1. CAPITALIZING ON SUCCESSFUL ENTREPRENEURSHIP When How

2. LIQUIDITY EVENTS Private Sales Public Sales Recapitalizations

3. PRIVATE SALES Strategic vs. Equity Fund Valuation Management’s Role

4. PUBLIC SALES/IPO Issuer Sale vs. Secondary Sales Valuation Management’s Role Lock Ups

5. RECAPITALIZATIONS Leverage/Structure Valuation Sell Company “Twice” Management’s Role

6. PRIVATE SALE PROS Flexible structure Flexible post sale Likely quicker No public reporting Limited shareholder group CONS Lower valuation Future of management? Future capital (not in public market) No public market liquidity for shareholders

7. PUBLIC SALE/IPO PROS Higher multiple Shareholder liquidity Continuing role for management Public market access to capital CONS Public scrutiny Lock ups Market fluctuations

8. RECAPITALIZATIONS PROS Partial liquidity Continuing investment Sell company “twice” Flexible Continuing role for management CONS Hedge strategy (pro?) Complex deals – need right partners Debt load

9. LIQUIDITY DRIVERS – WHO MAKES THE DECISIONS? Venture Fund Time Lines Majority Owners Deal Terms Non-Venture Funded Companies: market conditions, retirement, etc.

10. MANAGEMENT EQUITY Liquidity – for Cash Liquidity – for Taxes Liquidity – for Diversification Continued Investment Options

11. MANAGEMENT EQUITY “ROLLOVERS” TAXABLE Can be structured any number of ways, but fundamentally a cash out and reinvestment This is true whether equity is owned or in the form of options TAX FREE NOTHING is really “tax free” Rather, tax deferred Consider tax rate and timing of tax liability Not all structures permit tax free “rollovers” – need experienced tax advisor

12. MANAGEMENT EQUITY “ROLLOVERS” -- EXAMPLE Taxable Options cancelled and recognize income at ordinary income rates on gain (35%). Reinvest in stock of Newco for cash. Appreciation taxed at capital gains rates (15%). Tax Free Tax free roll options into options of Newco If exercise options at time other than liquidity event, issue of exercise price/tax liability without cash Appreciation at ordinary income rates

13. MANAGEMENT EQUITY 409A ISSUES 280G ISSUES TAX PLANNING ALWAYS SEEK EXPERIENCED TAX AND LEGAL ADVICE!