1. Financing the Entrepreneur’s Business: Steve Leese John Snow David Vogel January 18, 2011

2. 2 Financing the Entrepreneur’s Business Introductions David Vogel, Velocity Equity Partners Steve Leese, Quabbin Capital John Snow, Quabbin Capital

3. 3 Sources of Financing Friends and Family Angels Venture Capital Terms of Venture Capital Financing Questions – don’t wait until the end! Agenda

4. 4 Sources of Financing Friends and Family Angels Venture Capital Commercial Loans Government Loans Corporate or Strategic Partners Grants from foundations

5. 5 Sources of Financing StagePre-Seed Seed/ Start-Up EarlyLater Source Founders, Friends and Family Individual Angels Funding Gap between $500,000 and $2,000,000 Venture Funds Investment up to $100,000 $100,000 to $500,000 $2,000,000 and up

6. 6 Venture Capital Advantages –More Cash Access to Additional Capital –Value Added Expertise Management Experience Industry Experience Access to Strategic Partners Access to Personnel –Enhance Credibility in Marketplace –Facilitate Liquidity Event

7. 7 Venture Capital (continued) Disadvantages –Months Long Process –Dilution of Equity Ownership –Sacrifice Control –Replacement of Management –Forced Liquidity Event –V.C. Imposed Business Objectives –Your New “Partner”/“Boss”

8. 8 Employee Matters Employment Agreements Non-Competition Agreements Confidentiality Agreements Assignment of inventions and proprietary information Key Man Life Insurance Shares reserved for employees –Stock option pool: 10 – 20% of fully diluted –Vesting provisions for stock options Restrict transfer of shares by Founders and Employees –Reverse vesting (often opposed by Founders) –Vesting 25% per year –Buy-back of unvested shares upon termination of employment

9. 9 Additional Rights Information Rights –Annual, quarterly and monthly financial statements –Budgets and business plans –Inspection rights Registration Rights –Contractual right to register or participate in registration of shares for resale to public –Liquidity for investors

10. Private Equity-beyond venture Used for more advanced cases: –Company has sustainable earnings or is approaching earnings stage rapidly –Buyouts Control (50% +) passes to investor group –Growth equity, mezzanine loans: Used for acquisitions, expansion, hiring, partial sale of company Capital passes from investors to company 10

11. Why private equity? Can accelerate company’s growth Experience of capital providers Better governance –Board of directors –Debt structure requires discipline, planning –Growth strategy-the game changes 11

12. Risk-not a four letter word Management-can they grow the company? Markets-will they remain favorable? Economy-recent downturn as example. Obsolescence –Commodity like product or service Investor group, lenders-leadership 12

13. Is it worth it? Capital is expensive Investment/purchase process a huge distraction to a business Managements can be discouraged Many companies good to own –Only a few are worth investing in Growth is always key-creates value 13

14. Example-NE Patriots A $172 million buyout in 1994 Now worth $1.4 billion (source: Forbes) –Breakeven business-potential earnings –Markets-Patriots became a great product –Economy-fans have persevered, grown –Obsolescence-shrewd personnel moves –Leadership-the Kraft’s, Belichick, Brady, Wilfork; creates a professional culture 14

15. Private equity realizations Exits: –Sell to a strategic investor (a competitor)- usually most desirable –Sell to another financial buyer –IPO-currently limited to large companies $1 billion plus buyouts –Downside scenarios Distressed sales-debt driven-result in losses Bankruptcy 15

16. Questions, comments? We are available anytime to respond to questions It has been our privilege to be here tonight. 16

17. 17 Steve Leese and John Snow Quabbin Capital Phone: 617 330-9041 Email: steve.leese@quabbincapital.comsteve.leese@quabbincapital.com john.snow@quabbincapital.com Steve Leese and John Snow Quabbin Capital Phone: 617 330-9041 Email: steve.leese@quabbincapital.comsteve.leese@quabbincapital.com john.snow@quabbincapital.com David Vogel Velocity Equity Partners Phone: 617-338-2545 Email: dvogel@velocityep.com David Vogel Velocity Equity Partners Phone: 617-338-2545 Email: dvogel@velocityep.com