Venture capital involves private equity funding for early stage, high-growth companies. Venture capital funds are typically structured as limited partnerships with general partners investing on behalf of limited partner investors. General partners earn management fees and carried interest based on fund performance. Venture capital funding rounds involve evaluating company teams, opportunities, financial projections, and negotiating term sheets that determine share prices, liquidation preferences, and board control between investors and companies. The goal is for funds to return 3 times their capital over 10 years through a small number of highly successful portfolio company exits through acquisition or IPO.

1. Venture CapitalFundraising Methodology

2. What Is Venture Capital?

3. What Is Venture Capital? Private equity class specialized in funding and building early stage, high growth potential enterprises

5. LPs include endowments, pension funds, charities, corporations, individuals, and fund of funds

6. GP contributes personal capital as well

7. GP earns 2% annual management fees & 20% carried interest, i.e., share of profits

8. Capital called as needed, with primary investing done in first 5 yrs of 10 yr fund cycle

9. Quality fund returns 3x capital, or 18-20% IRR

11. Fund Example: SoftBank Capital Focused on early stage high growth technology based businesses benefiting from the rapid deployment and adoption of broadband and mobile technologies Experienced Team(5 former CEOs) Select Historical Investments Select CurrentInvestments

12. Industry Investment Trends Source: MoneyTree Report – NVCA/PWC/Thomson Reuters

13. Renewable Energy Renewables dominating “Green” VC investing and expected to grow with support of Obama administration Billions of dollars in loans and grants available for R&D for everything from new battery technologies to more efficient use of fossil fuels VC challenged by capital requirements for large green infrastructure deals Source: FastCompany/Chubby Brain

14. Fundraising Process You set the valuation. I’ll set the terms.* *Don’t be fooled by the cover price

16. Board participants; Interim executives

17. Product management, business development and financial planning support

18. Access

19. Industry contacts

20. Leverage portfolio

21. Credibility

22. Stamp of approval with customers, partners and vendors

23. Cash

25. Ranges from a single, 1st-time entrepreneur to a full team of seasoned entrepreneurs

26. Stage of Development

27. Ranges from pre-revenue to approaching profitability

28. VCs sit between angel and growth/buyout investors, though some funds cross over into these stages

29. Size of Round

30. Definitions vary, normalized range from $2M-$15M

32. 99% of deals turned down

33. Promising deals present to partnership 2-6 weeks post initial meeting

34. Partnership approved deals receive term sheet

35. Accepted term sheets followed by 2-6 weeks of final diligence and legal documentation

36. Average firm, in normal market, closes 8-12 new investments/yrNote: Graphic via NVCA; Industry statistics are approximations

37. Deal Evaluation Focus varies by firm, but key elements include: Concept What is the product or service? Why will customers buy it? Opportunity What is the market size and penetration strategy? What is the competitive landscape? Team Can they execute on development, sales and support?

38. Financial Projections Focus on key revenue and expense drivers Sensitivities important given model immaturity Viability of margins long term How much additional capital required? What is the potential dilution from later rounds? Focus on model details varies based on stage Seed stage may not yield revenue for 18-24 mos. Later stage deals may consider debt financing, requiring covenant maintenance

39. Term Sheet Price Pre vs. Post $ Valuation Option Pool implications Liquidation Preference Liquidation: Sale of company as opposed to IPO Multiples and Dividends Participation: Full, Capped and Non-Participating Stacked vs. pari passu Impact on management ownership and resulting motivation Board Configuration Option Pool: Pre vs. Post $ Dilution Anti-Dilution Rights: Weighted Avg. thru Full Ratchet Pro Rata Rights for future rounds Protective Provisions Term Sheet summary at www.AsktheVC.com

40. Term Sheet (cont’d) Board of Directors Investor Seats and Observers Founder and Independent Seats Protective Provisions Veto rights for overall preferreds or by class On changing rights of preferred class, selling existing or raising additional shares, change of control, board composition, raising debt Anti-Dilution Full Ratchet, Broad or Narrow-Based Wghtd Avg See term sheet series at www.AsktheVC.com

42. Price and # of shares sold, reps & warranties

43. Certificate of Incorporation (a/k/a Charter)

44. Establishes rights, preferences, privileges and restrictions of each class and series of stock

45. Investor Rights Agreement

46. Information, registration, and pre-emptive rights

47. Voting Agreement

48. Board composition, drag-along rights

50. Exit Strategy Acquisition Strategic buyers Financial buyers for high cash flow business IPO Market appetite for venture-backed deals Sarbanes Oxley