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Type	Instrument	Typical Amounts
Friends, Family, Founders and Fools	Gift, Loan or promissory note	$1 to $50K
Accelerators	Promissory note, SAFE	$10K to $100K
Crowdfunding Platforms	Crowdfunding agreements	$50K to $250K
Angels	Promissory note, SAFE	$10K to $500K
Angel Groups	Promissory note, SAFE, Priced rounds	$100K to $1M
MicroCap VCs	Priced rounds	$100K to $1M
Corporate “Strategic” VCs	Priced rounds	$500K to $5M
Professional VCs	Priced rounds	$1M to $40M

Sources of Venture (Risk) Capital

| VC Business Model - Sources of Venture (Risk) Capital

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Startup

Financing

Cycle

| VC Business Model - Startup Financing Cycle

Angels, FFF

Seed Capital

VCs, Acquisitions/Mergers &

Strategic Alliances

Early Stage

Later Stage

Secondary Offerings

Public Market

Break Even

1st

2nd

3rd

Mezzanine

IPO

Valley of Death

Revenue

Time

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Pension funds

Canada Pension Plan - $300B
CalPERS - $300B

University endowments

Harvard - $36B
Stanford - $24B
University of California - $10B

Sovereign funds

Norway – $1000B
Abu Dhabi - $828B
China- $813B

| VC Business Model - Giant Funds - Billions of $

Giant Funds - Billions of $

Family funds

Insurance companies

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Hedge Funds, PE Firms, Venture Capital

| VC Business Model - Asset Management

Asset Management

Each asset class has unique combination

of risk, return, timing and impact

Measured against other asset classes

e.g. S&P 500

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University Endowments

Public and Private Pension Funds

Insurance Companies

Funds of

Funds

General Partners

Limited Partners

VC Firm

Limited Liability Partnership

Finds opportunities

Generates returns

Investment Thesis

Sector and Stage

| VC Business Model - Venture Capital Fund Structure

Venture Capital Fund Structure

Venture Partners

Associates

CFO and Administration

Invest

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VCs Harvest Investments

| VC Business Model - VCs Harvest Investments

Planting Seeds

Growing trees … then

Nurturing

Selling the wood

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Fund I LLC

1 yr

Raising $

3-5 yrs�Investing Period

5-7 yrs

Harvesting Period

Venture Fund Timelines

| VC Business Model - Venture Fund Timelines

Fund Launch

Fund II LLC

1 yr

Raising $

3-5 yrs�Investing Period

5-7 yrs

Harvesting Period

Fund 2 Launch

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Management Fees

Fund charges 2%/year to “manage” committed capital

| VC Business Model - Venture Capital Fund Structure

University Endowments

Public and Private Pension Funds

Insurance Companies

Funds of

Funds

General Partners

Venture Capital Fund Structure

Venture Partners

Associates

CFO and Administration

Invest

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Management Fees

Fund charges 2%/year to “manage” committed capital

Carried Interest

Upon an “exit” profits split 80/20 to Limited Partners and the Firm

| VC Business Model - Venture Capital Fund Structure

University Endowments

Public and Private Pension Funds

Insurance Companies

Funds of

Funds

General Partners

Venture Capital Fund Structure

Venture Partners

Associates

CFO and Administration

Invest

Exit

Profits

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Broad Sourcing

Applications

One on One Meetings

Due Diligence

Selection Presented

Legal Due Diligence

Investment

1000

200

100

5-6

1-3

| VC Business Model - Source - Pick - Win

Source

Getting high quality deal flow

Pick

Selecting companies with best prospects

Win

Guiding companies towards successful exits

Source

Pick

Win

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| VC Business Model - Source

Source

Pick

Win

Industry

Leaders�& Experts

Accelerators Incubators

Co-working

Angels &

Micro-funds

Events

Universities

Public and Private Sources

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Fiduciary responsibility to invest for the benefit of Limited Partners (LPs)

Scout for 3 to 4 years

Typically reviews 1000 plans/year

Sits on a limited number of boards

Typically 4 to 8 total
Therefore invests in 1 to 3 companies per year for 3-5 years

1000�plans reviewed

1-3

investments/

years

| VC Business Model - Pick

Pick

General Partners

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VCs are not banks.

When fund is created:

Each LP agrees to an amount of Committed Capital over the life of fund (e.g. $50M)
Not paid when the fund is created
Drawn dawn over time as the fund makes investments

When investment is made, GP makes a Capital Call

to its LPs

Money invested directly in companies

Funding

Committed Capital

| VC Business Model - Funding: Committed Capital

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Win

Typical Outcomes

One Skyrocket

3 sleepwalk

3 return money

Portfolio Companies

| VC Business Model - Win

3 die

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	Traditional Model	Diversified “Spray and Pray”
Portfolio Companies in Fund	10	100
Ownership	30%. - 40%	Less than 5%
Engagement Level	Active, Board Seats	Passive
Subsequent Investment in Winners	Always	Sometimes

| VC Business Model - Example Investment Models

Example Investment Models

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VC Fund Example

| VC Business Model - VC Fund Example

Company A	Mobile Apps	$6 M Seed for 40%
Company B	Big Data	$16 M Series B for 18%
Company C	Biotech	$20 M Series A for 25%

LP commits to 7 year $100M fund

General Partner invests in 3 companies

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Company A	Shuts down
Company B	Raises Series C 18% diluted by half to 9% Goes IPO at $1 B valuation
Company C	Gets acquired for $400 M

How our Companies Fare

| VC Business Model - How our Companies Fare

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Company A	$6M investment lost
Company B	9% of $1B IPO is $90M $16M invested, $74M net 80% to LP: $59.2M 20% to VC: $14.8M
Company C	25% of $400M M&A is $100M $20M invested, $80M net 80% to LP: $64M 20% to VC: $16M

Exit Math: Exit Results and Carry

| VC Business Model - Exit Math

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Limited Partner

| VC Business Model - Limited Partner

Your results may vary...

VC invested $42M out of $100M committed

Received total of $190M in returns ($148M net)

Retained $118.4M (80%)
Paid $30.8 in carry (20%)
Paid $14M in fees (7 years x $2M/year)

Net return: $51.6M. APY: 35.1%

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Received $14M in management fees

Retained $30.8M in carry

Gross receipts of $44.8M in 7 years

Avg $6.4M/year pre-expenses to be split among partners

Your results may vary...

Exit Math

Venture Capital General

Partners

| VC Business Model - Exit Math

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