2009 Seat At The Table Slides[1]

“A Seat at the Table” A Study of Venture-Backed Company Boards October 2009

© Copyright 2009 Dow Jones and Company

More than Half of VCs Sit on Three to Five Boards 2009: Number of Board Seats Per Partner

More than Eight 8%

One 5%

Seven 8%

Tw o 15%

Six 9%

Three 16%

Five 18%

Four 21% © Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

VCs Prefer More Board Seats Early-Stage Companies: VCs vs. CEO Board Seat Preferences

Avg. Number of Board Seats

8 6.6 5.8

6

4.6 3.8

4

2

0 Maximum # of Board Seats Venture Capitalist

© Copyright 2009 Dow Jones and Company

Ideal # of Board Seats CEO

Source: Dow Jones VentureSource/NVCA

CEOs Prefer VCs Sit on Fewer Boards

Avg. Number of Board Seats

Later-Stage Companies: VCs vs. CEO Board Seat Preferences

9 7.3 6.3 6

5.4 4.2

3

0 Maximum # of Board Seats Venture Capitalist

© Copyright 2009 Dow Jones and Company

Ideal # of Board Seats CEO

Source: Dow Jones VentureSource/NVCA

West Coast VCs Sit on More Boards 2009: Average Number of Board Seats Per Partner by Region

Avg. Number of Board Seats

6 4.7

4.5 3.8

4

2

0 West Coast

© Copyright 2009 Dow Jones and Company

Mid-America Source: Dow Jones VentureSource/NVCA

East Coast

West Coast VCs Prefer to Sit on More Boards 2009: Ideal Average Number of Board Seats Per Partner by Region 5.7

6 Avg. Number of Board Seats

5.1

5.3

5.1 4.4

4.4

4

2

0 West Coast

Mid-America Early Stage

© Copyright 2009 Dow Jones and Company

East Coast Late Stage

Source: Dow Jones VentureSource/NVCA

West Coast CEOs Comfortable With VCs Sitting on More Boards 2009: Ideal Average Number of Board Seats Per Partner by Region

Avg. Number of Board Seats

6 4.5

4.2

4.0

4

3.5

3.7

3.7

2

0 West Coast

Mid-America Early Stage

© Copyright 2009 Dow Jones and Company

East Coast Late Stage

Source: Dow Jones VentureSource/NVCA

Firms with Larger AUM have VCs on More Boards 2009: Average Number of Board Seats Per Partner by Firm AUM

Avg. Number of Board Seats

6.0 5.0 4.2

4.4

Under 5M AUM

500M-1B AUM

4.0

2.0

0.0

© Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

Over 1B AUM

VCs for Pre-Revenue Companies Sit on More Boards Average Number of Board Seats for VCs by Company Devt. Stage Data: Dow Jones VentureSource

Pre-Revenue

3

2.6

Avg. Number of Board Seats

2.5

2.8 2.5

Generating Revenue 2.4

2.2 2.0 2

1

0 Start-up

Pre-Clinical Trials

Clinical Trials

Product Beta Product Development

Company Development Stage

© Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

Revenue

Profitable

Most VCs Require Board Seats Requiring Board Seat as Prerequisite for Investment

No 18%

Yes, for VC firm or co-investor 30%

Yes, for VC firm 52%

© Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

Most Companies Have Four to Seven Seats CEOs: Average Number of Board Seats that Companies Maintain

12+ seats 0% 8 to 11 seats 8%

1 to 3 seats 13%

6 to 7 seats 32%

4 to 5 seats 47%

© Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

Four to Five is Ideal Number of Board Seats for Early- Stage Companies CEOs & VCs: Preferred Total Number of Seats (Founders, Investors, Outsiders)

Venture Capitalists 6 to 7 Seats 8+ Seats 0% 9%

4 to 5 Seats 85%

© Copyright 2009 Dow Jones and Company

CEOs 6 to 7 Seats 12%

1 to 3 Seats 6%

4 to 5 Seats 77%

Source: Dow Jones VentureSource/NVCA

8+ Seats 0%

1 to 3 Seats 11%

Later-Stage Companies: Six to Seven Total Seats Ideal CEOs & VCs: Preferred Total Number of Seats (Founders, Investors, Outsiders)

Venture Capitalists 8+ Seats 8%

CEOs

1 to 3 Seats 0%

8+ Seats 8%

1 to 3 Seats 0%

4 to 5 Seats 12% 4 to 5 Seats 18%

6 to 7 Seats 80%

© Copyright 2009 Dow Jones and Company

6 to 7 Seats 74%

Source: Dow Jones VentureSource/NVCA

About Half of Board Seats Held by VCs VCs: Proportion of Seats Held by VC Investors on Company Boards 81-100% Seats 1%

0-20% Seats 2% 21-40% Seats 24%

61-80% Seats 19%

41-60% Seats 54% © Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

VCs Agree but Most CEOs Prefer 21-40% Board Presence Early-Stage Companies: Ideal Proportion of Total Seats Held by VCs Venture Capitalists 81-100% Seats 1%

61-80% Seats 17%

CEOs 81-100% Seats 1%

0-20% Seats 1%

21-40% Seats 29%

61-80% Seats 14%

0-20% Seats 11%

41-60% Seats 34% 21-40% Seats 40% 41-60% Seats 52%

© Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

Later-Stage Companies: VCs Prefer More Board Control than CEOs Ideal Proportion of Total Seats Held by VCs

