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NVCA Today (4thQ2008)
NVCA Today (4thQ2008)
A Publication of
The National Venture Capital Association 4th Quarter 2008
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policy-making community has at last stopped holding its collective breath and is moving forward Bridge for IPO Crisis..................................... 18
With speculation rampant about the President-elect’s priorities, his transition team Early Stage Investment Colleagues...............19
and policy advisors have already begun sounding out stakeholders and we believe NVCA Webcasts Now Free............................19
that, unlike past Presidential transitions, the details of many of his proposals will
New NVCA Members................................... 20
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. Wall Street Video Series................................ 21
NVCA Partners............................................. 22
NVCA Calendar............................................ 24
Economic Stimulus:
At his first post-election press conference, President-elect Obama left little doubt that Advertise with NVCA.................................... 25
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
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Fourth Quarter 2008 |2
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stimulus package before year-end, bets are high that Congress will be unable to come to terms with the outgoing Bush Administra-
tion 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 indus-
try: 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 tre-
mendous 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 invest-
ment 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.
The incremental steps will likely include early action on a Medicare payment reform package that includes legislation to reautho-
rize 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 ef-
fectiveness 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 signifi-
cant impact on venture capital investment in life sciences:
Comparative Effectiveness Research: 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
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Fourth Quarter 2008 |3
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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 thera-
peutics (both old and new), and that CER research does not include cost-effectiveness determinations in its definition.
Scoring New Technology: 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 unwill-
ing 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.
Health Care System Efficiencies: Many Congressional leaders and President-elect Obama recognize that there are funda-
mental 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 man-
agement, and health information technology, all of which NVCA supports.
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 ap-
proaches 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 under-
stand 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.
Continued from p. 3
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.
Many of the goals outlined in the Obama energy platform are also those of the NVCA. For example, NVCA has supported a na-
tional 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 ad-
dressed. 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.
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.
D. Distributions IRR*
* Measured by NVCA Statisics
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 port-
folios 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.
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Fourth Quarter 2008 |6
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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.
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Fourth Quarter 2008 |7
Continued from p. 6
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.
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Fourth Quarter 2008 |8
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Clean Tech
$M Invested # Clean Average per Share of Total VC
Year Clean Tech Tech Deals C.T. Deal $M 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
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 john.taylor@nvca.org. Significant
NVCA member discounts are available for online subscriptions to the VentureXpert database. Contact
William.moore@thomsonreuters.com for more information.
Fourth Quarter 2008 |9
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 Account-
ing 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 sched-
ule. 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 mo-
tion 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.
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 No-
vember, we received a report from a member firm with international intermediaries for overseas investment where the local audi-
tors 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 docu-
ments) 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 re-
main in place for the plan sponsors while accounting rules abandon the current fair value reporting requirements.
Recent Events
A full chronology of events is posted under Valuation Guidelines on the NVCA website www.nvca.org. This document is updat-
ed 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 dia-
logue and the NVCA has several efforts underway to understand the implications. For more information, please contact NVCA
head of research, John Taylor, john.taylor@nvca.org.
Fourth Quarter 2008 | 11
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 prog-
ress in patent protection over the last decade, foreign companies continue to view the protection and enforcement of Chinese pat-
ent 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.
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 provin-
cial 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.
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.
Continued on p. 12
Fourth Quarter 2008 | 12
Continued from p. 11
The first thing to know about Chinese patent litigation is that it is fast. In the United States, the average patent case takes approxi-
mately 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 defen-
dant. 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 litiga-
tion, 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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Continued on p. 13
Fourth Quarter 2008 | 13
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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 hap-
pen, 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 im-
portant 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 ju-
diciary 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 litiga-
tion is perhaps more so because it is still in its infancy. To address this situation, experienced U.S. patent litigators are increas-
ingly 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: mvella@mofo.com; rhung@mofo.com; and dyang@mofo.com.
Fourth Quarter 2008 | 14
During the 2007-2008 cycle, NVCA raised and contributed over $1 million. Despite the relative small size of the venture indus-
try, 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 Coali-
tion 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 mak-
ing 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 mmyers@nvca.org.
Continued on p. 15
Fourth Quarter 2008 | 15
Continued from p. 14
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.
On Friday, November 14th, NVCA held its second member- This program can only be accessed via a TechAssure bro-
wide communications where NVCA staff discussed the ker. NVCA members can visit the www.ventureinsure.com
post-election environment for the venture capital indus- website to learn more and to contact a member of TechAssure,
try, the impact of the financial crisis, and other important which has a local representative ready to serve you.
member updates. Specifically, our agenda comprised the
following topics: Pamela W. Mason, AAI, is TechAssure’s NVCA Committee Chairperson and Vice
President, Management Liability Practice Leader of Mason & Mason Technol-
• Public Policy Update ogy Insurance Services, Inc. Ms. Mason specializes in risk assessment and
coverage solutions in the areas of private equity and venture capital liability,
–– What to Expect from New Administration corporate securities liability, directors and officers liability, portfolio liability
and Congress programs, fiduciary liability and employment practices liability. Ms. Mason can
be reached at pammason@m-mins.com or 781-447-5531 X132.
