http://svod.org/

1. Trends in Venture Capital
FinancingsFinancings
Leonard Grayver, Esq.
June 11, 2013

2. About Leonard Grayver
 Partner at Greenberg, Whitcombe & Takeuchi Partner at Greenberg, Whitcombe & Takeuchi
 Represents
 VC Funds
 Founders
 Startups
 Offices in California and Moscow Offices in California and Moscow
 For a copy of Russian-language Guide
to VC Term Sheets
 email LGrayver@gwtllp.com

3. Agenda
 Overview of Venture Capital Activity Overview of Venture Capital Activity
 Overview of Deal Terms
 Overview of Seed Round Activity
 Overview of Seed Investment Deal Terms

4. Data Used
 Wilson Sonsini Financing Trends Wilson Sonsini Financing Trends
 Fenwick and West VC Survey
 PricewaterhouseCoopers MoneyTree report
 Dow Jones VentureSource
 Personal Experience Personal Experience

5. BAROMETER OF 2012-13BAROMETER OF 2012-13
VC ACTIVITY

6. VC Financings Across Rounds
Series Q1'12 Q2'12 Q3'12 Q4'12 Q1'13
Series A 24% 24% 24% 12% 25%Series A 24% 24% 24% 12% 25%
Series B 18% 17% 24% 31% 20%
Series C 17% 21% 22% 22% 19%
Series D 17% 14% 15% 16% 18%
Series E+ 24% 24% 15% 19% 18%
 Distribution across rounds is pretty stable
 Many seed investments don’t get further funding
 Expect to see fewer D & E rounds in the future

7. Median Pre-Money Valuations
Series 2007 2008 2009 2010 2011 2012 Q1'2013
Series A $ 9.60 $ 6.60 $ 4.80 $ 4.60 $ 6.00 $ 7.50 7.60$
Series B $ 28.20 $ 21.50 $ 15.30 $ 17.80 $ 19.20 $ 23.50 27.50$
 The ‘Instagram Effect’
 Improving economySeries B $ 28.20 $ 21.50 $ 15.30 $ 17.80 $ 19.20 $ 23.50 27.50$
Series C+ $ 60.30 $ 52.50 $ 47.50 $ 55.00 $ 69.20 $ 96.20 120.00$
$80
$100
$120
$140
$160
Series C+
 Companies raise rounds later in life
$-
$20
$40
$60
$80
2007 2008 2009 2010 2011 2012 Q1'2013
Series B
Series A

8. Median Amount Raised
Series 2007 2008 2009 2010 2011 2012 Q1'2013
Series A $ 6.00 $ 3.45 $ 2.60 $ 2.00 $ 1.80 $ 2.10 2.40$
Series B $ 11.80 $ 9.90 $ 8.00 $ 5.50 $ 4.10 $ 5.00 5.00$
Series C+ $ 13.10 $ 11.20 $ 9.30 $ 9.10 $ 8.10 $ 10.40 10.50$Series C+ $ 13.10 $ 11.20 $ 9.30 $ 9.10 $ 8.10 $ 10.40 10.50$
$15
$20
$25
$30
Series C+
Series B
$-
$5
$10
2007 2008 2009 2010 2011 2012 Q1'2013
Series A

9. Founders’ Share of Company
After Series A Round
75%
80%
50%
55%
60%
65%
70%
2007 2008 2009 2010 2011 2012 Q1'2013
 Increased valuation = increased founders’ share
 Does not account for Stock Option Plan

10. Stock Option Pool Size
After Series A Round
30.0%
35.0%
40.0%
Percentageofcompanies Percentage of companies Option Pool Size
2.8% <5% 4 0.112
16.6% 5-10% 7.5 1.245
37.1% 10-15% 12.5 4.6375
22.2% 15-20% 17.5 3.885
8.4% 20-25% 22.5 1.89
13.9% >25% 27.5 3.8225
Average 2.598667
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
<5% 5-10% 10-15% 15-20% 20-25% >25%
Percentageofcompanies
Size ofemployee stock option pool
 Average option pool size is 15.9 %
 Stock Option Pool comes out of Founders’ shares
 Strategy: Negotiate by building a hiring model
Size ofemployee stock option pool

11. Series A Valuations by
Industry (under $2M raised)
Industry Valuation
Clean Tech 2.20$
Internet 3.00$
Software 3.50$
$4.00
$5.00
moneyvaluation
Software 3.50$
Life Sciences 3.50$
Non-technology 4.50$
$-
$1.00
$2.00
$3.00
$4.00Pre-moneyvaluation
 Non-technology products had the highest
valuations

