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A Publication of
The National Venture Capital Association
Preparing for 2009:
More Questions than Answers
With the selection of Senator Barack Obama as the President-elect, the November 4th election
has set the nation on a new course for both domestic and international policy decisions. And, as
discussed in NVCA’s post-election report, whether Republican or Democrat, the Washington
policy-making community has at last stopped holding its collective breath and is moving forward
with what it knows best: mapping out scenarios under which policy programs will rise or fall.
With speculation rampant about the President-elect’s priorities, his transition team
and policy advisors have already begun sounding out stakeholders and we believe
that, unlike past Presidential transitions, the details of many of his proposals will
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.
At his frst post-election press conference, President-elect Obama left little doubt that
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
Continued on p. 2
What the Data Shows ......................................5
Global Accounting Standards
Patent Protection in China ...........................11
Support VenturePAC ....................................14
Strategic Communications Group................14
Insurance Solutions for Members .................14
Communications Call .................................. 15
Solicitations for DOE in Residence
Microsoft BizSpark Partner ...........................17
Bridge for IPO Crisis..................................... 18
Global Entrepreneurship Week ’08 ............. 18
Early Stage Investment Colleagues ..............19
NVCA Webcasts Now Free ...........................19
New NVCA Members .................................. 20
Wall Street Video Series ............................... 21
NVCA Partners ............................................ 22
NVCA Calendar ........................................... 24
Advertise with NVCA ................................... 25
4th Quarter 2008
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Finding Paths to
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Fourth Quarter 2008 | 2
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.
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 Staf, 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 ofer 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.
Prospects for Comprehensive Health Care Reform in the New Congress-Impact on
Key Congressional leaders and health policy advisors from the Obama campaign have been working to develop a consensus
around a comprehensive health care package that they plan to introduce early in the new Congress. The package is part of a bud-
getary and economic plan to help rein in health care costs and broaden access to coverage. The early signs of consensus seem to
be centered around a package that would be based on a public-private hybrid model: preserving the current private sector deliv-
ery system, while developing a strengthened public sector framework that includes important reforms to the Medicare program
focused on access, afordability, and quality. The 111th Congress will likely focus on the weakened economy before addressing
comprehensive health care reform, but incremental reform is very possible.
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 signif-
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 efectiveness 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 efectiveness” means, or on
Continued on p. 3
Continued from p. 1
Fourth Quarter 2008 | 3
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-efectiveness determinations in its defnition.
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 Ofce (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 Effciencies: Many Congressional leaders and President-elect Obama recognize that there are funda-
mental faws 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 benefts, medical adherence man-
agement, and health information technology, all of which NVCA supports.
NVCA Contributes to HHS White Paper on Investing in Personalized Medicine
and Attended HHS Summit
NVCA completed the Investing in Personalized Health Care Innovation white paper that was incorporated into the Department of
Health and Human Services (HHS) Personalized Health Care Report on Personalized Healthcare. This report is available on
NVCA’s website. The report was presented at a private summit on October 6th-7th in Deer Valley, Utah, hosted by HHS Secre-
tary Leavitt and Utah Governor John Huntsman. The summit identifed opportunities, barriers, and best practices in personal-
ized medicine. Dr. Clayton Christensen of Harvard Business School discussed the HHS report and key components that need to
be addressed to ensure the advancement of personalized health care. NVCA members in attendance included Risa Stack (KPCB),
Sue Siegel (Mohr Davidow), Fred Middleton (Sanderling Ventures), and Denish Patel (vSpring Ventures).
The NVCA white paper provided a framework for the economic assessment of private capital investment opportunities that are
specifcally 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 felds 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.
MIG’s CMS Payment Initiatives
Over the last several years, NVCA’s Medical Industry Group (MIG) has been working with CMS on developing a roadmap to help
start-up companies navigate through the CMS coding, coverage, and payment process as part of the MIG’s recommendations to
establish a “CMS Reimbursement Critical Path.” In August 2008, CMS fnally released The Innovator’s Guide to Navigating CMS.
Continued on p. 4
Continued from p. 2
Fourth Quarter 2008 | 4
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.
Energy Policy Set to be a Priority
Following a close second to resolving the nation’s economic crisis, energy policy is expected to be an important priority on the
agenda for the Obama Administration and the new Democratic House and Senate. In part, this fows from the expectation that
improving the nation’s energy infrastructure and advancing renewable energy will help create new green-collar jobs. Then-
Senator Obama campaigned using themes under the “New Energy Economy” rubric and outlined a goal to create 5 million new
green collar jobs. He has also cited the connection between our energy independence and our national security, as well as noting
the environmental challenges of climate change.
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 efciency 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 efciency 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 difcult. 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 efciency. We will also continue our lobbying eforts in support of the creation of an
ARPA-E for high-risk energy technologies and a GSE fnancing entity for energy projects, as well as pushing for robust funding
for basic research for the DOE Ofce of Science and other important energy research facilities like the national laboratories.
NVCA Receives DOE Award
The Department of Energy has recognized NVCA for the contributions that the venture capital industry has made to advanc-
ing renewable energy and energy efciency technologies. The Energy Innovator Award ofers appreciation to the VC industry
for developing technologies that strengthen the energy economy, the environment and the national security of the United States.
NVCA has worked closely with staf of the Department of Energy and we are looking forward to developing collaborative rela-
tionships with the new appointees that will be joining the agency in the new Administration.
Continued from p. 3
Fourth Quarter 2008 | 5
What The Data Shows…
Despite the widespread turmoil in the US and global economies, NVCA research statistics through the frst three quarters of
2008 refect a U.S. venture capital industry that is very much open for business. From the challenges of non-existent IPO mar-
kets, soft acquisition markets, and newly received reports of fundraising challenges, there is much for us to watch. But all of this is
balanced by reports of record levels of high-quality deal fow and teams coming to the industry.
