitals

www.nvca.org