Venture Capitalists 81-100% Seats 1% 61-80% Seats 8%

CEOs

0-20% Seats 5%

61-80% Seats 5%

81-100% Seats 0% 0-20% Seats 17%

41-60% Seats 30%

41-60% Seats 45%

21-40% Seats 41%

21-40% Seats 48%

© Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

Mid-sized Companies have Largest VC Board Presence Board Representation for VCs by Company Employee Count Data: Dow Jones VentureSource

60%

52%

55%

57%

56% 49%

45% 40%

20%

0% 1 to 10

11 to 25

26 to 50

51 to 100

Company Employee Count

© Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

101 to 200

200+

VC Board Presence Drops After Company Generates Revenue Average VC Firm Board Representation for Companies Data: Dow Jones VentureSource 80%

Pre-Revenue 62% 60%

53%

63%

56%

Generating Revenue 55%

51%

48%

40%

20%

0% Start-up

Pre-Clinical Trials

Clinical Trials

Product Beta Product Development

Company Development Stage

© Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

Revenue

Profitable

VCs & CEOs Have Spent More Time on Boardrelated Activities Time Allocated to Meetings, Calls, etc. over the Past Three Years

Venture Capitalists Spent same amount of time 28%

CEOs Spent same amount of time 32%

Spent less time 5% Spent less time 8% Spent more time 67%

© Copyright 2009 Dow Jones and Company

Spent more time 60%

VCs Plan to Increase Their Board Participation VCs: Board Participation Changing Over Next Two Years Expect decrease 12%

Expect no change 36%

© Copyright 2009 Dow Jones and Company

Expect increase 52%

Source: Dow Jones VentureSource/NVCA

VCs Leave Boards Quickly Post M&A VCs: Time On Board After Acquisition

1 yr to 18 months 3%

18 months + 7%

7 months to 1 yr 6% 4 to 6 months 7%

0 to 3 months 77%

© Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

70% of VCs Off Board Within Year of IPO VCs: Time On Board After IPO

18 months + 13%

0 to 3 months 42%

1 yr to 18 months 17%

7 months to 1 yr 17%

© Copyright 2009 Dow Jones and Company

4 to 6 months 11% Source: Dow Jones VentureSource/NVCA

Top Concerns: Financing, Exit Strategies, & Sales/Marketing Three Biggest Issues Facing Company Boards 80%

60%

57%

60%

35%

40%

30%

26%

25%

20%

0% Financing Strategies

Exit Strategies Related to Acquisitions Venture Capitalist

© Copyright 2009 Dow Jones and Company

CEO

Source: Dow Jones VentureSource/NVCA

Sales & Marketing

Biggest Value: Network of Contacts CEOs & VCs: Top Four Value-adds as a Board Member 80% 63% 60%

64%

64%

54% 48%

40%

34% 27% 22%

20%

0% Mentor to CEO

Network of Contacts

Raising Followon Financing

Venture Capitalists © Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

CEOs

Exit Market Knowledge

Open Communication Most Important Factor CEOs & VCs: Top Three Characteristics for a Productive Board 80% 66% 60% 60% 47%

51% 43% 38%

40%

20%

0% Active Participation by All Members

Open Communication

Venture Capitalists © Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

Useful Feedback CEOs

No Specific Measurements Required Metrics for Board Effectiveness

Venture Capitalists

CEOs Specific Metrics 9%

Specific Metrics 16%

Some Metrics 12% No Metrics 44%

Some Metrics 40%

© Copyright 2009 Dow Jones and Company

No Metrics 79%

Source: Dow Jones VentureSource/NVCA

Valuation & Exit Strategy Highest Conflict Factor CEOs: Factors Creating Most Challenges with VC Firm Board Members

60% 51% 47% 42% 40%

34% 30%

20%

0% Personality Conflicts

© Copyright 2009 Dow Jones and Company

Sales & Marketing Strategy

Term Sheet

Valuation

Source: Dow Jones VentureSource/NVCA

Exit Strategy

Main Conflict Factor for VCs: Executive Mgmt. Searches or Changes VCs: Factors Creating Most Challenges with Different VC Board Members 80%

60%

56% 51% 38%

40%

42%

30%

20%

0% Personality Conflicts

© Copyright 2009 Dow Jones and Company

Executive Mgt. Search & Change

Sales & Marketing Strategy

Valuation

Source: Dow Jones VentureSource/NVCA

Exit Strategy

Over 80% of CEOs Satisfied with VC’s Time CEOs: Satisfaction with VC Board Member’s Time Spent with Company

Not very satisfied 14%

Somewhat satisfied 28%

© Copyright 2009 Dow Jones and Company

Not at all satisfied 4%

Completely satisfied 20%

Very satisfied 34%

Source: Dow Jones VentureSource/NVCA

Most CEOs Satisfied with VC’s Feedback CEOs: Satisfaction with VC Board Member’s Level of Feedback & Quality of Feedback

Level of Feedback Not at all satisfied 5% Not very satisfied 14%

Quality of Feedback

Completely satisfied 18%

Not at all satisfied 10%

Completely satisfied 17%

Not very satisfied 17%

Somewhat satisfied 31%

Very satisfied 32%

Very satisfied 33% Somewhat satisfied 23%

© Copyright 2009 Dow Jones and Company

Source: Dow Jones VentureSource/NVCA

More Information Emily Mendell National Venture Capital Association (610) 565-3904 [email protected] Kim Gagliardi Dow Jones & Co. (603) 864-8873 [email protected]

© Copyright 2009 Dow Jones and Company