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 difcult for emerging companies to be selling products particularly to the commercial information technology sector.
Reduced burn rates and capital efciency become more than mantras with portfolio companies, they become mandates. And yet,
VC Funds Portfolio
A. Commitments* B. MoneyTree
D. Distributions IRR*
* Measured by NVCA Statisics
The Venture Capital Cash Cycle
IPO Draught Continues with Few Signs of Better Times in the Near Term
The chart below shows M&A acquisition and initial public oferings 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 fat.
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 fnancial 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
frst 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.
Continued on p. 6
Fourth Quarter 2008 | 6
Venture-Backed Liquidity Events by Year/Quarter, 2002 – 2008 YTD
2002 318 154 7,586.7 49.3 22 2,109.1 95.9
2003 284 119 7,460.1 62.7 29 2,022.7 69.8
2004 345 187 15,919.6 85.1 94 11,378.0 121.0
2005-1 81 45 4,351.9 96.7 10 720.7 72.1
2005-2 81 34 4,725.0 139.0 10 714.1 71.4
2005-3 102 48 5,739.5 119.6 19 1,458.1 76.7
2005-4 87 39 2,594.0 66.5 18 1,592.1 88.5
2005 351 166 17,410.6 104.9 57 4,485.0 78.7
2006-1 107 52 5,607.5 107.8 10 540.8 54.1
2006-2 106 40 4,018.5 100.5 19 2,011.0 105.8
2006-3 94 42 3,450.8 82.2 8 934.2 116.8
2006-4 62 26 5,616.8 216.0 20 1,631.1 81.6
2006 369 160 18,693.6 116.8 57 5,117.1 89.8
2007-1 83 29 4,540.3 156.6 18 2,190.6 121.7
2007-2 86 36 3,972.3 110.3 25 4,146.8 165.9
2007-3 102 52 10,810.0 207.9 12 945.2 78.8
2007-4 88 43 9,084.1 211.3 31 3,043.8 98.2
2007 359 160 28,406.7 177.5 86 10,326.3 120.1
2008-1 70 28 3,602.4 128.7 5 282.7 56.6
2008-2 71 21 4,150.9 197.7 0 0.0 0.0
2008-3 58 24 3,512.6 146.4 1 187.5 187.5
2008 199 73 11,265.9 154.3 6 470.2 78.4
Thomson Reuters & National Venture Capital Association. *Only accounts for deals with disclosed values. **Includes all companies with at least one U.S. VC investor that trade on U.S. exchanges, regardless of domicile.
While most IPOs can give good results to the venture investors, an “acquisition” exit can be a home run, fre 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.
Analysis of Transaction Values versus Amount Invested*
Relationship between transaction value (sale price) and total
venture investment (TVI)
Full Year 2006 Full Year 2007 Q3 2008
Deals where transaction value less than tVi 28% 24% 17%
Deals where transaction value is 1x to 4x tVi 34% 33% 29%
Deals where transaction value is 4x to 10x tVi 21% 23% 37%
Deals where transaction value is > 10x tVi 17% 20% 17%
total 100% 100% 100%
number of Disclosed Deals 160 160 24
Source: Thomson Reuters & National Venture Capital Association. * Disclosed deals that do not have a disclosed total investment amount are not included.
Continued on p. 7
Continued from p. 5
Fourth Quarter 2008 | 7
What’s Happening in Investment?
Nearly a third of venture deals are going into later stage company. The industry has never seen levels this high. This efect has
been likened to the high school that has lost its diploma printing machine. The seniors are unable to graduate and leave. Mean-
while, new classes are rising to their senior years joining the prior classes awaiting graduation. This has made it difcult for the
industry to turn its attention to the next crop of companies. While 14% of the third quarter deals went to seed and start-up com-
panies, this is far below the levels seen in the growth years of the mid-1990s.
Likewise, the percent of deals going to frst 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
efciency going forward and an uncertain business environment to grow a company, this is a statistic we are watching closely.
Venture Capital Investment 1995 to 2008YTD
Quarter/Year Venture Investment $M % of Deals Seed/Start Up % of Deals Later Stage % of Deals Which Are First
Rounds Into a Port Co
1995 7996.34 23.4% 11.3% 48.2%
1996 11,265.38 19.5% 11.3% 44.4%
1997 14,872.89 16.8% 10.5% 40.8%
1998 21,079.27 18.2% 11.3% 38.7%
1999 54,048.74 14.8% 9.6% 44.4%
2000 104,945.16 8.8% 8.4% 42.6%
2001 40,577.33 6.1% 12.1% 27.2%
2002 21,998.22 5.7% 15.7% 26.8%
2003 19,772.32 7.1% 20.2% 25.8%
2004 22,451.58 6.8% 26.1% 29.8%
2005 23,140.72 7.6% 31.7% 32.2%
2006 - Qtr 1 6,447.03 8.1% 31.4% 30.7%
2006 - Qtr 2 7,102.51 8.6% 29.5% 34.1%
2006 - Qtr 3 6,730.61 11.9% 25.9% 34.5%
2006 - Qtr 4 6,423.35 9.5% 24.0% 30.9%
2006 26,703.50 9.6% 27.7% 32.6%
2007 - Qtr 1 7,561.37 9.4% 31.4% 29.8%
2007 - Qtr 2 7,350.51 11.6% 29.8% 34.7%
2007 - Qtr 3 7,824.46 12.1 31.9% 32.7%
2007 - Qtr 4 8,089.05 11.7 30.5% 33.6%
2007 30,825.39 11.3% 30.9% 32.8%
2008 - Qtr 1 7,831.50 11.6% 30.2% 32.4%
2008 - Qtr 2 7,664.79 10.3% 32.3% 31.2%
2008 - Qtr 3 7131.30 14.0% 32.4% 28.6%
9m 2008 22.627.60 11.9% 31.6% 30.8%
Continued on p. 8
Continued from p. 6
Fourth Quarter 2008 | 8
Clean Technology Venture Capital Investment
Not surprising, venture investment in clean technology companies now exceeds 10% of all US investment and continues to grow.