–– Top public policy priorities for 2009
• Communications During Financial Crisis
• Entrepreneurship Week 2008
• Membership Services Update
• NVCA PAC Update
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 Registration”
venture capital professionals that will be attending the 2009 3. Complete regstration form
International CES. This networking reception consistently draws
4. For Badge Category, select “Financial Analyst/Equity Analyst”
a strong attendance of 150+ venture capitalists all interested in
5. Where it asks for an article, type “NVCA” in the Article1 space
the consumer electronics sector. Table 10 offers delicious food
6. Follow remaining directions
and a fun atmosphere where venture capitalists can relax and
discuss the trends and companies they are seeing at the CES VCs @ CES Reception Is Generously Sponsored By:
show and in their portfolios.
• Examining previous assumptions and reforecasting key busi- Thanks to our Sponsor:
ness metrics (available reserves for additional financings, fi-
nancial 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
Fourth Quarter 2008 | 17
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.
Through BizSpark, members of the NVCA can offer startups fast, easy access to current, full-featured Microsoft software devel-
opment tools and server technologies, as well as production licenses at no cost. To be eligible for the Microsoft BizSpark Pro-
gram, 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
Fourth Quarter 2008 | 18
Continued from p. 17
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!
Continued on p. 19
Fourth Quarter 2008 | 19
Continued from p. 18
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, blevy@insideventure.com.
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 Hundreds of Organized Angel Groups
Access to All Past Webcasts Also Free to Members throughout North America
Currently the Angel Capital Association (ACA), a trade as-
NVCA has made access to its webcasts FREE for all mem-
sociation for angel organizations, has 165 member organized
bers. Although participation for our webcasts has been
angel groups and another 22 affiliated organizations and as-
quite strong, NVCA’s Board of Directors felt that the infor-
sociations. ACA member angel groups represent about 7,000
mation shared in these programs should be widely available
accredited investors who fund about 700 companies a year
to all members as the information provided is valuable to
and have an ongoing portfolio of more than 5,000 companies
every venture capitalist.
across the US and Canada.
This pricing model is made possible by our sponsors.
Recognizing that many of our members work with a wide ACA has a permanent executive director, national office,
variety of well-respected law firms (and other service or- board of directors, and staff. Serving angel groups in the US
ganizations), we encourage members to make these firms and Canada, ACA’s goals are to share best practices and educa-
aware of NVCA’s webcasts and the fact that we welcome tion and build relationships and collaborations between angel
the opportunity to partner with new firms on such pro- groups. ACA and NVCA have agreed to cooperate in a num-
grams. If interested, they should contact Jeanne Metzger at ber of ways including working together on public policy issues
jmetzger@nvca.org. of mutual benefit such as capital gains tax treatment. And, we
have established mutual liaisons to each other’s boards, I am
Information about all NVCA webcasts can be found on the
the ACA Liaison to NVCA and David Spreng of Crescendo
NVCA website in the events section.
Ventures is the NVCA Liaison to ACA.
Continued on p. 20
Fourth Quarter 2008 | 20
Continued from p. 19
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 prefer-
ence, 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 car-
ried 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 entre-
preneurial food chain and have an appropriate place alongside BGI Growth Partners Hartford Ventures
small VCs. We are establishing a brand and creating a legacy San Francisco, CA Farmington, CT
and reputation as the kind of professional investors that entre- www.thehartford.com
BioGenerator
preneurs and venture capitalists can and want to work with. St. Louis, MO Launch Capital, LLC
www.biogenerator.org Boston, MA; Palo Alto, CA
Ian Sobieski may be reached at ian@bandangels.com. A list of ACA and New Haven, CT
members by region is available at www.angelcapitalassociation.org. Frontera Group www.launch-capital.com
We welcome NVCA members to join us at our annual conference in Atlanta, Sherman Oaks, CA
April 15-17, 2009. Midpoint Food &
www.fonteracapita.com
AG Fund, LP
Carmel, IN
www.midpointvc.com
Fourth Quarter 2008 | 21
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.
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:
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: nvca@intralinks.com.
** Available with new service contracts only; may not be combined with other promotional discounts or arrangements.
Fourth Quarter 2008 | 22
Continued on p. 23
Fourth Quarter 2008 | 23
Continued from p. 22
In this economy, you need to be sure that your marketing dollars are working as effectively as possible for your organiza-
tion. Advertising in NVCAToday is priced competitively and costs less than most other industry publications, e-news-
letters 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 Con-
tacts are asked to print out the pdf version and distribute to entire firm.
Bundled Rate: $1,080 (10% discount) 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.
Only Banner ad in Online Newsletter: $400 (banner ad appears on all pages for three months)