Venture Capital:An Insider’s Perspective

Jon StaenbergStaenberg Venture PartnersOctober 10, 2002

Venture Capital: An Insider’s Perspective The Venture Capital Industry

What Venture Capitalists Do Statistics – National and Local Where the Industry is Going

Staenberg Venture Partners Who We Are What We Look For in Companies Jon Staenberg’s Background Our Team

Careers in Venture Capital Online Resources

The Venture Capital Industry What Venture Capitalists Do:

Invest directly in new and rapidly-growing private companies in exchange for equity

Raise money from corporations, financial institutions, private foundations, and high net-worth individuals

Sit on the Board of Directors and add value to the company through active participation and industry expertise

Take higher risks and sacrifice short-term liquidity with the expectation of higher rewards in the long-term

Make money through management fees (typically 1 - 2.5% of the fund’s capital commitments) and carried interest (typically 15 - 30% of gross profits)

The Venture Capital Industry Statistics – National:

U.S. venture capital investments totaled $102.3B in the year 2000, at the height of the dot.com “bubble”

Annual returns for U.S. venture funds peaked at 165.3% in 1999, above the S&P 500 return of 19.5%

Venture capital investments totaled $6.0B in Q4 2002, the lowest level since the pre-bubble era of Q4 1998

Annual returns for U.S. venture funds fell to -27.8% in 2001, below the S&P 500 return of -13%

Since the bubble era, fundraising has outpaced investing, resulting in a huge “overhang” of uninvested capital

More money returned to investors in Q4 2002 ($2.7B) than was raised from investors ($1.8B), resulting in $-887M of committed capital for the quarter

The Venture Capital Industry Statistics – Local:

Northwest venture capital investments totaled $283M in Q2 2002, 4.7% of the $6.0B U.S. total

While U.S. venture capital investments declined from $6.4B in Q1 2002, Northwest venture capital investments increased from $172M in Q1 2002

Medical Devices & Equipment received the most funding of all Northwest industries in Q2 2002 at 29.4% of the region’s total, compared to Software as the national leader at 18.1%

Select Northwest companies receiving recent funding: AccessLine Communications, digiMine*, Captura, New Edge Networks, Qsent, ProSight, Par3 Communications*, Impinj

* Staenberg Venture Partners portfolio company

The Venture Capital Industry

Where the Industry is Going: Fund commitments “rightsizing” – more money

returned to investors in Q2 2002 than was raised Reduction in management fees as a percentage of

fund commitments – i.e. from 2.5% to 2.0% VCs having difficulty are laying off senior staff Companies are raising money at lower valuations

and on onerous terms VCs are spending more time on their existing

portfolio and making fewer new investments Soft IPO market means no clear path to exit Very little green space, still too much money

chasing too few ideas

Staenberg Venture Partners

Who We Are: Venture capital firm located in downtown Seattle

that invests in technology companies at all stages of development

Focuses on companies in the Northwest and Silicon Valley, in order to create synergies and shares resources between these two regions

Add value to our portfolio companies through advisory board relationships, industry contacts, and access to resources

Staenberg Venture Partners What We Look for in Companies:

Management Team – Experience, Credentials Are there any functional “holes”?

Market – Can this be a billion-dollar company? Market cap, penetration Value proposition Competition

Technology – IP, Patents Barriers to Entry Risk-weighted return potential Exit scenario – How long will it take, How big will it

be

Staenberg Venture Partners Jon Staenberg’s Background:

Managing Partner since 1998 of two venture capital funds with approximately $100M in assets under management

Serves in a Director, Advisor or Consultant capacity to over 25 startups in the Northwest and Silicon Valley

Graduated Phi Beta Kappa from Stanford University, earning his M.B.A., M.A. and B.S.

Worked in Marketing at Microsoft for 5 years Led the Marketing department at Virtual i-O Started his own company and successfully sold Avid collector of sports ticket stubs Native of Omaha, Nebraska and hardcore Cornhuskers

fan

Staenberg Venture Partners Our Team:

Jon Staenberg, Managing Partner John Chase, Chief Financial Officer Dan Gerrity, Consulting Partner Casey Higgins, Analyst Amy McFarlane, Office Manager Justin Calvo, Intern

Careers in Venture Capital

Venture capital is a small and exclusive industry, thus it is difficult to find positions

Although the majority of positions are at the partner level, the number of non-partner professionals (Associates, Analysts) is growing 5-8% every year

While the most prominent VC firms are in San Francisco, Boston, and NY, Seattle has a high concentration of entrepreneurs and a less competitive VC climate

Careers in Venture Capital

Online Resources: Harvard Business School’s Venture Capital & Private

Equity Club - http://sa.hbs.edu/vc/ Careers in Venture Capital: The WetFeet Insider

Guide - http://www.wetfeet.com/asp/industryprofiles_overview.asp?industrypk=32

The National Venture Capital Association - http://www.nvca.org/

VFinance.com - http://www.vfinance.com/