In the frst nine months of 2008, clean technology investment exceeded the full year 2007 total dollars. Clean technology deals
tend to be larger with the $15.25 million average per deal essentially double the $7.72 million average deal size across all sectors.
C.T. Deal $M
Share of Total VC
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
Where to Go for the Latest Statistics
Quarterly statistics are posted on the NVCA website. • There are four information releases for a typical quarter:
Exit Poll (IPOs and Acquisitions) • — typically published a day or two after each quarter end
MoneyTree (Money invested by VC frms in portfolio companies) • — Offcially known as the “PricewaterhouseCoopers/National
Venture Capital Association MoneyTree™ Report, with data provided by Thomson Reuters.” This is typically released 3-4 weeks after the
close of the quarter. Shortly after that, searchable statistics and downloadable spreadsheets can be found at www.pwcmoneytree.com.
Fundraising (Commitments) • — Typically released around the time of MoneyTree
Performance (IRRs) • — Thomson compiles venture capital IRR benchmarks and these are released with at least one quarter lag by the
NVCA and Thomson. Buyout and mezzanine return statistics are released directly by Thomson.
The NVCA 2008 Yearbook, available as PDF fle 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 firstname.lastname@example.org. Signifcant
NVCA member discounts are available for online subscriptions to the VentureXpert database. Contact
William.email@example.com for more information.
Continued from p. 7
Fourth Quarter 2008 | 9
A GP’s Primer on Global Accounting Standards Convergence
A recent furry of media coverage has focused on the possible upcoming convergence of US and international accounting stan-
dards. Much of this coverage discusses which accounting system casts which public companies in the most favorable light. While
that particular matter seems distant from the US venture capital industry, there are two key aspects of convergence that it appears
we need to focus on:
Determining which system (current US GAAP vs. International vs. neither) is the best system overall for the US business community going •
forward. We would expect this dialogue to center on transparency, reliability, relevance, comparability, and ongoing costs in addition to any
conversion costs, which might not be insignifcant.
Addressing matters which specifcally affect our funds. One area already identifed is the fnancial statements provided by GPs to LPs under •
international rules — should the international rules become the new US rules?
As a frst 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 difcult 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.
US GAAP vs IFRS — Never Generalize
Even viewed from 30,000 feet, it is difcult to generalize on how the two systems compare. First, while the IASB produces plain
vanilla IFRS standards, there is no one favor of IFRS in use. Much like the original UNIX kernel, each country/jurisdiction has
been able to create its own version of IFRS. But unlike UNIX, sometimes the diferences among the localized IFRS versions are
large. So an apples-to-apples comparison of “IFRS-compliant” fnancials from diferent jurisdictions can be difcult. Second, it
Continued on p. 10
Fourth Quarter 2008 | 10
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 frms have been using exclusively US GAAP accounting standards. However, in early No-
vember, we received a report from a member frm with international intermediaries for overseas investment where the local audi-
tors raised the question of whether those fnancial statements need to be IFRS-compliant.
One area already identifed as a possible problem area is GP to LP reporting. Virtually all LP agreements (or accompanying docu-
ments) require GPs to provide GAAP-compliant fnancial 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 eforts 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 fnancial statements for a number
of the portfolio companies would have to be consolidated into the operating fnancials 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.
How International GPs Now Handle LP Reporting
A logical question arising from the above paragraph is how venture capital frms operating in IFRS jurisdictions are currently
reporting to LPs, including those subject to DOL ERISA fair-value reporting rules. The initial, and somewhat limited, review by
the NVCA CFO Task Force subgroup is that they simply are not doing so. Many international GPs continue to produce fnancial
statements in accordance with US GAAP for both their US and international LPs. Those reporting under IFRS are incurring the
additional efort and expense of also providing a separate US GAAP-type fair value schedule.
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 fnancials, 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 fve 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.
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 eforts underway to understand the implications. For more information, please contact NVCA
head of research, John Taylor, firstname.lastname@example.org.
Continued from p. 9
Fourth Quarter 2008 | 11
Beyond the Due Diligence:
Patent Protection in China
by Michael Vella, Richard Hung and David Yang, of Morrison & Foerster LLP
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 signifcant 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.
Overview of the Chinese Patent Law
China’s Patent Law was frst promulgated in 1984. It has been amended twice (in 1992 and 2000) in an efort to bring
the Patent Law in line with the requirements of the Paris Convention for the Protection of Industrial Property and the WTO
Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). Currently, a third amendment of the Patent Law
is under consideration to bring the law further in line with international standards. As a result of these amendments, the Chinese
Patent Law largely resembles, and will increasingly resemble, U.S. patent law.
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 China
must be made through an
authorized patent agent and fled with the State Intellectual Property Ofce (SIPO) in Beijing,
while SIPO ofces at the provin-
cial and municipal levels are responsible for the administrative enforcement of patents.
There are, to be sure, signifcant diferences between U.S. and Chinese patent law. For example, China, along with most of
the other jurisdictions in the world, follows the “frst-to-fle” approach. This difers from the “frst-to-invent” approach in the
United States. Under the “frst-to-fle” approach, whoever fles a patent application frst has priority to obtain a patent for the
invention regardless of whether that person was the frst 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 diferences remain, most patent savvy investors will fnd the Chinese Patent Law to be more familiar than not.
