Nvca Today (4thq2008)

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Finding Paths to

Venture Success

NVCA 2009 Annual Meeting April 29–30, 2009 | Boston, ma Westin Seaport Hotel 

Preparing for 2009: More Questions than Answers With the selection of Senator Barack Obama as the President-elect, the November 4th election has set the nation on a new course for both domestic and international policy decisions. And, as discussed in NVCA’s post-election report, whether Republican or Democrat, the Washington policy-making community has at last stopped holding its collective breath and is moving forward with what it knows best: mapping out scenarios under which policy programs will rise or fall.

With speculation rampant about the President-elect’s priorities, his transition team and policy advisors have already begun sounding out stakeholders and we believe that, unlike past Presidential transitions, the details of many of his proposals will begin to crystallize over the next two months. What follows is a discussion of some of the areas in which NVCA anticipates critical action for our industry.

Economic Stimulus: At his first post-election press conference, President-elect Obama left little doubt that his initial focus will be on providing the economic stimulus necessary to keep the country from moving further into recession. Although Congress may attempt to pass a Continued on p. 2

Highlights: 5

What the Data Shows....................................... Global Accounting Standards

9 Patent Protection in China............................11 Support VenturePAC.....................................14 Strategic Communications Group................14 Insurance Solutions for Members..................14 Communications Call................................... 15 Convergence....................................................

Solicitations for DOE in Residence

17 Microsoft BizSpark Partner............................17 Bridge for IPO Crisis..................................... 18 Global Entrepreneurship Week ’08.............. 18 Early Stage Investment Colleagues...............19 NVCA Webcasts Now Free............................19 New NVCA Members................................... 20 Wall Street Video Series................................ 21 NVCA Partners............................................. 22 NVCA Calendar............................................ 24 Advertise with NVCA.................................... 25 Program.........................................................

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Continued from p. 1

stimulus package before year-end, bets are high that Congress will be unable to come to terms with the outgoing Bush Administration on an acceptable deal. Beyond righting the markets generally, the venture industry should watch for inclusion of incentives for investment in small business — a campaign promise of the Obama-Biden team that could be included in a stimulus bill.

Tax Policy: The Obama-Biden tax plan (not including the health policy sections) contains three critical components for the venture industry: increasing the capital gains tax to 20% for families with income over $250,000; closing the “loophole” of carried interest as capital gains; and, perhaps most intriguingly, eliminating capital gains tax for entrepreneurs and investors in small business. While Rahm Emanuel, the President-elect’s designee as White House Chief of Staff, has prominently argued that tax reform will remain a top priority for the incoming Administration, the manner in which tax reform is developed and unveiled will have tremendous implications for the shape of the congressional elections in 2010. Despite assertions that changing the taxation of carried interest is a “done deal,” we believe that many Members of Congress understand the complexity of this issue both technically and politically. Increasing capital gains across the board and repealing some of the Bush Administration tax cuts for the top income brackets may offer a more palatable early step to address tax reform. NVCA also views the President-elect’s statements on investment in innovation and small business as positive developments, but will be continuing our outreach to Congress and the new Administration’s transition team to reinforce the understanding of the venture industry’s role in building the economy.

Prospects for Comprehensive Health Care Reform in the New Congress-Impact on Medical Innovation Key Congressional leaders and health policy advisors from the Obama campaign have been working to develop a consensus around a comprehensive health care package that they plan to introduce early in the new Congress. The package is part of a budgetary and economic plan to help rein in health care costs and broaden access to coverage. The early signs of consensus seem to be centered around a package that would be based on a public-private hybrid model: preserving the current private sector delivery system, while developing a strengthened public sector framework that includes important reforms to the Medicare program focused on access, affordability, and quality. The 111th Congress will likely focus on the weakened economy before addressing comprehensive health care reform, but incremental reform is very possible. The incremental steps will likely include early action on a Medicare payment reform package that includes legislation to reauthorize the widely popular State Children’s Health Insurance Program (SCHIP), addressing Medicare payment for physicians who face a looming cut of approximately 20% in January 2010, and giving Medicare the power to negotiate drug prices directly with the pharmaceutical companies. NVCA’s key priorities in this debate are to ensure that any reform package includes changes in coverage and payment policies to facilitate the wide-spread adoption of new technologies and therapies that improve the quality and reduce the cost of health care. NVCA wants to ensure that all patients will have appropriate access to new medicines and treatments that will improve the effectiveness and reduce the cost of America medicine. The following issues are key health legislative issues the will seriously be debated in the New Year that could have a significant impact on venture capital investment in life sciences:

Central to the discussions on controlling costs through improved quality are proposals for increased comparative effectiveness research (CER). There is broad consensus emerging in the Senate that CER must be part of the solution to rising health care costs. However, there is not yet consensus on what “comparative effectiveness” means, or on Comparative Effectiveness Research: 

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how it would be implemented. One key point of discussion on this issue will be whether price and cost are explicitly included in the scope of work of CER. NVCA supports the general concept of CER as long as CER is done for all technologies and therapeutics (both old and new), and that CER research does not include cost-effectiveness determinations in its definition. Given the importance of budget scoring in health care legislation, any proposal must be able to demonstrate cost savings or budget neutrality. Although Congressional Budget Office (CBO) Director Peter Orszag has stated that he wants to develop a more “collaborative” model for scoring health care legislation, the CBO remains unwilling to “score” future savings from the application of health care technology that reduces current costs or avoids future costs. CBO wants quantitative data to demonstrate that savings from technology and other systems reforms are real before they score such proposed savings. CBO has stated that it intends to release two volumes outlining the “scorable” budgetary impact of a wide variety of health care and payment reform proposals before the end of the year. This continues to be problematic for the introduction of new technologies and therapeutics. Scoring New Technology: 

Health Care System Efficiencies: 

Many Congressional leaders and President-elect Obama recognize that there are fundamental flaws in the existing health care system that needs to be addressed in order to achieve comprehensive reform. These include value-based payment reform, chronic disease management, prevention and wellness benefits, medical adherence management, and health information technology, all of which NVCA supports.

NVCA Contributes to HHS White Paper on Investing in Personalized Medicine and Attended HHS Summit NVCA completed the Investing in Personalized Health Care Innovation white paper that was incorporated into the Department of Health and Human Services (HHS) Personalized Health Care Report on Personalized Healthcare. This report is available on NVCA’s website. The report was presented at a private summit on October 6th-7th in Deer Valley, Utah, hosted by HHS Secretary Leavitt and Utah Governor John Huntsman. The summit identified opportunities, barriers, and best practices in personalized medicine. Dr. Clayton Christensen of Harvard Business School discussed the HHS report and key components that need to be addressed to ensure the advancement of personalized health care. NVCA members in attendance included Risa Stack (KPCB), Sue Siegel (Mohr Davidow), Fred Middleton (Sanderling Ventures), and Denish Patel (vSpring Ventures). The NVCA white paper provided a framework for the economic assessment of private capital investment opportunities that are specifically targeted to technology, care delivery services, and information management systems that support personalized approaches to health care. The report concluded that advances in the fields that drive personalized medicine can only continue with committed Federal funding. Demand for treatments and therapies based on these advances will grow as people look to understand aspects of their personal health and to take greater control over their health. It is our hope that the health care industry will be able to meet this demand by bringing advances in personalized medicine to the marketplace. President-elect Obama is an advocate for the advancement of personalized medicine and as President will most likely help foster change in the regulatory processes that have been barriers to personalized medicine.

MIG’s CMS Payment Initiatives Over the last several years, NVCA’s Medical Industry Group (MIG) has been working with CMS on developing a roadmap to help start-up companies navigate through the CMS coding, coverage, and payment process as part of the MIG’s recommendations to establish a “CMS Reimbursement Critical Path.” In August 2008, CMS finally released The Innovator’s Guide to Navigating CMS. Continued on p. 4

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NVCA is hopeful that the Guide will be helpful to start-up companies beginning the CMS process. A copy of the Innovator’s Guide can be found by online at http://www.cms.hhs.gov/CouncilonTechInnov/. NVCA welcomes any feedback on its usefulness.

