1. WELCOME! 2012 uVCIC Team Lineup Zephyr Associates — Tara, Akhil, Shalini, Saurav, Nancy and Andrew Maverick Capital — Wilson, Jacob, Robert, Patrick, Tommy, Evans Firestone Venture Partners—Neel, Ken, Chase, Zach, Haroon, Felix Azure Capital Management—Ian, Jordan, Kevin, Si, Josh Polaris Capital—Devin, Adam, Eric, Burke, Chenming, Everardo Sequoia Ventures—Forrest, Jackson, Zachary, Junying (Julie), Daniel, Jordan

2. Prep Session II Agenda  General Questions  VC Key Terms (Additional clarification)  What to Look For (short exercise)  Competition Timeline  Term Sheet Details  Negotiation (General Guidelines)

3. TOMMORROW: Business Plans Emailed First look at the companies No need to make a decision on which one to invest in yet – Your opinion may very well change Once business plans go, you’re not allowed to seek outside help and/or advice – Professors, industry professionals, friends, or the entrepreneurs 5:00 pm

4. WHAT TO LOOK FOR (evaluating a venture)

5. What to look for: OPPORTUNITY - Value Proposition - Market Size - Return Potential - Team - Competitive Advantage - Business Model - Customer Pain RISK

6. What to look for Solve a problem? A real need for this? Growing Market? Fast? Well implemented product? Team? Analyze competition. What makes this one different? Solid business model? Promising customer base? Plans for additional capital? Market comps Paths to exit If there are holes in the plan or questions from the business plan write them down to address in due diligence

7. Resources NVCA PWC MoneyTree TechCrunch.com VentureBeat.com Industry Reports Initiating coverage reports Yahoo.com/finance Triple Tree

8. COMPETITION TIMELINE

9. Team & Judge Orientation “Calm before the storm” Get settled into a study room Grab a bagel and coffee Regroup w/team to cover due diligence items – Questions will likely change after seeing pitches 8:30 am

10. Kick-Off & Pitches Live road-show by entrepreneurs – 10 minutes each to pitch 9:00 am

11. Due Diligence Sessions Each team will have 15 min with each entrepreneur Establish rapport with entrepreneur Address holes in business plan or pitch Important that YOU control due diligence – This is your time to get questions answered 10:00 am

12. Due Diligence Sessions What judges are looking for: – Did you ask the “right” questions? – Rapport with the entrepreneur – Clear view of where you were headed with line of questioning – Team participation Things to avoid: – Reading questions off the page – Aggressive questioning – Lack of clear direction 10:00 am Tips: - Briefly introduce your team -Learn what motivates the entrepreneurs -Use entrepreneur’s leads to dig deeper - Use all of your time Tips: - Briefly introduce your team -Learn what motivates the entrepreneurs -Use entrepreneur’s leads to dig deeper - Use all of your time

13. Team Working Lunch Organize and condense all information from business plan, pitch and due diligence Determine which company you wish to invest – You must choose one Complete team deliverables and email to uVCIC host 11:45 am - There is no “correct” choice - Decide quickly to utilize time - Don’t feel confined to investment – free to change - MUST send deliverables by deadline - There is no “correct” choice - Decide quickly to utilize time - Don’t feel confined to investment – free to change - MUST send deliverables by deadline TIPS

14. TERM SHEET DETAILS

15. Executive Summary Deal Snapshot Pre-Money Valuation $3M Team’s Investment $2M Syndicate Investment ____ % Ownership by Team 40% Top 5 Reservations:Top 5 Reservations We are Investing: Company B Opportunities and Strengths:Reasons for Not Investing: Your Overall Investment Decision: Brief Explanation: Executive Summary KFBS Ventures Investing in: Company A Valuation: Due Diligence:

16. Term Sheet Deal Snapshot Pre-Money Valuation $3M Team’s Investment $2M Syndicate Investment ____ % Ownership by Team 40% Executive Summary KFBS Ventures Investing in: Company A Pre-Money Series Investment Option Pool Board Structure Closing Conditions Liquidation Preference Anti-Dilution Dividends Key Dates Other Key Terms Voting Class Tranches

17. Pre-Money Valuation Value of the company today (before the VC’s investment) – Pre-$ in negotiated between entrepreneur and VC – Three main factors: % ownership, experience and competition You can work backwards to determine implied pre-$ based on investment and desired ownership I want to invest $2M for 40% ownership Investment Pre-$ + Investment Equity Ownership $2M Pre-$ + $2M 40% $2M40% * (Pre-$ + $2M) $1.2M40% * Pre-$ $1.2M 40% Pre-$ $3M Pre-$