Infringement Proceedings in China
While the Chinese Patent Law largely resembles U.S. patent law, the Chinese patent litigation system is a world unto itself. To
help investors assess the risks of patent litigation in China, we provide the following summary of some of the distinguishing char-
acteristics of Chinese patent litigation.
1 Representative ofces 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
The frst 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 fling 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 plaintif. There are situations where that burden can be shifted to the defen-
dant. But for the most part, a plaintif seeking to enforce its patent rights must be prepared to shoulder the burden of proof based
on its own independently developed evidence. Given the plaintif’s burden of proof, the lack of discovery, and the speed of litiga-
tion, it is imperative for patent owners to prepare thoroughly before fling 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 fled with the Patent Re-examination Board (PRB) of SIPO, which
is tasked with the responsibility of determining patent validity. Parties who are dissatisfed 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.
vhen every decision matters.
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a key technology transaction, taking a company public or
advising on a merger or acquisition, we have unmatched
experience in law and business. ve know how to get the right
result with maximum eFFciency. Plus, we have the versatility
and strategic acumen to help win the game. One thousand
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MORRI SON & FOFRS1FR LLP
Continued on p. 13
Continued from p. 11
Fourth Quarter 2008 | 13
Fifth, the evidentiary formalities in China can be difcult 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 fnd 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 frst 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 insufcient 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 signifcant 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 diferent 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 infuence
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.
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 sufcient to communicate with the local counsel and efciently
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 offces of Morrison & Foerster LLP where they
manage China-related disputes in both China and the U.S.. They can be reached at: email@example.com; firstname.lastname@example.org; and email@example.com.
Continued from p. 12
Fourth Quarter 2008 | 14
Support VenturePAC by December 15
As another election cycle comes to a close, NVCA would like to thank our members for their support of our political action
committee. As we have done for many years, VenturePAC contributed to key races in both the Senate and the House of Rep-
resentatives. Our PAC contributions were given to incumbents and challengers who support policies that favor our innovation
agenda and tax policies that recognize the value of entrepreneurship and risk taking.
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 firstname.lastname@example.org.
A Superior Property and
Casualty Insurance Solution
for NVCA Members
The member brokers of TechAssure just completed negotia-
tions with OneBeacon Insurance Company (OBI), an AM
Best A, XIV rated insurer, to add a Property and Casualty
Insurance Program to VentureInsure, TechAssure’s suite of
insurance products available only to NVCA members. The
coverages provided include Property and General Liabil-
ity in a package policy, Commercial Auto; Umbrella; and
Workers’ Compensation. Foreign Liability coverage can
also be provided.
Property and Casualty Insurance is frequently an overlooked
area of protection for many Venture Capital frms primarily be-
cause the policies are a mandated purchase by state law, partner-
ship agreements, lease agreements and fnancial institutions.
Historically, most insurers have lumped VC frms into a
“fnancial institution” classifcation under a Business Owner’s
Policy (BOP). While they provided coverage for property,
NVCA Strategic Communications
Group Gathers in San Francisco
More than 70 NVCA members attended the Fall Strategic
Communications Group meeting which was held on Octo-
ber 16 in San Francisco. The day was spent in sessions which
focused on best practices in marketing and communications
at venture capital frms including securing top speaking
engagements, re-naming a frm or a company, and expo-
nentially improving PowerPoint presentations. The StratCom
Group also received results from the 2009 Marketing and
Communications Budget survey and heard from New York
Times Venture Capital Beat reporter, Claire Miller.
The NVCA StratCom Group is open to all members who are
responsible for the marketing, communications and/or in-
vestor relations at their respective frms. Presentations from
the Fall meeting are also available. For more information,
please contact Emily Mendell at email@example.com.
Continued on p. 15
Fourth Quarter 2008 | 15
commercial liability exposures, workers’ compensation, etc. the end product was full of narrowing policy exclusions. In addition,
many insurers who ofered BOPs for venture capital frms recently withdrew from the market and are non-renewing existing
policies. Needless to say, this added further complication to an already difcult area of insurance.
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 signifcantly 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 defnition of “property damage” in OBI’s General Liability form does not
cover fnancial damage without accompanying actual physical damage. This does, however, fll 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.
What About Cost?
Recent renewals in the OBI program have saved NVCA
member frms about 25% on their annual renewal premiums.
In current economic times, we believe better coverage for less cost is an
unparalleled solution for NVCA members.
This program can only be accessed via a TechAssure bro-
ker. NVCA members can visit the www.ventureinsure.com
website to learn more and to contact a member of TechAssure,
which has a local representative ready to serve you.
Pamela W. Mason, AAI, is TechAssure’s NVCA Committee Chairperson and Vice
President, Management Liability Practice Leader of Mason & Mason Technol-
ogy Insurance Services, Inc. Ms. Mason specializes in risk assessment and
coverage solutions in the areas of private equity and venture capital liability,
corporate securities liability, directors and offcers liability, portfolio liability
programs, fduciary liability and employment practices liability. Ms. Mason can
be reached at firstname.lastname@example.org or 781-447-5531 X132.
On Friday, November 14th, NVCA held its second member-
wide communications where NVCA staff discussed the
post-election environment for the venture capital indus-
try, the impact of the fnancial crisis, and other important
member updates. Specifcally, our agenda comprised the
Public Policy Update •
What to Expect from New Administration –
Top public policy priorities for 2009 –
Communications During Financial Crisis •
Entrepreneurship Week 2008 •
Membership Services Update •
NVCA PAC Update •
A playback of this call will be available through Decem-
ber 31st. You can access this call by using the following
Call in #: (888) 843-8996 or (630) 652-3044 for inter-
national calls Passcode: 23206116
Continued from p. 14
Fourth Quarter 2008 | 16
NVCA Webcast: Monitoring Portfolio Performance: Corrective Plans For Action
Friday, December 12, 2008
12:00 – 1:00 pm ET, 9:00 – 10:00 am PT
As venture capital frms and their portfolio companies navigate
through this economic downtown, it is increasingly important
to monitor the performance for each company in your portfolio.