Energy Policy Set to be a Priority Following a close second to resolving the nation’s economic crisis, energy policy is expected to be an important priority on the agenda for the Obama Administration and the new Democratic House and Senate. In part, this flows from the expectation that improving the nation’s energy infrastructure and advancing renewable energy will help create new green-collar jobs. ThenSenator Obama campaigned using themes under the “New Energy Economy” rubric and outlined a goal to create 5 million new green collar jobs. He has also cited the connection between our energy independence and our national security, as well as noting the environmental challenges of climate change. Many of the goals outlined in the Obama energy platform are also those of the NVCA. For example, NVCA has supported a national Renewable Portfolio Standard (RPS), which would require that utilities generate a certain percentage of their energy from renewable sources like solar and wind. NVCA has advocated for a 15% RPS, while the Obama plan calls for a 10% RPS by 2012 and 25% by 2025. In addition, NVCA has lobbied in support of increased fuel efficiency standards. The Obama Administration is expected to increase CAFE standards and make a strong push for getting 1 million plug-in hybrid vehicles that are manufactured in the US on the road by 2015. We anticipate this and other incentives for renewable energy and energy efficiency technologies will be enacted with the new Congress and Administration. Although it’s one of the most publicized energy concerns, climate change will likely be further down the list of issues to be addressed. Legislative activity will certainly take place, but, with the economy faltering, implementing a cap and trade system may be too difficult. Unsure of the impact a cap and trade system will have on companies and the economy, lawmakers may decide against trying to quickly implement sweeping changes in this area. However, because the President-elect has pledged that the US will be leader on the climate change issue, capping carbon emissions and constructing an economy-wide cap and trade system that reduces greenhouse gas emissions 80% by 2050 will remain a priority. This year, NVCA’s Cleantech Advisory Council will be active on a number of new initiatives such as electricity transmission and smart grid, green building and energy efficiency. We will also continue our lobbying efforts in support of the creation of an ARPA-E for high-risk energy technologies and a GSE financing entity for energy projects, as well as pushing for robust funding for basic research for the DOE Office of Science and other important energy research facilities like the national laboratories.

NVCA Receives DOE Award The Department of Energy has recognized NVCA for the contributions that the venture capital industry has made to advancing renewable energy and energy efficiency technologies. The Energy Innovator Award offers appreciation to the VC industry for developing technologies that strengthen the energy economy, the environment and the national security of the United States. NVCA has worked closely with staff of the Department of Energy and we are looking forward to developing collaborative relationships with the new appointees that will be joining the agency in the new Administration.

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What The Data Shows… Despite the widespread turmoil in the US and global economies, NVCA research statistics through the first three quarters of 2008 reflect a U.S. venture capital industry that is very much open for business. From the challenges of non-existent IPO markets, soft acquisition markets, and newly received reports of fundraising challenges, there is much for us to watch. But all of this is balanced by reports of record levels of high-quality deal flow and teams coming to the industry. As these latest statistics show, there is an ever-increasing number of companies stuck in the later stages awaiting exits. Despite this, we expect the industry to make an initial investment in well over 1,000 new companies this year. The business environment overall is difficult for emerging companies to be selling products particularly to the commercial information technology sector. Reduced burn rates and capital efficiency become more than mantras with portfolio companies, they become mandates. And yet, investment continues.

The Venture Capital Cash Cycle Investors (LPs)

A. Commitments*

* Measured by NVCA Statisics

VC Funds

GPs B. MoneyTree™ Portfolio C. Exits* Investment* Companies

Distributions

D. Distributions IRR*

IPO Draught Continues with Few Signs of Better Times in the Near Term The chart below shows M&A acquisition and initial public offerings of venture backed companies. Following encouraging strength in 2004 (Google was a part of that but it was not alone) and lesser strength in 2007, the exit markets have fallen flat. IPOs have all but stopped in the nine months of 2008. Five companies went public in Q1, none in Q2 and only one in Q3. A total of six IPOs does not bode well for the industry and means that some good, mature companies remain in venture fund portfolios drawing on the time and financial support of the venture capitalists. Too few companies are going public. But how many should there be? Recent analysis by the NVCA of all companies initially funded during the 1990s shows that 14% of them went public. In recent years, approximately 1,000 companies are funded for the first time each year. If 14% of those eventually go public, that suggests a run rate of 140 companies per year going public, or 35 per quarter on average. Recent years have been at levels far below that.

Continued on p. 6

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Continued from p. 5

Venture-Backed Liquidity Events by Year/Quarter, 2002 – 2008 ytd Quarter/ Year

Total M&A Deals

M&A Deals *Total with Disclosed Disclosed M&A Values Value ($M)

*Average M&A Deal Size ($M)

**Number of IPO’s

Total Offer Amount ($M)

Average IPO Offer Amount ($M)

2002

318

154

7,586.7

49.3

22

2,109.1

95.9

2003

284

119

7,460.1

62.7

29

2,022.7

69.8

2004

345

187

15,919.6

85.1

94

11,378.0

121.0

81

45

4,351.9

96.7

10

720.7

72.1

2005-1 2005-2

81

34

4,725.0

139.0

10

714.1

71.4

2005-3

102

48

5,739.5

119.6

19

1,458.1

76.7

2005-4

87

39

2,594.0

66.5

18

1,592.1

88.5

2005

351

166

17,410.6

104.9

57

4,485.0

78.7

2006-1

107

52

5,607.5

107.8

10

540.8

54.1

2006-2

106

40

4,018.5

100.5

19

2,011.0

105.8

2006-3

94

42

3,450.8

82.2

8

934.2

116.8

2006-4

62

26

5,616.8

216.0

20

1,631.1

81.6

2006

369

160

18,693.6

116.8

57

5,117.1

89.8

2007-1

83

29

4,540.3

156.6

18

2,190.6

121.7

2007-2

86

36

3,972.3

110.3

25

4,146.8

165.9

2007-3

102

52

10,810.0

207.9

12

945.2

78.8

2007-4

88

43

9,084.1

211.3

31

3,043.8

98.2

359

160

28,406.7

177.5

86

10,326.3

120.1

2008-1

70

28

3,602.4

128.7

5

282.7

56.6

2008-2

71

21

4,150.9

197.7

0

0.0

0.0

2007

2008-3 2008

58

24

3,512.6

146.4

1

187.5

187.5

199

73

11,265.9

154.3

6

470.2

78.4

Thomson Reuters & National Venture Capital Association. *Only accounts for deals with disclosed values. **Includes all companies with at least one U.S. VC investor that trade on U.S. exchanges, regardless of domicile.

While most IPOs can give good results to the venture investors, an “acquisition” exit can be a home run, fire sale, or something in the middle. To understand the quality of venture backed acquisitions, consider the third quarter of 2008 results along side 2007 results. While there have been far fewer acquisitions thus far in 2008, 54% of those companies sold for more that 4x total venture investment compared with 43% in 2007 and 38% in 2006.

Analysis of Transaction Values versus Amount Invested* Relationship between transaction value (sale price) and total venture investment (TVI)

Full Year 2006

Full Year 2007

Q3 2008

Deals where transaction value less than TVI

28%

24%

17%

Deals where transaction value is 1x to 4x TVI

34%

33%

29%

Deals where transaction value is 4x to 10x TVI

21%

23%

37%

Deals where transaction value is > 10x TVI

17%

20%

17%

100%

100%

100%

160

160

24

Total Number of Disclosed Deals Source: Thomson Reuters & National Venture Capital Association. * Disclosed deals that do not have a disclosed total investment amount are not included.

Continued on p. 7

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Continued from p. 6

What’s Happening in Investment? Nearly a third of venture deals are going into later stage company. The industry has never seen levels this high. This effect has been likened to the high school that has lost its diploma printing machine. The seniors are unable to graduate and leave. Meanwhile, new classes are rising to their senior years joining the prior classes awaiting graduation. This has made it difficult for the industry to turn its attention to the next crop of companies. While 14% of the third quarter deals went to seed and start-up companies, this is far below the levels seen in the growth years of the mid-1990s. Likewise, the percent of deals going to first time companies reversed course from recent gains and fell in third quarter. One quarter does not a trend make, but it does bear out what we are hearing from NVCA members and entrepreneurs. With the need for capital efficiency going forward and an uncertain business environment to grow a company, this is a statistic we are watching closely.