12. Industry Valuation
Life Sciences 5.10$
Clean Tech 6.00$
Non-technology 10.00$$10.00
$15.00
moneyvaluation
Series A Valuations by
Industry (over $2M raised)
Non-technology 10.00$
Electronics/Hardware 12.00$
Semiconductor 12.30$
Software 13.00$
Internet 13.50$
$-
$5.00
$10.00
Pre-moneyvaluation
 New categories require more money to start
 Life Sciences is lowest valuation (was tied
for highest in the under $2M bracket)
 Likely due to higher risk and longer road to liquidity
 Founders’ share in Life Science/CleanTech is under 40%

13. Up Rounds and Down Rounds
2009 2010 2011 2012 Q1'2013
Down rounds 39% 28% 15% 15% 11%
Flat rounds 24% 16% 18% 18% 21%
Up rounds 36% 56% 67% 68% 68%60%
70%
80%
0%
10%
20%
30%
40%
50%
2009 2010 2011 2012 Q1'2013
Down rounds
Flat rounds
Up rounds
 Marked improvement since start of recession
 Plateaued over the last two years

14. But a lot depends on the round
Series 2012 Q1'2013
Series B 6% 4%
Series C 16% 5%
Series D 15% 19%
Series E+ 22% 18%
20%
25%
Series E+ 22% 18%
0%
5%
10%
15%
Series B Series C Series D Series E+
DownRounds
2012
Q1'2013
 Later rounds = more chance of a down round
 Probably due to exit difficulties
 Founders suffer more than investors
Series B Series C Series D Series E+

15. … and the industryIndustry 2012 Q1'2013
Software 9% 10%
Hardware 24% 0%
Life Science 15% 33%
Internet 12% 6%
CleanTech 23% 0%
25%
30%
35%
CleanTech 23% 0%
0%
5%
10%
15%
20%
Software Hardware LifeScience Internet CleanTech
2012
Q1'2013
 Software consistently up rounds
 CleanTech had one really bad quarter

16. Change in Valuation Across
RoundsSeries 2012 Q1'2013
Series B 125% 96%
Series C 75% 93%
Series D 33% 17%
120%
140%
Series D 33% 17%
Series E+ 35% 18%
0%
20%
40%
60%
80%
100%
Series B Series C Series D Series E+
IncreaseinValuation
2012
Q1'2013
 120% increase is 2.2× increase
 Lower increase in later rounds is likely due
to more down rounds
Series B Series C Series D Series E+

17. … and Across Industries
Industry 2012 Q1'2013
Software 97% 67%
Hardware 43% 38%
Life Sciences 16% 6%
Internet 122% 103%
100%
120%
140%
IncreaseinValuation
Internet 122% 103%
CleanTech 46% 51%
0%
20%
40%
60%
80%
100%
Software Hardware Life
Sciences
Internet CleanTech
IncreaseinValuation
2012
Q1'2013
 Includes data from all rounds
 CleanTech is very volatile

18. SEED ROUND INVESTMENTSSEED ROUND INVESTMENTS

19. Growth and Recognition
of Seed Investments
 Three of the six largest VC investors Three of the six largest VC investors
(by number of deals) were seed focused funds
 500 Startups, Y Combinator, First Round Capital
 Between 2009 and 2012
 Number of seed financings almost quadrupled
to 1800to 1800
 Number of seed investments doubled to
31% of the total number of VC deals
 Number of companies funded by accelerators
increased five-fold to 1200

20. Where are Seed
Investments Going?2010 2011 2012
Internet/Di
gital Media
71% 75% 66%
Software 29% 25% 34%
70%
80%
Software 29% 25% 34%
0%
10%
20%
30%
40%
50%
60%
2010 2011 2012
Internet/Digital Media
Software
 Capital-heavy industries are not suitable
2010 2011 2012

21. Who is Investing in Seed?
2010 2011 2012
Seed
funds
43% 46% 46%
Profession
al angels
31% 28% 20%
VC funds 26% 27% 34%
35%
40%
45%
50%
VC funds 26% 27% 34%
0%
5%
10%
15%
20%
25%
30%
35%
2010 2011 2012
Seed funds
Professional angels
VC funds
 Professional angels are being squeezed
out by VC funds

22. What is the Seed
Investment Vehicle?
2010 2011 2012
Preferred
Stock
69% 59% 67%
Convertible
Debt
31% 41% 33%
70%
80%
Debt
0%
10%
20%
30%
40%
50%
60%
2010 2011 2012
Preferred Stock
Convertible Debt
 Preferred stock deals predominate
 Counter to what most people think
 Shows the institutionalization of seed deals
2010 2011 2012