Making quick and effective strategic shifts may help save the
best companies in your portfolio and increase your funds’ ROI.
Please join us for this dynamic discussion, moderated by Stephen
Ferruolo of Goodwin Procter LLP, which will cover:
Examining previous assumptions and reforecasting key busi- •
ness metrics (available reserves for additional fnancings, f-
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 •
Stephen Ferruolo, Partner, Goodwin Procter LLP (moderator) •
Venky Ganesan, Partner, Globespan Capital Partners •
Kip Sheeline, Partner, Levensohn Venture Partners •
Thanks to the generosity of our sponsor, NVCA mem-
bers can register for this webcast at NO charge. Non-
members can register for $275.
To Register: www.nvca.org/events.html
Thanks to our Sponsor:
Back By Popular Demand: VCs @ CES
Fourth Annual Networking Reception For Venture
Capitalists Attending The International CES
Thursday, January 8, 2009 | 5:00 – 7:00 p.m.
Table 10 Restaurant, At the Shoppes in the Pallazzo
Las Vegas, Nevada
Please join us for an opportunity to connect with the many
venture capital professionals that will be attending the 2009
International CES. This networking reception consistently draws
a strong attendance of 150+ venture capitalists all interested in
the consumer electronics sector. Table 10 offers delicious food
and a fun atmosphere where venture capitalists can relax and
discuss the trends and companies they are seeing at the CES
show and in their portfolios.
If you haven’t RSVP’d yet for this NVCA Members Only recep-
tion, please email email@example.com with the name of
person who plans to attend, their company and their email.
NVCA has arranged for a complimentary registration to CES
for NVCA Members. To take advantage of this offer, please fol-
low the following steps:
Go to 1. www.CESweb.org/pressReg
Scroll down and select “create your 2009 Press Analyst 2.
Complete regstration form 3.
For Badge Category, select “Financial Analyst/Equity Analyst” 4.
Where it asks for an article, type “NVCA” in the Article1 space 5.
Follow remaining directions 6.
VCs @ CES Reception Is Generously Sponsored By:
Fourth Quarter 2008 | 17
Solicitations Sought for DOE’s Entrepreneur
in Residence Program
DOE announced a competitive solicitation for fve VCs to participate in the expansion of DOE’s Entrepreneur in Residence
(EIR) program to accelerate cleantech deployment and commercialization from DOE’s National Laboratories. The EIR program
solicitation will place fve more VC entrepreneurs in fve DOE’s National Laboratories and will provide up to $50,000 for each
entrepreneur to help defray salary and other expenses. This announcement combines with the February 2008 announcement, for
a total of eight DOE National Laboratories and venture capital frms to participate in the EIR program.
The fve new National Laboratories to participate in the program include:
Argonne National Laboratory in Argonne, IL •
Brookhaven National Laboratory in Upton, NY •
Lawrence Berkeley National Laboratory in Berkeley, CA •
Lawrence Livermore National Laboratory in Livermore, CA •
Pacifc Northwest National Laboratory in Richland, WA •
Each frm 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 modifcations to the National Laboratories to further refne their
scientifc approaches to moving technologies into the private sector.
See DOE’s Web site (www.energy.gov) to fnd more information about the EIR program and for the funding opportunity
announcement visit Grants.gov. Applications are due January 6, 2009.
NVCA Becomes a Microsoft BizSpark Partner
On November 6th, NVCA announced that it is partnering with Microsoft to ofer BizSpark to NVCA members. BizSpark will pro-
vide NVCA Members’ early stage portfolio companies all the software they need, plus technical support and market visibility, for
three years, for USD $100. No strings attached.
Through BizSpark, members of the NVCA can ofer 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 ofering fee at program exit.
Members of the NVCA are pre-approved as a BizSpark Network Partner. But, frms must enroll to get started.
Continued on p. 18
Fourth Quarter 2008 | 18
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, fll in basic company, primary and secondary contact information and you are all
set, pre-approved and ready to invite eligible Startups!
If you have any questions, please contact Don Dodge at firstname.lastname@example.org
New Private Market Platform to Bridge IPO Crisis
Access quality, long-term capital for late stage fnancings •
Build direct relationships with top institutional investors •
Optimize the value of your company pre- and post-IPO •
InsideVenture is a new industry sponsored enterprise support-
ed by venture capital and buy side leaders for late-stage and
pre-IPO companies. Only top long-term institutional fund
mangers are approved for InsideVenture membership, which
allows them confdential access to venture’s leading company
investment opportunities. Nominate your company today to par-
ticipate in InsideVenture’s March 24-26, 2009 Debut Technol-
ogy and Healthcare Conferences in Santa Barbara, CA. To ap-
ply for participation in InsideVenture, companies must submit
an application online by December 30, 2008.
InsideVenture connects best of breed, late-stage companies
with the top long-term institutional and strategic investors
who can sustain value and growth through difcult market cy-
cles. Current founding members and strategic partners include:
NEA, Venrock, Domain, DCM, Aisling, Clarus, Frazier, Ver-
sant, T. Rowe Price, Wasatch Advisors, Intralinks, and Silicon
Valley Bank. Our buy side members are interested in seeing
top venture-backed companies raising $20-$200M rounds
and/or contemplating potential IPO within 6-18 months.