Venture Capital Investment 1995 to 2008YTD Quarter/Year 1995

Venture Investment $M

% of Deals Seed/Start Up

% of Deals Later Stage

% of Deals Which Are First Rounds Into a Port Co

7996.34

23.4%

11.3%

48.2%

1996

11,265.38

19.5%

11.3%

44.4%

1997

14,872.89

16.8%

10.5%

40.8%

1998

21,079.27

18.2%

11.3%

38.7%

1999

54,048.74

14.8%

9.6%

44.4%

2000

104,945.16

8.8%

8.4%

42.6%

2001

40,577.33

6.1%

12.1%

27.2%

2002

21,998.22

5.7%

15.7%

26.8%

2003

19,772.32

7.1%

20.2%

25.8%

2004

22,451.58

6.8%

26.1%

29.8%

2005

23,140.72

7.6%

31.7%

32.2%

2006 - Qtr 1

6,447.03

8.1%

31.4%

30.7%

2006 - Qtr 2

7,102.51

8.6%

29.5%

34.1%

2006 - Qtr 3

6,730.61

11.9%

25.9%

34.5%

2006 - Qtr 4

6,423.35

9.5%

24.0%

30.9%

26,703.50

9.6%

27.7%

32.6%

7,561.37

9.4%

31.4%

29.8%

2006 2007 - Qtr 1 2007 - Qtr 2

7,350.51

11.6%

29.8%

34.7%

2007 - Qtr 3

7,824.46

12.1

31.9%

32.7%

2007 - Qtr 4

8,089.05

11.7

30.5%

33.6%

30,825.39

11.3%

30.9%

32.8%

2008 - Qtr 1

7,831.50

11.6%

30.2%

32.4%

2008 - Qtr 2

7,664.79

10.3%

32.3%

31.2%

2008 - Qtr 3

7131.30

14.0%

32.4%

28.6%

22.627.60

11.9%

31.6%

30.8%

2007

9M 2008

Continued on p. 8

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Continued from p. 7

Clean Technology Venture Capital Investment Not surprising, venture investment in clean technology companies now exceeds 10% of all US investment and continues to grow. In the first nine months of 2008, clean technology investment exceeded the full year 2007 total dollars. Clean technology deals tend to be larger with the $15.25 million average per deal essentially double the $7.72 million average deal size across all sectors.

Year

$M Invested Clean Tech

# Clean Tech Deals

Average per C.T. Deal $M

Clean Tech Share of Total VC Investment

1998

107

36

2.97

0.5%

1999

203

37

5.49

0.4%

2000

563

45

12.51

0.5%

2001

365

59

6.19

0.9%

2002

391

65

6.02

1.8%

2003

260

56

4.64

1.3%

2004

438

76

5.76

2.0%

2005

545

88

6.18

2.4%

2006

1,418

135

10.5

5.3%

2007

2,642

233

11.34

8.6%

9M08

3,095

203

15.25

13.7%

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters

Where to Go for the Latest Statistics • Quarterly statistics are posted on the NVCA website. There are four information releases for a typical quarter: • Exit Poll (IPOs and Acquisitions) — typically published a day or two after each quarter end • MoneyTree (Money invested by VC firms in portfolio companies) — Officially known as the “PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, with data provided by Thomson Reuters.” This is typically released 3-4 weeks after the close of the quarter. Shortly after that, searchable statistics and downloadable spreadsheets can be found at www.pwcmoneytree.com. • Fundraising (Commitments) — Typically released around the time of MoneyTree • Performance (IRRs) — Thomson compiles venture capital IRR benchmarks and these are released with at least one quarter lag by the NVCA and Thomson. Buyout and mezzanine return statistics are released directly by Thomson.

The NVCA 2008 Yearbook, available as PDF file to NVCA members, provides historical data back to 1980. A copy can be downloaded from the NVCA website. NVCA members who subscribe to VentureXpert can access the data anytime, even as it is being accumulated and posted at quarter end. For more information about the NVCA research program, contact John Taylor at [email protected]. Significant NVCA member discounts are available for online subscriptions to the VentureXpert database. Contact [email protected] for more information.

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A GP’s Primer on Global Accounting Standards Convergence A recent flurry of media coverage has focused on the possible upcoming convergence of US and international accounting standards. Much of this coverage discusses which accounting system casts which public companies in the most favorable light. While that particular matter seems distant from the US venture capital industry, there are two key aspects of convergence that it appears we need to focus on: • Determining which system (current US GAAP vs. International vs. neither) is the best system overall for the US business community going forward. We would expect this dialogue to center on transparency, reliability, relevance, comparability, and ongoing costs in addition to any conversion costs, which might not be insignificant. • Addressing matters which specifically affect our funds. One area already identified is the financial statements provided by GPs to LPs under international rules — should the international rules become the new US rules?

As a first step towards understanding and engaging in constructive dialogue in both of these areas, the NVCA CFO Task Force has appointed a subgroup to begin gathering facts, analysis, and expert opinion on what all of this means to our industry.

Why Has The Convergence Issue Come to the Surface at This Time? For years, the United States has been developing generalized accounting principles referred to as Generally Accepted Accounting Principles (“GAAP”). The keeper/arbiter/decider of GAAP is the Financial Accounting Standards Board (“FASB”). FASB develops and updates GAAP and the SEC has adopted these accounting rules for public company reporting and other situations over which the SEC has jurisdiction. In recent years, on a parallel track, a separate set of rules emerged from the International Accounting Standards Board (“IASB”) which was Europe-centric. These rules became known as the International Financial Reporting Standards (“IFRS,” pronounced “IFF-ers” or “EYE-fers”). Over recent years, the large number of multinational corporations complained that they had to endure keeping two sets of books and this prompted the concept of convergence. In early September 2008, the SEC and the FASB announced steps to pave the way for US public companies to convert from US GAAP to IFRS. The SEC “roadmap” provides for a three-year run-up to an SEC “go-no go” decision in 2011. 2011 is also the year that major US trading partners, Canada, Japan, Korea and India plan to adopt IFRS. At about the same time, the FASB and the IASB met to review and re-orient their convergence plan to be consistent with the SEC’s proposed schedule. The updated FASB-IASB memorandum of understanding is at http://www.fasb.org/intl/MOU_09-11-08.pdf. Nothing in the SEC proposal or the FASB-IASB memorandum says that the US will conclusively “converge” to or switch over to IFRS. This all contemplates a well-thought-out and informed decision in three years. But large processes are being set in motion that may be difficult to stop. It is worth pointing out that the SEC roadmap refers to public company reporting; however we should logically expect alignment of private and public company rules. What is not clear at this time is what the current global economic turmoil will do to the priority of this project or its timetable.

US GAAP vs IFRS — Never Generalize Even viewed from 30,000 feet, it is difficult to generalize on how the two systems compare. First, while the IASB produces plain vanilla IFRS standards, there is no one flavor of IFRS in use. Much like the original UNIX kernel, each country/jurisdiction has been able to create its own version of IFRS. But unlike UNIX, sometimes the differences among the localized IFRS versions are large. So an apples-to-apples comparison of “IFRS-compliant” financials from different jurisdictions can be difficult. Second, it Continued on p. 10

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Continued from p. 9

is true that IFRS itself is a very thin document compared to GAAP, which has grown to roughly a 2-foot stack of written rules. However, to implement IFRS, you need the implementation guide which combines with the original document to create its own 2-foot stack. Again, much of the surface comparisons are not useful. Until this point, US venture capital firms have been using exclusively US GAAP accounting standards. However, in early November, we received a report from a member firm with international intermediaries for overseas investment where the local auditors raised the question of whether those financial statements need to be IFRS-compliant.

