3. Venture Capital Model Presumes & Leverages Multiple Failures 1.Funds designed for participating in many big at bats 2.VC fund managers (GPs) participate on fund upside, but not on downside 3.Portfolio effect allows for success while absorbing many failures. 4.Assumes many failures & demands control over tools for course correction. 5.Fundamentals of VC structure, deal terms, timing, and core processes presume and work with failure

4. Venture Capital Model Presumes & Leverages Multiple Failures 1.VC funds designed for participating in many big at bats Industry with blockbuster winners! (Broad deal sharing among VCs enables many bites on few big home runs multiplying effect). VC gets portfolio effect, while forcing entrepreneur into all or nothing, do-or-die scenarios.

5. Venture Capital Model Presumes & Leverages Multiple Failures Fund life cycle: Raise a Fund (Pension, Families, Corporations) Invest (Evaluate, due diligence, close…) Harvest (IPO, mergers, management buyout) Core Venture Capital Process Raise capital from institutional and individual investors - Finance new and growing companies; - Purchase preferred equity - Add value through active participation

6. Venture Capital Presumes & Leverages Multiple Failures 2. VC fund raising agreement structured so VC fund managers (GPs) participate on portfolio gains, not losses General partners compensation deal: Carried Interest 20-25% ( Profit split of proceeds to the general partners, typically 20-25%) Management Fees (Typically 2% of amount under mgmt to cover the costs of managing the committed capital. This acts as base pay for VC) Example $100m fund, 2 and 20% terms, 4x return, 6 GPs $2m per year in management fees (2% of $100M) $60m in carried interest ($100m x4) -$100m)*20% = $60m

7. Venture Capital Model Presumes & Leverages Multiple Failures 3. Portfolio effect allows for big success while absorbing many failures. Impact of few very large numbers A rigorous process of evaluation (multi-phase and deep), selection (100% GP consensus) and due diligence (multi- stage) tries to minimize bad deals.

8. Venture Capital Model Presumes & Leverages Multiple Failures 4.Assumes portfolio failures & demands control over tools for course correction. Key decisions (senior personnel hiring, strategy, etc.) controlled by Board of Directors Key decisions require support of all classes of stock Preferred shares class largely controlled by VCs Even if VC holds minority position, often in control

9. 9 VCs & Tools for Course Correction Covenants and Representations Positive Covenants – things you will do Information rights, auditing requirements Negative Covenants – things you will not do Selling debt, raising money, hiring management Representations Weve told you everything that is material to you in making your investment decision

10. 10 Voting rights a/k/a veto rights a/k/a veto rights Liquidation preference a/k/a VC gets 2-5 multiple before you see a dime a/k/a VC gets 2-5 multiple before you see a dime Options & vesting A/k/a youre locked in baby. A/k/a youre locked in baby. Redemption A/k/a in a sideways play, were out of here … with our money & profit of course. A/k/a in a sideways play, were out of here … with our money & profit of course. Board seats No shop & confidentiality Subject to due diligence & expiration date Anti-dilution (weighted average vs full-ratchet) … if things go bad (under full ratchet) you can get wiped out … if things go bad (under full ratchet) you can get wiped out VCs & Tools for Course Correction The Term Sheet

11. Venture Capital Model Presumes & Leverages Multiple Failures 5.VC firm structure, deal terms, timing, and core processes presume and work with failure Process Multiple phases, deep due diligence, covenants & representations Timing Extended, multi-phase, open-ended, patient Firm structure / voting approach Investment requires unanimous GP approval Deal terms Liquidation preference, redemption, anti-dilution (ratchet?) Deal structure Preferred stock, classes of stock, mgmt stock vesting 11

12. Venture Capital Model Emerging Threats