Only venture’s top companies will be selected to participate in
InsideVenture. Selected companies receive a secure data plat-
form powered by IntraLinks for confdentially sharing informa-
tion with prospective investors. Selected companies can also
create virtual roadshows, participate in live roadshows and may
be invited to present at InsideVenture Investor Conferences.
NVCA Participates in Global
Entrepreneurship Week 2008
With the goal to inspire innovation, imagination and creativ-
ity, Global Entrepreneurship Week brought together hun-
dreds of associations to encourage youth entrepreneurship.
During the week of November 17-21, NVCA blanketed
Capitol Hill with information about venture capital and
entrepreneurship. As part of this effort, every member of
Congress received a customized packet which included: 1)
data on the contribution of venture capital to their home
state; 2) NVCA’s public policy positions on taxes, clean
technology and life sciences; and 3) a USB drive containing
the NVCA video VentuReality.
Thousands of activities were planned in more than 75
countries around the world. NVCA was proud to do its
part, advocating for policies that are favorable to innova-
tion and entrepreneurship in the United States.
State information packets are available to members.
Please contact Emily Mendell (email@example.com)
with your request.
To view a complete list of participating countries and orga-
nizations in Global Entrepreneurship Week, visit
Continued on p. 19
Continued from p. 17
Fourth Quarter 2008 | 19
InsideVenture is not a broker dealer and does not change transaction fees on funds raised. All venture frms 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 afordable fat fee. Additional fnancial marketing services are ofered “a la carte”, as requested.
For more information, please contact: Benjamin Levy, Vice President, 650-926-0661, firstname.lastname@example.org.
Angel Groups: Your Early Stage Investment Colleagues
by Ian Patrick Sobieski, Band of Angels and ACA Board Vice Chair
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 difuse and unbranded and therefore difcult for
VCs to work with in a professional and consistent way. But,
about 15 years ago, angel investors began to become more
Hundreds of Organized Angel Groups
throughout North America
Currently the Angel Capital Association (ACA), a trade as-
sociation for angel organizations, has 165 member organized
angel groups and another 22 afliated organizations and as-
sociations. ACA member angel groups represent about 7,000
accredited investors who fund about 700 companies a year
and have an ongoing portfolio of more than 5,000 companies
across the US and Canada.
ACA has a permanent executive director, national ofce,
board of directors, and staf. Serving angel groups in the US
and Canada, ACA’s goals are to share best practices and educa-
tion and build relationships and collaborations between angel
groups. ACA and NVCA have agreed to cooperate in a num-
ber of ways including working together on public policy issues
of mutual beneft such as capital gains tax treatment. And, we
have established mutual liaisons to each other’s boards, I am
the ACA Liaison to NVCA and David Spreng of Crescendo
Ventures is the NVCA Liaison to ACA.
NVCA Webcasts Now Free
Access to All Past Webcasts Also Free to Members
NVCA has made access to its webcasts FREE for all mem-
bers. Although participation for our webcasts has been
quite strong, NVCA’s Board of Directors felt that the infor-
mation shared in these programs should be widely available
to all members as the information provided is valuable to
every venture capitalist.
This pricing model is made possible by our sponsors.
Recognizing that many of our members work with a wide
variety of well-respected law frms (and other service or-
ganizations), we encourage members to make these frms
aware of NVCA’s webcasts and the fact that we welcome
the opportunity to partner with new frms on such pro-
grams. If interested, they should contact Jeanne Metzger at
Information about all NVCA webcasts can be found on the
NVCA website in the events section.
Continued on p. 20
Continued from p. 18
Fourth Quarter 2008 | 20
Angel Group Organization and Focus
In contrast to VC frms with serious sounding names, angel groups have historically adopted somewhat self-efacing
names — Band of Angels, Active Angel Investor Network, CommonAngels. These names belie how seriously angel groups
strive for a level of professionalism and sophistication that would compare favorably to that of a small venture fund. While
organized angel groups do not have the infrastructural depth of Sequoia Capital or Crescendo Ventures, they do have
structures and processes, diligence mechanisms, and negotiating power, and often small paid stafs, that make them behave
similarly to smaller professional VC funds.
The mathematician Alan Turing proposed evaluating the success of an artifcial 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 frst in a series of articles to help VCs learn about angel groups as their colleagues in the same fnancial 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
frm 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
Organized angel groups are an emerging part of the entre-
preneurial food chain and have an appropriate place alongside
small VCs. We are establishing a brand and creating a legacy
and reputation as the kind of professional investors that entre-
preneurs and venture capitalists can and want to work with.
Ian Sobieski may be reached at email@example.com. A list of ACA
members by region is available at www.angelcapitalassociation.org.
We welcome NVCA members to join us at our annual conference in Atlanta,
April 15-17, 2009.
BGI Growth Partners
San Francisco, CA
St. Louis, MO
Sherman Oaks, CA
Launch Capital, LLC
Boston, MA; Palo Alto, CA
and New Haven, CT
Midpoint Food &
AG Fund, LP
Welcome New NVCA Members!
Continued from p. 19
Fourth Quarter 2008 | 21
Thought Leaders of Wall Street Video Series
IntraLinks, the leading provider of online workspaces, in collaboration with The Deal, has launched the Thought Leaders of Wall
Street video series this fall. It is a collection of in-depth video interviews featuring senior-level fnancial services executives.
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.
Current speakers and topics covered include:
Maria Boyazny • , Siguler Guff’s Managing Director and Portfolio Manager, discusses the range of opportunities for investors in the in-
creasingly expanding distressed market
Michael Boublik • , Co-head of M&A, Investment Banking, Morgan Stanley, looks at deals in the healthcare industry.