18. Series “uVCIC” Investment VC’s investment in this round Investment Pre-$ + Investment Equity Ownership I want to invest $2M for 40% ownership $2M Pre-$ + $2M 40% $2M40% * (Pre-$ + $2M) $1.2M40% * Pre-$ $1.2M 40% Pre-$ $3M

19. Option Pool Unallocated options to incentivize and/or attract key hires in the future Negotiated, but the norm is to take it out of the founders’ side $5M Post-$ $2M Inv $3M Pre-$ VC 40% Founder(s) 60% No Option Pool $5M Post-$ $2M Inv Founder(s) VC 40% Founder(s) 50% 10% Option Pool $3M Pre-$ Option Pool 10%

20. Board Structure Board of directors controls the venture (unlike board of advisors) Small ventures have small boards that meet often (quarterly), 3-7 members Odd number to prevent ties % ownership should be reflected on board, majority controls

21. Liquidation Preference A multiple of the invested amount that is returned at the time of an exit $2M $4M $8M Original Inv.2x Pref.4x Pref.

22. Dividends Extension of liquidation preference – Generally paid at time of exit for early-stage deals Can be cumulative or non-cumulative Paid before distributions to common stockholders Investment:$4,000,000 Dividend Rate:8.0% Cumulative Year 1Year 2Year 3Year 4 $320,000$640,000$960,000$1,280,000 Non-Cumulative Year 1Year 2Year 3Year 4 $320,000

23. Anti-Dilution Protects investors in the event of a future financing at a lower valuation 3 Types: – Broad-based weighted average – Narrow-based weighted average – Full Ratchet

24. Anti-Dilution Broad-based weighted average Looks at ALL equity issued prior to the new round

25. (4,000,000 + ($500,000 / $1.00)) / (4,000,000 + ($500,000 / $0.50)) = $0.90/share Source: VCHub.com

26. Anti-Dilution Narrow-based weighted average Looks at a pre-determined number of shares prior to the new round (i.e. Series A shares prior to Series B)

27. (1,000,000 + ($500,000 / $1.00)) / (1,000,000 + ($500,000 / $0.50)) = $0.75/share Source: VCHub.com

28. Anti-Dilution Protects investors in the event of a future financing at a lower valuation 3 Types: – Broad-based weighted average – Narrow-based weighted average – Full Ratchet VC Friendly Founder Unfriendly Founder Friendly

29. Dilution Original Shares Total Shares New Shares Same quantity of original. Lower percentage.

30. Every 1% you lose of a 20X Exit is going to hurt 20 times more Original Shares Why Dilution is Bad!

31. Key Dates Outline any key dates with regards to the deal, i.e.: – Anticipated closing – Tranche schedule – Key Milestones – Etc.

32. Other Key Terms Information rights Right of first refusal Drag along rights Piggyback registration rights Voting Rights Founders’ Stock

33. Deliverables Begin Rolling schedule Make sure that you get information in early or on time Teams are allowed to submit (up to) 3 additional pages of Appendices/ Exhibits 1:00 pm

34. NEGOTIATIONS

35. Negotiation and Q&A Teams have 15 minutes to negotiate with the entrepreneur they presented with a term sheet – Entrepreneurs are not given a copy of term sheet Judged on how you negotiate and progress towards deal – Not judged on being able to finalize deal 10 minute Q&A with panel of judges – Questions span the whole event so be prepared for anything they throw at you 1:00 pm

36. Tips for Negotiation Introduce yourselves; establish and build rapport If you’d like, add in relevant expertise (your background) Why you are here today? Why this venture? Start slow; Don’t be aggressive Explain your terms (allow the entrepreneur to ask questions) Very carefully ask tough questions Don’t wait too long for the “real stuff” (time runs out quickly!) Golden Rule- you can’t go wrong with this mentality 1:00 pm

37. Judges Vote 4:30 pm

38. Awards Ceremony 1 st Place - $500 2 nd Place Entrepreneurs’ Choice Winner moves on to uVCIC Regional Competition on March 24! 4:45 pm

39. VC Round Robin Opportunity to receive feedback from all the judges Spend one-on-one time with each judge Opportunity to clarify questions and pick their brains Not the forum for complaints 4:50 pm

40. FINAL QUESTIONS?