GP-to-LP Reporting One area already identified as a possible problem area is GP to LP reporting. Virtually all LP agreements (or accompanying documents) require GPs to provide GAAP-compliant financial reports to LPs. Annual audits of these reports are GAAP-based. Under GAAP, the US venture capital industry provides fair-value portfolio reports under the special rules of “investment company reporting”. Our early analysis of IFRS shows special investment company rules for portfolios of publicly-traded companies but no such provisions for portfolios of private companies. Most of the SEC and FASB efforts to date have focused on public company reporting. We are very early on in verifying and creating awareness of the lack of private portfolio provisions. The initial reading is that, under IFRS, the financial statements for a number of the portfolio companies would have to be consolidated into the operating financials of the venture capital fund itself. This would create a muddled report, essentially unusable to the LPs in determining the value of their own portfolio holdings. This would mean an end to fair value reporting as we have known it. A potential further complication could arise if DOL ERISA fair value rules remain in place for the plan sponsors while accounting rules abandon the current fair value reporting requirements.

How International GPs Now Handle LP Reporting A logical question arising from the above paragraph is how venture capital firms operating in IFRS jurisdictions are currently reporting to LPs, including those subject to DOL ERISA fair-value reporting rules. The initial, and somewhat limited, review by the NVCA CFO Task Force subgroup is that they simply are not doing so. Many international GPs continue to produce financial statements in accordance with US GAAP for both their US and international LPs. Those reporting under IFRS are incurring the additional effort and expense of also providing a separate US GAAP-type fair value schedule.

Recent Events A full chronology of events is posted under Valuation Guidelines on the NVCA website www.nvca.org. This document is updated from the chronology in Appendix H of the NVCA 2008 Yearbook prepared by Thomson Reuters. Even as the US industry works toward compliance with the FASB’s Statement 157 on fair value measurement starting with 2008 financials, dialogue has begun on convergence. In March 2008, the International Private Equity Board (IPEV) board reconstituted and re-launched itself. IPEV was expanded to include five practitioners from the United States who are familiar with the venture industry. The initial focus of the group is on convergence of US Private Equity Industry Guidelines Group (“PEIGG”) and IPEV fair value guidelines. Details are online at www.privateequityvaluation.com.

Going Forward With the international and domestic attention on other economic matters, it is not clear how quickly any accounting standard convergence activities will move. However, the NVCA CFO Task Force has begun the process of preparing for the future dialogue and the NVCA has several efforts underway to understand the implications. For more information, please contact NVCA head of research, John Taylor, [email protected].

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Beyond the Due Diligence: Patent Protection in China by Michael Vella, Richard Hung and David Yang, of Morrison & Foerster LLP As the Chinese economy continues to grow, investors are increasingly considering investments in or somehow related to China. Like any other high-tech investment, China-related investments require thorough due diligence into the company’s technology to understand the patent landscape. But in China due diligence only takes you so far. Although China has made significant progress in patent protection over the last decade, foreign companies continue to view the protection and enforcement of Chinese patent rights as inconsistent and unpredictable. This article provides an overview of China’s patent laws and patent litigation system so that investors will have an idea of the risks that remain after the due diligence is done.

Overview of the Chinese Patent Law China’s Patent Law was first promulgated in 1984. It has been amended twice (in 1992 and 2000) in an effort to bring the Patent Law in line with the requirements of the Paris Convention for the Protection of Industrial Property and the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). Currently, a third amendment of the Patent Law is under consideration to bring the law further in line with international standards. As a result of these amendments, the Chinese Patent Law largely resembles, and will increasingly resemble, U.S. patent law. Under the Chinese Patent Law, patent protection is available in three categories - invention patents, design patents and utility model patents. Invention patents last for 20 years from the date of application, while design patents and utility model patents have a shorter term of 10 years from the date of application. Patent applications by foreign legal persons without a habitual residence or a place of business in China1 must be made through an authorized patent agent and filed with the State Intellectual Property Office (SIPO) in Beijing,2 while SIPO offices at the provincial and municipal levels are responsible for the administrative enforcement of patents. There are, to be sure, significant differences between U.S. and Chinese patent law. For example, China, along with most of the other jurisdictions in the world, follows the “first-to-file” approach. This differs from the “first-to-invent” approach in the United States. Under the “first-to-file” approach, whoever files a patent application first has priority to obtain a patent for the invention regardless of whether that person was the first to invent it. It should, however, be noted that a patent application may still be invalidated by evidence of published prior art. In short, although differences remain, most patent savvy investors will find the Chinese Patent Law to be more familiar than not.

Infringement Proceedings in China While the Chinese Patent Law largely resembles U.S. patent law, the Chinese patent litigation system is a world unto itself. To help investors assess the risks of patent litigation in China, we provide the following summary of some of the distinguishing characteristics of Chinese patent litigation.

1 Representative offices in China are generally not considered to be habitual residences or places of business. 2 Application forms may be submitted to SIPO located in Beijing or its authorized local agencies.

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The first thing to know about Chinese patent litigation is that it is fast. In the United States, the average patent case takes approximately two years. In certain U.S. jurisdictions called “Rocket Dockets,” the courts have reduced the case schedule to as little as nine months. In China, however, a patent trial on the merits can take place within six months of the filing of the complaint. Second, there is no discovery in Chinese litigation — no document requests, no interrogatories, and no depositions. Thus, there is no way to compel the opposing party to produce evidence relevant to the case. It is possible to apply to the court to collect evidence from the other side. But that procedure is left to the discretion of the court, which often is reluctant to apply it. Third, as in the U.S., the burden of proof is on the plaintiff. There are situations where that burden can be shifted to the defendant. But for the most part, a plaintiff seeking to enforce its patent rights must be prepared to shoulder the burden of proof based on its own independently developed evidence. Given the plaintiff’s burden of proof, the lack of discovery, and the speed of litigation, it is imperative for patent owners to prepare thoroughly before filing suit. Fourth, there is no opportunity to challenge the validity of a patent as a defense in a patent infringement lawsuit. To challenge the validity of a patent, a re-examination request must be filed with the Patent Re-examination Board (PRB) of SIPO, which is tasked with the responsibility of determining patent validity. Parties who are dissatisfied with the PRB’s decision may appeal to the People’s Court within three months of receipt of PRB’s decision. A stay of the litigation pending re-examination of the asserted patent may be granted by the courts. However, the courts have the discretion not to grant a stay and, in practice, they often decline to stay the case.

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Fifth, the evidentiary formalities in China can be difficult for foreign parties who are not prepared. All documents created outside of China must undergo certain formalities to be admitted as evidence. Generally, the documents must be notarized by a notary authority in the country where the document was created and then authenticated by the Chinese embassy or consulate in that country. Additional formalities may be required for authentication of witness statements. Thus, inexperienced trial counsel can easily find their evidence barred from consideration. Sixth, the Chinese patent trial is a unique experience that bears little resemblance to U.S. patent trials. There is no jury. Instead, cases are decided by a court composed of a panel of three judges. The court generally conducts a series of hearings. For example, the court may hold an “evidence exchange” hearing. At this hearing, the parties exchange the evidence on which they will rely at the trial. This procedure is supposed to give the other side an opportunity to review the evidence so as to prevent unfair surprise at trial. Of course, because there is no discovery, this will be the first time that the parties get to see the other side’s evidence. If, as can happen, the trial quickly follows the evidence exchange hearing, there may be insufficient time to respond to the evidence. The trial itself is organized into several formal stages, which do not allow for the detailed exploration of factual issues to which most U.S. companies are accustomed. Instead, the focus of the trial is on explaining and disputing the written submissions and documentary evidence. While cross-examination of witnesses is permitted, it is subject to significant time constraints. In fact, given the tight time constraints of trial, and the perception that party witnesses are biased, witness testimony plays a far less important role than it does in U.S. patent litigation. It is not surprising, then, that the decisions in Chinese courts also tend to focus on the written presentation of evidence, especially the complaint and evidentiary statements. This different focus once again highlights the importance of early and comprehensive preparation of evidence. Finally, there remains a great deal of uncertainty in the outcome of patent cases. Unlike the United States, the Chinese judiciary is not wholly independent of the civil authorities. As a result, many litigants worry that the authorities will influence the outcome of a patent case. This is less of a concern for litigants in courts located in large metropolitan areas such as Beijing or Shanghai. But in jurisdictions where the Chinese company’s operations are important to the local economy, these political concerns are heightened.