Doug Braunstein • , JP Morgan’s Head of Investment Banking, addresses an audience on Bear Stearns, WaMu, and what it takes to get
deals done in the current economic environment
Robert DeSutter • , Co-head of Healthcare Equity, Investment Banking, Piper Jaffray, talks about private equity
Charles Ditkoff • , , Co-head of Global Healthcare, Banc of America Securities, provides insights on healthcare dealmaking
John Eydenberg • , Head of Leveraged Finance, Deutsche Bank Securities, gives his thoughts on the effects of the current credit crisis
Ken Hitchner • , Head of Healthcare Investment Banking, Goldman Sachs, speaks about Healthcare M&A
Alan Jones • , Global Private Equity Co-head, Morgan Stanley, talks about private equity fnancing
Gary Parr • , Chairman, Lazard, offers his viewpoint on sovereign wealth funds
Adam Sokoloff • , Managing Director & Head, Financial Sponsors Group, Jefferies & Company, discusses middle market deals
Scott Sperling • , Co-President of Thomas H. Lee Partners, provides an overview of his frm’s approach to market opportunities in the
current economic environment
Gary Talarico • , Sun Capital Partners’ Managing Director, gives his insights into balancing the opportunities and risks of the distressed market
To view these videos go to http://www.intralinks.com/thoughtleaders/
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:
Limited Partner Reporting • Mergers & Acquisitions •
Fundraising • Initial Public Offerings •
Portfolio Company Reporting • And more •
IntraLinks facilitates the reporting and fundraising processes by enabling frms to distribute documents such as quarterly
reports, capital calls and private placement memorandums online, reducing overhead and speeding information fow. For exit
opportunities, IntraLinks provides the leading virtual dataroom solution on the market, helping to streamline processes such as
mergers, acquisitions and initial public oferings.
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 ofer or request a demonstration of IntraLinks’ services, please send an email to: firstname.lastname@example.org.
** Available with new service contracts only; may not be combined with other promotional discounts or arrangements.
Fourth Quarter 2008 | 22
Take Advantage of the
Benefts and Costs Savings
In recent years, NVCA has formed special partnerships
with several organizations that provide services important
to venture capital frms. Following is a brief description of
NVCA’s Partners and the discounts and services that they
ofer. We encourage all members to contact these orga-
nizations directly to learn more about their oferings and
how they can assist your frm.
Cleantech Network — NEW PARTNER
Knowledgeable investors and new entrants into the clean-
tech space recognize the Cleantech Network™ is a highly
reliable, trusted and signifcant source of quality deal-fow
and industry information for its Member Investors and
Service Providers. NVCA members receive a one-time
20% discount of membership when they join the Clean-
tech Network and a 10% discount in subsequent years. For
more information, please visit http://cleantech.com.
ConferencePlus — Conferencing Partner
For nearly two decades, ConferencePlus has provided full-
service customer-focused conferencing services to com-
panies around the globe. They support all conferencing
media and know how to help clients use conferencing to
cost-efectively enhance productivity. ConferencePlus of-
fers NVCA members signifcant discounts on their audio
(.0395 cents per minute) and web conferencing services.
For more information, contact Michael Edenbaum at
512-535-4596 or email@example.com.
Entrepreneurs Foundation —
Venture Philanthropy Partner
Entrepreneurs Foundation (EF) engages high growth com-
panies in corporate citizenship and philanthropic eforts so
that new and leveraged resources are generated for commu-
nity beneft. EF works with emerging companies to develop
a culture of community support and outreach. Recognizing
the time and resource constraints typical of young compa-
nies, EF assists companies with the implementation of com-
munity involvement activities, matching their corporate
culture and philanthropic interests with the many opportu-
nities in the local community. Entrepreneurs Foundation’s
are located in the following communities:
Atlanta, GA www.the-efse.org
Boston, MA www.efofne.org
Honolulu, HI www.efhawaii.org
Silicon Valley/San Francisco Bay Area
Tel Aviv, Israel www.tmura.org
Austin, TX www.givetoaustin.org
Dallas, TX www.efnt.org
Portland, OR www.eforegon.org
Boulder, CO www.efcolorado.org
Sacramento, CA www.efcr.org
Fidelity Charitable Services—
Fidelity Charitable Services
is a leader in charitable planning
and giving solutions. They deliver a broad range of solutions
and services, including: dedicated customer service with
charitable giving expertise; multiple solutions for donors with
substantial assets, complex fnancial needs, and complicated
tax issues; and industry-leading information on giving op-
tions and strategies, with online tools and resources.
Fidelity Charitable Services ofers the following benefts
to NVCA Members:
Reduced Administrative Fee of 20bps for NVCA Members •
Expertise in accepting complex gifts such as limited partner- •
ship shares, restricted stock and privately held securities
Continued on p. 23
Fourth Quarter 2008 | 23
Dedicated Relationship Management •
Always accessible online account management ability •
14 investment pool options, including index pools at a low •
cost of 7bps
No ongoing tax fling required as all contributions constitute •
a completed gift to charity
For more information, visit
www.fdelitycharitableservices.com or call 800-280-6357.
Intralinks — Secure Electronic
IntraLinks is an NVCA partner whose technology can be
used in a variety of ways to streamline your critical busi-
ness processes and safeguard your sensitive information.
IntraLinks® On-Demand Workspaces™ enable the secure
exchange of electronic information for Limited Partner
Reporting, Fundraising, Portfolio Company Report-
ing, Mergers & Acquisitions, Initial Public Oferings, and
more. NVCA members are eligible for a 10% discount of
subscription rates. For more information visit
www.Intralinks.com or contact Tara Roesch at
TechAssure — Insurance Partner
TechAssure is a unique international association of pri-
vately held, entrepreneurial insurance and risk consultants
specializing in mitigating the risks faced by emerging
growth companies and the venture capital frms that back
them. TechAssure and NVCA have teamed up to provide
NVCA members VentureInsure, a suite of comprehensive
insurance coverages and risk management services de-
signed to protect venture capitalists and their investments.
