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THE FUTURE OF HIGH TECH STARTUPS

THE FUTURE OF HIGH TECH STARTUPS. Investments by Venture Capitalists in 2000 v. 2001. The number of companies funded by VC’s:. 7,094 (with 842 in telecom) in 2000 3,928 (with 484 in telecom) in 2001. Total Amount Invested in U.S. down 63%:. $99.6 billion in 2000 $17.9 billion in telecom

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THE FUTURE OF HIGH TECH STARTUPS

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  1. THE FUTURE OF HIGH TECH STARTUPS Investments by Venture Capitalists in 2000 v. 2001

  2. The number of companies funded by VC’s: • 7,094 (with 842 in telecom) in 2000 • 3,928 (with 484 in telecom) in 2001

  3. Total Amount Invested in U.S. down 63%: • $99.6 billion in 2000 • $17.9 billion in telecom • $36.5 billion in 2001 • $5.9 billion in telecom

  4. Average Investment Size: Approximately $14.0 million in 2000 - $21.3 million in telecom Approximately $9.3 million in 2001 - $12.2 million in telecom

  5. Small Growth in 4Q over 3Q 2001: • $7.1 billion invested in 4Q2001 • $7.0 billion invested in 3Q2001 • 856 companies funded in 4Q2001 • 810 companies funded in 3Q2001

  6. SAMPLE TERMS FOR VENTURE CAPITAL EARLY ROUND INVESTMENTS DURING AND AFTER THE INTERNET BUBBLE • TERMBEFOREAFTER • CLOSING 1-2 month cycle, 3-5 month cycle, • single closing tranches based • on milestones

  7. TERMBEFOREAFTER • Dividends None, or non- Mandatory, cumulative payable cumulative 8% when, as and if per year declared by Board

  8. TERMBEFOREAFTER • Liquidation Original purchase Multiple of • Preferences price plus accrued 2-3x original • dividends, and purchase price • participation with plus • common stock participation • with cap with common • stock

  9. TERMBEFOREAFTER • Redemption None At option of holders, • up to 50% in 5 years • and remaining 50% in • 6 years at purchase • price plus accrued • dividends

  10. TERMBEFOREAFTER • Automatic Qualified IPO with Qualified IPO of • Conversion no per share price at least 5x limit purchase price

  11. TERMBEFOREAFTER • Anti- Standard broad-based Same • Dilution weighted average • anti-dilution

  12. TERMBEFOREAFTERVoting Investors must approve: Investors must approve: change Rightschange of rights, creation of rights, creation of senior or of senior securities, pari passu securities; payment of payment of dividends, dividends, liquidation, board liquidation size, merger, consolidation or acquisition, redemption, debt or other

  13. TERMBEFOREAFTER • Board Seats 2-3 Investors; Same • 2-3 Common Stock; • 1 outsider

  14. TERMBEFOREAFTER • Preemptive Right to maintain Same • Rights pro rata ownership

  15. TERMBEFOREAFTER • Pay to Play None Preferred loses anti- • dilution if don’t • participate in later • down round, or • preferred converts to • common if don’t • participate in later • down round

  16. TERMBEFOREAFTER • Right of Investors have Same • First Refusal right to purchase • shares not purchased • by Company to be • sold by other • shareholders

  17. TERMBEFOREAFTER • Co-Sale None or limited to Right to sell • Rights right to sell with with founder • founder who sells or any other • shares shareholder • (other than • another investor) whosells shares

  18. TERMBEFOREAFTER • Drag-Along None Right to force • Rights shareholders to • approve sale of • company upon Board • and majority • shareholder approval

  19. TERMBEFOREAFTER • Registration Two demand rights Two demand rights • Rights after IPO, piggyback on earlier of 4-5 • rights subject to years of closing • cutback, S-3 rights or following IPO, • piggyback rights • subject to cutback, • S-3 rights

  20. TERMBEFOREAFTER • Founder Portion up front, Same • Vesting 2-4 year vesting

  21. TERMBEFOREAFTER • Employment None May have with founders, • Agreements key technical employees

  22. TERMBEFOREAFTER • Information Quarterly and annual Monthly, • Rights financial statements quarterly and • annual financial • statements, • annual business • plan and budget

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