Conclusion In assessing tech investments related to China, bear in mind that any litigation is inherently unpredictable. Chinese patent litigation is perhaps more so because it is still in its infancy. To address this situation, experienced U.S. patent litigators are increasingly being asked to play a role in overseeing the substance of the case and shaping the overall litigation strategy. Of course, this is only possible if the U.S. lawyers have the Chinese language skills sufficient to communicate with the local counsel and efficiently analyze the important case documents. While U.S. counsel cannot appear in the Chinese courts or advise on the Chinese patent law, their participation on the litigation team can improve the presentation of the evidence while minimizing misunderstandings between U.S. clients and Chinese counsel. Michael Vella, Richard Hung and David Yang work respectively in the Shanghai, San Francisco and Los Angeles offices of Morrison & Foerster LLP where they manage China-related disputes in both China and the U.S.. They can be reached at: [email protected]; [email protected]; and [email protected].

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Support VenturePAC by December 15 As another election cycle comes to a close, NVCA would like to thank our members for their support of our political action committee. As we have done for many years, VenturePAC contributed to key races in both the Senate and the House of Representatives. Our PAC contributions were given to incumbents and challengers who support policies that favor our innovation agenda and tax policies that recognize the value of entrepreneurship and risk taking. During the 2007-2008 cycle, NVCA raised and contributed over $1 million. Despite the relative small size of the venture industry, our PAC is one of the more well-funded trade association PACs in Washington. Our long history of supporting candidates from both political parties has served us well over the years and we expect that it will serve us well in 2009. We have broad and deep relationships with a diverse membership of Representatives and Senators, including groups like the New Democrat Coalition and Blue Dog Coalition that will be major players in the new Congress. Our Annual VenturePAC fundraising cycle is underway and will continue through December 15th. NVCA encourages our members to contribute to this important advocacy tool and make the voice of your profession heard to lawmakers who are making critical policy decisions that impact our industry. Contribution forms were mailed out to members in September. If you need additional forms or have questions, please contact Molly Myers at [email protected].

NVCA Strategic Communications Group Gathers in San Francisco More than 70 NVCA members attended the Fall Strategic Communications Group meeting which was held on October 16 in San Francisco. The day was spent in sessions which focused on best practices in marketing and communications at venture capital firms including securing top speaking engagements, re-naming a firm or a company, and exponentially improving PowerPoint presentations. The StratCom Group also received results from the 2009 Marketing and Communications Budget survey and heard from New York Times Venture Capital Beat reporter, Claire Miller. The NVCA StratCom Group is open to all members who are responsible for the marketing, communications and/or investor relations at their respective firms. Presentations from the Fall meeting are also available. For more information, please contact Emily Mendell at [email protected].

A Superior Property and Casualty Insurance Solution for NVCA Members The member brokers of TechAssure just completed negotiations with OneBeacon Insurance Company (OBI), an AM Best A, XIV rated insurer, to add a Property and Casualty Insurance Program to VentureInsure, TechAssure’s suite of insurance products available only to NVCA members. The coverages provided include Property and General Liability in a package policy, Commercial Auto; Umbrella; and Workers’ Compensation. Foreign Liability coverage can also be provided. Property and Casualty Insurance is frequently an overlooked area of protection for many Venture Capital firms primarily because the policies are a mandated purchase by state law, partnership agreements, lease agreements and financial institutions. Historically, most insurers have lumped VC firms into a “financial institution” classification under a Business Owner’s Policy (BOP). While they provided coverage for property, Continued on p. 15

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commercial liability exposures, workers’ compensation, etc. the end product was full of narrowing policy exclusions. In addition, many insurers who offered BOPs for venture capital firms recently withdrew from the market and are non-renewing existing policies. Needless to say, this added further complication to an already difficult area of insurance.

The Solution… OBI has agreed to straightforward policy wording. While it has never been the intent of a VC Commercial General Liability policy to provide coverage for claims at the portfolio company level, the OBI policy addresses this with significantly improved policy language. In addition, the policy does not contain a Professional Liability exclusion. This has never been done before and allows the VC to have more extensive personal injury and advertising injury coverage under the Commercial General Liability policy. Note that this is not meant to be a replacement for Professional/Errors and Omissions coverage (as found under a Venture Capital or Private Equity Professional policy) as the definition of “property damage” in OBI’s General Liability form does not cover financial damage without accompanying actual physical damage. This does, however, fill a major coverage gap between General Liability and Professional Liability coverages — namely that the former historically excludes professional liability and the latter excludes bodily injury, property damage, personal injury and advertising injury.

What About Cost?

Member-Wide Communications Call On Friday, November 14th, NVCA held its second memberwide communications where NVCA staff discussed the post-election environment for the venture capital industry, the impact of the financial crisis, and other important

Recent renewals in the OBI program have saved NVCA member firms about 25% on their annual renewal premiums. In current economic times, we believe better coverage for less cost is an unparalleled solution for NVCA members. This program can only be accessed via a TechAssure broker. NVCA members can visit the www.ventureinsure.com website to learn more and to contact a member of TechAssure, which has a local representative ready to serve you.

member updates. Specifically, our agenda comprised the following topics: • Public Policy Update –– What to Expect from New Administration and Congress –– Top public policy priorities for 2009 • Communications During Financial Crisis • Entrepreneurship Week 2008 • Membership Services Update • NVCA PAC Update A playback of this call will be available through December 31st. You can access this call by using the following information: Call in #: (888) 843-8996 or (630) 652-3044 for international calls Passcode: 23206116

Pamela W. Mason, AAI, is TechAssure’s NVCA Committee Chairperson and Vice President, Management Liability Practice Leader of Mason & Mason Technology Insurance Services, Inc. Ms. Mason specializes in risk assessment and coverage solutions in the areas of private equity and venture capital liability, corporate securities liability, directors and officers liability, portfolio liability programs, fiduciary liability and employment practices liability. Ms. Mason can be reached at [email protected] or 781-447-5531 X132.

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Back By Popular Demand: VCs @ CES Fourth Annual Networking Reception For Venture

NVCA has arranged for a complimentary registration to CES

Capitalists Attending The International CES 

for NVCA Members. To take advantage of this offer, please fol-

Thursday, January 8, 2009 | 5:00 – 7:00 p.m.

low the following steps:

Table 10 Restaurant, At the Shoppes in the Pallazzo Las Vegas, Nevada

1. Go to www.CESweb.org/pressReg 2. Scroll down and select “create your 2009 Press Analyst

Please join us for an opportunity to connect with the many venture capital professionals that will be attending the 2009 International CES. This networking reception consistently draws a strong attendance of 150+ venture capitalists all interested in the consumer electronics sector. Table 10 offers delicious food and a fun atmosphere where venture capitalists can relax and discuss the trends and companies they are seeing at the CES

Registration” 3. Complete regstration form 4. For Badge Category, select “Financial Analyst/Equity Analyst” 5. Where it asks for an article, type “NVCA” in the Article1 space 6. Follow remaining directions VCs @ CES Reception Is Generously Sponsored By:

show and in their portfolios.  If you haven’t RSVP’d yet for this NVCA Members Only reception, please email [email protected] with the name of person who plans to attend, their company and their email.

NVCA Webcast: Monitoring Portfolio Performance: Corrective Plans For Action Friday, December 12, 2008 12:00 – 1:00 pm ET, 9:00 – 10:00 am PT As venture capital firms and their portfolio companies navigate through this economic downtown, it is increasingly important to monitor the performance for each company in your portfolio. Making quick and effective strategic shifts may help save the best companies in your portfolio and increase your funds’ ROI. Please join us for this dynamic discussion, moderated by Stephen

Our Panel: • Stephen Ferruolo, Partner, Goodwin Procter LLP (moderator) • Venky Ganesan, Partner, Globespan Capital Partners • Kip Sheeline, Partner, Levensohn Venture Partners Thanks to the generosity of our sponsor, NVCA members can register for this webcast at NO charge. Nonmembers can register for $275.