VentureInsure has proven to be the most comprehensive
liability insurance package available while providing
signifcant cost savings to the venture frms and portfolio
companies who have utilized the program thus far. For
more information, contact John Love at
firstname.lastname@example.org or www.techassure.com.
Thomson Reuters — Industry Data Partner
Thomson Reuters ofers an unparalleled range of private
equity related products from directories to conferences,
journals, newsletters, research reports, and Thomson One
Banker (formerly known as VentureXpert). *Contributing
NVCA member frms are entitled to a 20% discount of
Thomson One Banker annual subscriptions. NVCA Mem-
bers with less than $100 million under management are
eligible for a 50% discount. NVCA members who contrib-
ute to the performance database are entitled to receive key
benchmark reports for their respective vintage years during
the quarterly data collection process. For more information,
*to be considered a contributing member the frm must respond to the MoneyTree
venture activity surveys
Venture Capital Offce Managers
VCOMA is a nationwide Association of Ofce Managers
in the Venture Capital/Private Equity industry. VCOMA
brings together ofce managers who support the private
equity industry to share ideas, resources, and informa-
tion. VCOMA members also receive discounts from many
vendors that private equity frms purchase products and
services from on a regular basis. All NVCA Member frms
are eligible for one free membership in VCOMA. Addi-
tional memberships are available to NVCA member frms
at a discount. To learn more about VCOMA, please visit
www.vcoma.com. NVCA members can sign up at:
NVCA is also a new Network Partner of the Microsoft Bizspark
program which provides free software to start-ups. Please see
article on page 17 for more details.
Continued from p. 22
Fourth Quarter 2008 | 24
Upcoming NVCA Events
December 12 (12-1 pm EST)
WEBCAST: Monitoring Portfolio
Performance: Corrective Action Plans
Sponsored by Goodwin Procter LLP. Visit
for more information and to register.
January 8, 2009 (5 – 7 pm)
VCs@CES Reception, Table 10 Restaurant,
At the Shoppes in the Palazzo, Las Vegas, NV.
Please RSVP to email@example.com.
January 23, 2009 (12 – 1 EST)
WEBCAST: Beyond the Limited Partnership
Agreement: Issues for Challenging Times
Sponsored by DLA Piper LLP
Visit www.nvca.org/events.html for more
information and to register.
January 26, 2009 (5:30 – 8:30 pm)
Early Stage VC Only Dinner, L’Andana Grill,
This is a NVCA Members Only event and is
complimentary thanks to the generosity of
Edwards Angell Palmer & Dodge LLP.
Please RSVP to firstname.lastname@example.org
April 21, (6:30 – 9:00 pm)
CED’s Venture 2009 Conference,
Investor-Only Dinner hosted by NVCA
Pinehurst Resort, Village of Pinehurst, NC.
To register for the conference and dinner:
April 29 – 30, 2009
2009 NVCA Annual Meeting
Westin Seaport Hotel, Boston, MA
Mark Your Calendars:
May 4-5, 2010: 2010
NVCA Annual Meeting, Burlingame, CA
Events of Interest
Dec. 7– 9
Alternative Investing Summit,
Laguna Niguel, CA
Bio-Life-Tech 2009, Baltimore, MD
Dec. 9 – 10
Mobile Media Investor Conference,
San Francisco, CA
Dec. 10 – 11
Invest Southwest, Scottsdale,
Arizona State University
Jan. 8 – 11
International CES 2009, Las Vegas, NV
Jan. 20 – 21
Corporate Venturing & Strategic Investing
Conference, Indian Wells, CA
NVCA Members should use discount code of
S-NVCA to receive discount.
Jan. 21– 22
Clean-Tech Investor Summit, Indian Wells, CA
Members should use discount code of S-NVCA
to receive discount. www.ibfconferences.com
Jan. 21– 22
Private Equity International CFOs
and COOs Forum, New York, NY
Jan. 27– 28
Private Equity Analyst Outlook 2009
Conference, NY, NY
Feb. 3 – 4
Florida Venture Forum, Naples, FL
Feb. 9 – 11
BIO CEO & Investor Conference,
New York, NY
Feb. 11 – 12
The PERE Forum Asia 2009, Hong Kong
Feb. 16 – 17
CED Biotech Conference, Raleigh, NC
Feb. 23 – 25
Cleantech Forum, San Francisco, CA
Mar. 1 – 3
DEMO ’09, Palm Desert, CA
Mar. 10 – 11
Private Equity International Middle East
Mar. 12 – 13
Women’s Private Equity Summit, Ritz-Carlton
Half Moon Bay, CA
Mar. 26 – 27
5th Annual Thunderbird Global Private
Equity Investing Conference
Mar. 26 – 18
CDVCA Annual Conference, New York, NY
Mar. 31 – April 1
InvestMidwest, Kansas City, MO
Fourth Quarter 2008 | 25
Place Your Ad Here!
NVCAToday Ofers A Cost Efective Way To Get Your Firm’s Messages Out to
the Venture Community
NVCAToday, NVCA’s quarterly newsletter, has gone electronic and we are now ofering advertising space in both the
pdf version and online version. Advertising in NVCAToday is a great way to make your frm’s milestones known to the
venture capital community, such as new fund announcements, investment team changes/additions, and portfolio exits.
In this economy, you need to be sure that your marketing dollars are working as efectively 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 frms.
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 frm.
The new advertising rates for the newsletter follow.
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 quarter page ad in pdf version of newsletter: $800
Only Banner ad in Online Newsletter: $400 (banner ad appears on all pages for three months)
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