Ferruolo of Goodwin Procter LLP, which will cover:

To Register: www.nvca.org/events.html

• Examining previous assumptions and reforecasting key busi-

Thanks to our Sponsor:

ness metrics (available reserves for additional financings, financial forecasting, growth expectations, burn rates, strength of strategic partnership, customer acquisition, and more) • Identifying legal issues that venture capitalists should be aware of when dealing with troubled portfolio companies • Recognizing misalignments of interests and implementing corrective actions

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Solicitations Sought for DOE’s Entrepreneur in Residence Program DOE announced a competitive solicitation for five VCs to participate in the expansion of DOE’s Entrepreneur in Residence (EIR) program to accelerate cleantech deployment and commercialization from DOE’s National Laboratories. The EIR program solicitation will place five more VC entrepreneurs in five DOE’s National Laboratories and will provide up to $50,000 for each entrepreneur to help defray salary and other expenses. This announcement combines with the February 2008 announcement, for a total of eight DOE National Laboratories and venture capital firms to participate in the EIR program. The five new National Laboratories to participate in the program include: • Argonne National Laboratory in Argonne, IL • Brookhaven National Laboratory in Upton, NY • Lawrence Berkeley National Laboratory in Berkeley, CA • Lawrence Livermore National Laboratory in Livermore, CA • Pacific Northwest National Laboratory in Richland, WA

Each firm will match DOE funding and may contribute additional funds to support its entrepreneur’s work. While at the laboratory, the entrepreneurs will also recommend policy and business practice modifications to the National Laboratories to further refine their scientific approaches to moving technologies into the private sector. See DOE’s Web site (www.energy.gov) to find more information about the EIR program and for the funding opportunity announcement visit Grants.gov. Applications are due January 6, 2009.

NVCA Becomes a Microsoft BizSpark Partner On November 6th, NVCA announced that it is partnering with Microsoft to offer BizSpark to NVCA members. BizSpark will provide NVCA Members’ early stage portfolio companies all the software they need, plus technical support and market visibility, for three years, for USD $100. No strings attached. Through BizSpark, members of the NVCA can offer startups fast, easy access to current, full-featured Microsoft software development tools and server technologies, as well as production licenses at no cost. To be eligible for the Microsoft BizSpark Program, startups must be: • actively engaged in the development of a software-based product or service that is a core piece of their business model, • privately held, • in business less than three years, and • have less than USD $1M in revenue.

Enrollment in the program is free. Startups can keep all the dev and test software they have downloaded over the three years of the program. Microsoft will assess a USD$100 program offering fee at program exit. Members of the NVCA are pre-approved as a BizSpark Network Partner. But, firms must enroll to get started. Continued on p. 18

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Step 1: Go to http://www.microsoft.com/BizSpark/Register.aspx?AccountType=NetworkPartner&SecurityCode=Q1Gd77jmpz

to enroll as a BizSpark Network Partner Step 2: Accept the Network Partner agreement, fill in basic company, primary and secondary contact information and you are all

set, pre-approved and ready to invite eligible Startups! If you have any questions, please contact Don Dodge at [email protected]

New Private Market Platform to Bridge IPO Crisis • Access quality, long-term capital for late stage financings • Build direct relationships with top institutional investors • Optimize the value of your company pre- and post-IPO

InsideVenture is a new industry sponsored enterprise supported by venture capital and buy side leaders for late-stage and pre-IPO companies. Only top long-term institutional fund mangers are approved for InsideVenture membership, which allows them confidential access to venture’s leading company investment opportunities. Nominate your company today to participate in InsideVenture’s March 24-26, 2009 Debut Technology and Healthcare Conferences in Santa Barbara, CA. To apply for participation in InsideVenture, companies must submit an application online by December 30, 2008.

NVCA Participates in Global Entrepreneurship Week 2008 With the goal to inspire innovation, imagination and creativity, Global Entrepreneurship Week brought together hundreds of associations to encourage youth entrepreneurship. During the week of November 17-21, NVCA blanketed Capitol Hill with information about venture capital and entrepreneurship. As part of this effort, every member of Congress received a customized packet which included: 1)

InsideVenture connects best of breed, late-stage companies with the top long-term institutional and strategic investors who can sustain value and growth through difficult market cycles. Current founding members and strategic partners include: NEA, Venrock, Domain, DCM, Aisling, Clarus, Frazier, Versant, T. Rowe Price, Wasatch Advisors, Intralinks, and Silicon Valley Bank. Our buy side members are interested in seeing top venture-backed companies raising $20-$200M rounds and/or contemplating potential IPO within 6-18 months.

data on the contribution of venture capital to their home state; 2) NVCA’s public policy positions on taxes, clean technology and life sciences; and 3) a USB drive containing the NVCA video VentuReality. Thousands of activities were planned in more than 75 countries around the world. NVCA was proud to do its part, advocating for policies that are favorable to innovation and entrepreneurship in the United States. State information packets are available to members.

Only venture’s top companies will be selected to participate in InsideVenture. Selected companies receive a secure data platform powered by IntraLinks for confidentially sharing information with prospective investors. Selected companies can also create virtual roadshows, participate in live roadshows and may be invited to present at InsideVenture Investor Conferences.

Please contact Emily Mendell ([email protected]) with your request. To view a complete list of participating countries and organizations in Global Entrepreneurship Week, visit www.unleashingideas.org.

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InsideVenture is not a broker dealer and does not change transaction fees on funds raised. All venture firms are free to nominate their companies. There is a $300 application processing fee. Selected companies may participate in InsideVenture’s platform and conferences for an affordable flat fee. Additional financial marketing services are offered “a la carte”, as requested. For more information, please contact: Benjamin Levy, Vice President, 650-926-0661, [email protected].

Angel Groups: Your Early Stage Investment Colleagues by Ian Patrick Sobieski, Band of Angels and ACA Board Vice Chair Many of you will know something about angels because most deals that venture capitalists fund have received at least some money from individual investors. Frequently these investments are considered the “friends and family” round, despite the fact that they often include neither friends nor family but rather simply individuals known to the entrepreneur and willing to bet on making a monetary return by investing in him or her. These “angels” have been a large source of investment dollars for startups, and yet they come from a source which has been historically diffuse and unbranded and therefore difficult for VCs to work with in a professional and consistent way. But, about 15 years ago, angel investors began to become more organized.

NVCA Webcasts Now Free for Members

Access to All Past Webcasts Also Free to Members NVCA has made access to its webcasts FREE for all members. Although participation for our webcasts has been quite strong, NVCA’s Board of Directors felt that the information shared in these programs should be widely available to all members as the information provided is valuable to every venture capitalist. This pricing model is made possible by our sponsors. Recognizing that many of our members work with a wide variety of well-respected law firms (and other service organizations), we encourage members to make these firms aware of NVCA’s webcasts and the fact that we welcome the opportunity to partner with new firms on such programs. If interested, they should contact Jeanne Metzger at [email protected]. Information about all NVCA webcasts can be found on the NVCA website in the events section.

Hundreds of Organized Angel Groups throughout North America Currently the Angel Capital Association (ACA), a trade association for angel organizations, has 165 member organized angel groups and another 22 affiliated organizations and associations. ACA member angel groups represent about 7,000 accredited investors who fund about 700 companies a year and have an ongoing portfolio of more than 5,000 companies across the US and Canada. ACA has a permanent executive director, national office, board of directors, and staff. Serving angel groups in the US and Canada, ACA’s goals are to share best practices and education and build relationships and collaborations between angel groups. ACA and NVCA have agreed to cooperate in a number of ways including working together on public policy issues of mutual benefit such as capital gains tax treatment. And, we have established mutual liaisons to each other’s boards, I am the ACA Liaison to NVCA and David Spreng of Crescendo Ventures is the NVCA Liaison to ACA. Continued on p. 20

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Angel Group Organization and Focus In contrast to VC firms with serious sounding names, angel groups have historically adopted somewhat self-effacing names — Band of Angels, Active Angel Investor Network, CommonAngels. These names belie how seriously angel groups strive for a level of professionalism and sophistication that would compare favorably to that of a small venture fund. While organized angel groups do not have the infrastructural depth of Sequoia Capital or Crescendo Ventures, they do have structures and processes, diligence mechanisms, and negotiating power, and often small paid staffs, that make them behave similarly to smaller professional VC funds. The mathematician Alan Turing proposed evaluating the success of an artificial intelligence machine by placing the mechanism inside a box. If a human user interacted with it in such a way that the user could not discern whether the occupant of the box was another human or a machine, the machine was deemed to be “intelligent” in the same way humans are. Similarly angel groups have been developing structures and processes, with the help of ACA, so that if one looks only at their inputs and outputs more and more groups are, from a strict examination of their inputs and outputs, indistinguishable from small VC funds. Angel groups bring to bear a substantial level of diligence that draws from the business experience of the members. Most angel groups negotiate standard equity term sheets with the same protective provisions a VC would propose such as liquidation preference, drag along rights, and anti-dilution terms. Most startups receiving investment from angel groups have a competent angel join the startup’s board of directors. Whereas most readers of this article will naturally know how to interact with small venture funds because the business model of carried interest and management fees is comparable to what a larger VC fund has, there is a lack of knowledge on the part of many VCs about what angel groups actually are, how they work, what makes them tick, and how best to work with them.

VCs and Angel Groups Working Together to Enhance Deal Flow and Returns This is the first in a series of articles to help VCs learn about angel groups as their colleagues in the same financial food chain. Some VCs are angels themselves; in a recent ACA survey, more than 66 percent of the responding groups did a deal with a VC firm in 2007. The growing trend of angel groups developing standard investment processes and terms is leading to increased syndication with other angel groups and early stage VCs. However, many VCs still may not realize how close organized angel groups are to the VC line of business and way of thinking and operating.

Welcome New NVCA Members!

Organized angel groups are an emerging part of the entrepreneurial food chain and have an appropriate place alongside small VCs. We are establishing a brand and creating a legacy and reputation as the kind of professional investors that entrepreneurs and venture capitalists can and want to work with. Ian Sobieski may be reached at [email protected]. A list of ACA members by region is available at www.angelcapitalassociation.org. We welcome NVCA members to join us at our annual conference in Atlanta, April 15-17, 2009.

BGI Growth Partners

San Francisco, CA BioGenerator

St. Louis, MO www.biogenerator.org Frontera Group

Sherman Oaks, CA www.fonteracapita.com

Hartford Ventures

Farmington, CT www.thehartford.com Launch Capital, LLC

Boston, MA; Palo Alto, CA and New Haven, CT www.launch-capital.com Midpoint Food & AG Fund, LP

Carmel, IN www.midpointvc.com

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Thought Leaders of Wall Street Video Series IntraLinks, the leading provider of online workspaces, in collaboration with The Deal, has launched the Thought Leaders of Wall Street video series this fall. It is a collection of in-depth video interviews featuring senior-level financial services executives. New video interviews have recently been added to the series. Thought leaders from JP Morgan, Thomas H. Lee and others share their insights on current market conditions. You can view the videos at: http://www.intralinks.com/thoughtleaders/ We will be adding new interviews regularly, so be sure to check back often to view more insightful commentary. Current speakers and topics covered include: • Maria Boyazny, Siguler Guff’s Managing Director and Portfolio Manager, discusses the range of opportunities for investors in the increasingly expanding distressed market • Michael Boublik, Co-head of M&A, Investment Banking, Morgan Stanley, looks at deals in the healthcare industry. • Doug Braunstein , JP Morgan’s Head of Investment Banking, addresses an audience on Bear Stearns, WaMu, and what it takes to get deals done in the current economic environment • Robert DeSutter, Co-head of Healthcare Equity, Investment Banking, Piper Jaffray, talks about private equity • Charles Ditkoff, , Co-head of Global Healthcare, Banc of America Securities, provides insights on healthcare dealmaking • John Eydenberg, Head of Leveraged Finance, Deutsche Bank Securities, gives his thoughts on the effects of the current credit crisis • Ken Hitchner, Head of Healthcare Investment Banking, Goldman Sachs, speaks about Healthcare M&A • Alan Jones, Global Private Equity Co-head, Morgan Stanley, talks about private equity financing • Gary Parr, Chairman, Lazard, offers his viewpoint on sovereign wealth funds • Adam Sokoloff, Managing Director & Head, Financial Sponsors Group, Jefferies & Company, discusses middle market deals • Scott Sperling, Co-President of Thomas H. Lee Partners, provides an overview of his firm’s approach to market opportunities in the current economic environment • Gary Talarico, Sun Capital Partners’ Managing Director, gives his insights into balancing the opportunities and risks of the distressed market

To view these videos go to http://www.intralinks.com/thoughtleaders/ IntraLinks is an NVCA partner whose technology can be used in a variety of ways to streamline your critical business processes and safeguard your sensitive information. IntraLinks® On-Demand Workspaces™ enable the secure exchange of electronic information for: • Limited Partner Reporting

• Mergers & Acquisitions

• Fundraising

• Initial Public Offerings

• Portfolio Company Reporting

• And more

IntraLinks facilitates the reporting and fundraising processes by enabling firms to distribute documents such as quarterly reports, capital calls and private placement memorandums online, reducing overhead and speeding information flow. For exit opportunities, IntraLinks provides the leading virtual dataroom solution on the market, helping to streamline processes such as mergers, acquisitions and initial public offerings. NVCA members receive a 10% discount per year on IntraLinks On-Demand Workspaces as long as they remain NVCA members.** To take advantage of this special offer or request a demonstration of IntraLinks’ services, please send an email to: [email protected]. ** Available with new service contracts only; may not be combined with other promotional discounts or arrangements.

Fourth Quarter 2008 

Take Advantage of the Benefits and Costs Savings Offered Through NVCA Partners In recent years, NVCA has formed special partnerships with several organizations that provide services important to venture capital firms. Following is a brief description of NVCA’s Partners and the discounts and services that they offer. We encourage all members to contact these organizations directly to learn more about their offerings and how they can assist your firm.

Cleantech Network — NEW PARTNER Knowledgeable investors and new entrants into the cleantech space recognize the Cleantech Network™ is a highly reliable, trusted and significant source of quality deal-flow and industry information for its Member Investors and Service Providers. NVCA members receive a one-time 20% discount off membership when they join the Cleantech Network and a 10% discount in subsequent years. For more information, please visit http://cleantech.com.

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Entrepreneurs Foundation — Venture Philanthropy Partner Entrepreneurs Foundation (EF) engages high growth companies in corporate citizenship and philanthropic efforts so that new and leveraged resources are generated for community benefit. EF works with emerging companies to develop a culture of community support and outreach. Recognizing the time and resource constraints typical of young companies, EF assists companies with the implementation of community involvement activities, matching their corporate culture and philanthropic interests with the many opportunities in the local community. Entrepreneurs Foundation’s are located in the following communities: Atlanta, GA  www.the-efse.org Boston, MA  www.efofne.org Honolulu, HI  www.efhawaii.org Silicon Valley/San Francisco Bay Area 

www.efbayarea.org

Tel Aviv, Israel  www.tmura.org Austin, TX  www.givetoaustin.org Dallas, TX  www.efnt.org Portland, OR  www.eforegon.org Boulder, CO  www.efcolorado.org Sacramento, CA  www.efcr.org

ConferencePlus — Conferencing Partner For nearly two decades, ConferencePlus has provided fullservice customer-focused conferencing services to companies around the globe. They support all conferencing media and know how to help clients use conferencing to cost-effectively enhance productivity. ConferencePlus offers NVCA members significant discounts on their audio (.0395 cents per minute) and web conferencing services. For more information, contact Michael Edenbaum at 512-535-4596 or [email protected].

Fidelity Charitable Services— Philanthropy Partner Fidelity Charitable Services® is a leader in charitable planning and giving solutions. They deliver a broad range of solutions and services, including: dedicated customer service with charitable giving expertise; multiple solutions for donors with substantial assets, complex financial needs, and complicated tax issues; and industry-leading information on giving options and strategies, with online tools and resources. Fidelity Charitable Services offers the following benefits to NVCA Members: • Reduced Administrative Fee of 20bps for NVCA Members • Expertise in accepting complex gifts such as limited partnership shares, restricted stock and privately held securities

Continued on p. 23

Fourth Quarter 2008 

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Continued from p. 22

• Dedicated Relationship Management • Always accessible online account management ability • 14 investment pool options, including index pools at a low cost of 7bps • No ongoing tax filing required as all contributions constitute a completed gift to charity

For more information, visit www.fidelitycharitableservices.com or call 800-280-6357.

Intralinks — Secure Electronic Communications Partner IntraLinks is an NVCA partner whose technology can be used in a variety of ways to streamline your critical business processes and safeguard your sensitive information. IntraLinks® On-Demand Workspaces™ enable the secure exchange of electronic information for Limited Partner Reporting, Fundraising, Portfolio Company Reporting, Mergers & Acquisitions, Initial Public Offerings, and more. NVCA members are eligible for a 10% discount off subscription rates. For more information visit www.Intralinks.com or contact Tara Roesch at [email protected].

TechAssure — Insurance Partner TechAssure is a unique international association of privately held, entrepreneurial insurance and risk consultants specializing in mitigating the risks faced by emerging growth companies and the venture capital firms that back them. TechAssure and NVCA have teamed up to provide NVCA members VentureInsure, a suite of comprehensive insurance coverages and risk management services designed to protect venture capitalists and their investments. VentureInsure has proven to be the most comprehensive liability insurance package available while providing significant cost savings to the venture firms and portfolio companies who have utilized the program thus far. For more information, contact John Love at [email protected] or www.techassure.com.

Thomson Reuters — Industry Data Partner Thomson Reuters offers an unparalleled range of private equity related products from directories to conferences, journals, newsletters, research reports, and Thomson One Banker (formerly known as VentureXpert). *Contributing NVCA member firms are entitled to a 20% discount off Thomson One Banker annual subscriptions. NVCA Members with less than $100 million under management are eligible for a 50% discount. NVCA members who contribute to the performance database are entitled to receive key benchmark reports for their respective vintage years during the quarterly data collection process. For more information, contact [email protected]. *to be considered a contributing member the firm must respond to the MoneyTree venture activity surveys

Venture Capital Office Managers Association (VCOMA) VCOMA is a nationwide Association of Office Managers in the Venture Capital/Private Equity industry. VCOMA brings together office managers who support the private equity industry to share ideas, resources, and information. VCOMA members also receive discounts from many vendors that private equity firms purchase products and services from on a regular basis. All NVCA Member firms are eligible for one free membership in VCOMA. Additional memberships are available to NVCA member firms at a discount. To learn more about VCOMA, please visit www.vcoma.com. NVCA members can sign up at: http://www.vcofficemanagers.com/html/nvca.html.

NVCA is also a new Network Partner of the Microsoft Bizspark program which provides free software to start-ups. Please see article on page 17 for more details.

Fourth Quarter 2008 

Upcoming NVCA Events December 12 (12-1 pm EST) WEBCAST: Monitoring Portfolio Performance: Corrective Action Plans Portfolio Companies Sponsored by Goodwin Procter LLP. Visit http://www.nvca.org/webcast_11-21-08.html for more information and to register.

January 8, 2009 (5 – 7 pm) VCs@CES Reception, Table 10 Restaurant, At the Shoppes in the Palazzo, Las Vegas, NV. Please RSVP to [email protected].

January 23, 2009 (12 – 1 EST)

Other Industry Events of Interest December Dec. 7– 9 Alternative Investing Summit, Laguna Niguel, CA www.opalgroup.net

Dec. 9 Bio-Life-Tech 2009, Baltimore, MD www.earlystageeast.org

WEBCAST: Beyond the Limited Partnership Agreement: Issues for Challenging Times Sponsored by DLA Piper LLP Visit www.nvca.org/events.html for more information and to register.

Dec. 9 – 10

January 26, 2009 (5:30 – 8:30 pm)

Dec. 10 – 11

Mobile Media Investor Conference, San Francisco, CA http://www.strategyinstitute.com/email_files/ Mobile_Media_2008.pdf

February Feb. 3 – 4 Florida Venture Forum, Naples, FL www.floridaventureforum.org

Feb. 9 – 11 BIO CEO & Investor Conference, New York, NY www.bio.org/events

Feb. 11 – 12 The PERE Forum Asia 2009, Hong Kong www.peimedia.com/events

Feb. 16 – 17 CED Biotech Conference, Raleigh, NC www.cednc.org

Feb. 23 – 25 Cleantech Forum, San Francisco, CA http://cleantech.com/news/events

Early Stage VC Only Dinner, L’Andana Grill, Burlington, MA This is a NVCA Members Only event and is complimentary thanks to the generosity of Edwards Angell Palmer & Dodge LLP. Please RSVP to [email protected]

Invest Southwest, Scottsdale, Arizona State University www.investsouthwest.org

January

DEMO ’09, Palm Desert, CA www.demo.com

April 21, (6:30 – 9:00 pm)

Jan. 8 – 11

Mar. 10 – 11

CED’s Venture 2009 Conference, Investor-Only Dinner hosted by NVCA Pinehurst Resort, Village of Pinehurst, NC. To register for the conference and dinner: http://www.cednc.org/conferences/ venture/2009/registration/

International CES 2009, Las Vegas, NV www.cesweb.org

April 29 – 30, 2009 2009 NVCA Annual Meeting Westin Seaport Hotel, Boston, MA

Mark Your Calendars: May 4-5, 2010: 2010 NVCA Annual Meeting, Burlingame, CA

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March Mar. 1 – 3

Jan. 20 – 21

Private Equity International Middle East Forum, Dubai www.peimedia.com/events

Corporate Venturing & Strategic Investing Conference, Indian Wells, CA NVCA Members should use discount code of S-NVCA to receive discount. www.ibfconferences.com

Mar. 12 – 13

Jan. 21– 22

5th Annual Thunderbird Global Private Equity Investing Conference www.t-bird.edu/TPEC

Clean-Tech Investor Summit, Indian Wells, CA Members should use discount code of S-NVCA to receive discount. www.ibfconferences.com

Jan. 21– 22 Private Equity International CFOs and COOs Forum, New York, NY www.peimedia.com

Jan. 27– 28 Private Equity Analyst Outlook 2009 Conference, NY, NY http://events.dowjones.com

Women’s Private Equity Summit, Ritz-Carlton Half Moon Bay, CA www.womensprivateequitysummit.com

Mar. 26 – 27

Mar. 26 – 18 CDVCA Annual Conference, New York, NY www.cdvca.org

Mar. 31 – April 1 InvestMidwest, Kansas City, MO www.investmidwestforum.com

Fourth Quarter 2008 

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Place Your Ad Here! NVCAToday Offers A Cost Effective Way To Get Your Firm’s Messages Out to the Venture Community NVCAToday, NVCA’s quarterly newsletter, has gone electronic and we are now offering advertising space in both the pdf version and online version. Advertising in NVCAToday is a great way to make your firm’s milestones known to the venture capital community, such as new fund announcements, investment team changes/additions, and portfolio exits. In this economy, you need to be sure that your marketing dollars are working as effectively as possible for your organization. Advertising in NVCAToday is priced competitively and costs less than most other industry publications, e-newsletters and websites. Our audience is extremely targeted, including over 4,000 venture professionals in more than 450 venture capital firms. Open rates for the NVCAToday newsletter are estimated to be 40-60%. In addition, NVCA Member Firm Point of Contacts are asked to print out the pdf version and distribute to entire firm. The new advertising rates for the newsletter follow. Includes banner ad in online newsletter (3 months duration), quarter page ad in pdf version of newsletter, and mention of advertising in distribution email blast. Bundled Rate: $1,080 (10% discount)

Only quarter page ad in pdf version of newsletter: $800 Only Banner ad in Online Newsletter: $400

(banner ad appears on all pages for three months)