23. How Much is Invested?
2010 2011 2012
Preferred Stock Deals$1,056,000 $1,000,000 $1,360,000
Convertible Note Deals$662,500 $1,000,000 $918,000
$1,200,000
$1,400,000
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
2010 2011 2012
Preferred Stock Deals
ConvertibleNoteDeals
 Preferred stock deals are somewhat
higher than convertible note deals

24. The Hard Part is Getting
to the Next Round …
 From 2009 to 2012 From 2009 to 2012
 Number of seed financings increased from
472 to 1749
 Number of Series A rounds only increased
from 418 to 692

25. Seed Bubble?
 45% of companies that raised their seed
round in 2010 raised a Series A Round byround in 2010 raised a Series A Round by
the end of 2011
 27% of companies that raised their seed
round in 2011 raised a Series A Round by
the end of 2012
 The rest? Many, if not most, have shut down. The rest? Many, if not most, have shut down.

26. SEED INVESTMENT DEAL TERMSSEED INVESTMENT DEAL TERMS

27. Preferred Stock Financings
 Usually use simplified financing documents
 No anti-dilution rights
No ROFR or Co-sale rights No ROFR or Co-sale rights
 No Registration Rights
 No Dividend Preference Rights
 Limited Veto Rights
 Limited Drag Along
 Information Rights - Yes
Pre-emptive rights – Yes Pre-emptive rights – Yes
 Legal Fees <$10,000
 Investor gets a board seat in ≈ 70% of deals

28. Liquidation Preference
2010 2011 2012
Non-
participatin
g preferred
liquidation
90% 91% 85%
75%
100%
preference
Participati
ng
preferred
liquidation
preference
10% 9% 15%
0%
25%
50%
75%
2010 2011 2012
Participating preferred
liquidation preference
Non-participating
preferred liquidation
preference
 Almost always non-participating liquidation
preference

29. Convertible Note Financings
 Used in ≈35% of all seed financings Used in ≈35% of all seed financings
 Probably in most seed financings < $250k

30. Interest RatePercentag
e in which
investors
received a
board
seat:
72.50% 70% 73
70%
80%
90%
100%
2012 Q1'2013
< 8% 64% 82%
= 8% 30% 18%
> 8% 5% 0%
0%
10%
20%
30%
40%
50%
60%
2012 Q1'2013
> 8%
= 8%
< 8%
 Median interest rate is 5.5%

31. Maturity
2012 Q1'2013
< 12
months 8% 0%
= 12
months 30% 45%
> 12
70%
80%
90%
100%
 Median maturity is 18 months
> 12
months 62% 55%
0%
10%
20%
30%
40%
50%
60%
2012 Q1'2013
> 12 months
= 12 months
< 12 months
 Median maturity is 18 months

32. Conversion into Shares
 Conversion to shares at discounted price
in about 85% of the dealsin about 85% of the deals
 Discount ranges:
2012 Q1'2013
< 20 % 17% 30%
= 20% 54% 40%
> 20 % 29% 30%
30%
40%
50%
60%
70%
80%
90%
100%
> 20 %
= 20%
< 20 %
 Median discount is 20%
0%
10%
20%
30%
2012 Q1'2013
< 20 %

33. Valuation Caps
 Over 2010 – 2012, valuation caps were Over 2010 – 2012, valuation caps were
used in 85% of deals
 The median valuation cap was $6M

34. Infrequently Used Terms
 Investors get a board seat in ≈2% of deals Investors get a board seat in ≈2% of deals
 Notes are secured in ≈2% of deals
 Notes include warrants in ≈6% of deals
 Notes are senior to other debt in ≈10% of deals

35. VENTURE ROUND DEAL TERMSVENTURE ROUND DEAL TERMS

36. Liquidation Preference
2012 2011 2010 2009 2008
37% 48,5% 50% 57% 45%
2008 2009 2010 2011 2012 Q1'2013
55%
60%
PercentageSeniorLiquidation2008 2009 2010 2011 2012 Q1'2013
45% 57% 50% 48% 37% 34%
30%
35%
40%
45%
50%
2008 2009 2010 2011 2012 Q1'2013
PercentageSeniorLiquidation
Preference
 As economy improves, senior liquidation
preferences are becoming less common

37. Senior Liquidation Preference
Across Rounds
2008 2009 2010 2011 2012 Q1'2013
Series B 31% 28.50% 22% 26% 22.20% 29%
Series C 40% 45% 32.50% 44% 28.70% 41%
Series D 54.50% 57% 47.50% 37.50% 34.50% 33.00%
55%
60%
PercentageSeniorLiquidation
Series D 54.50% 57% 47.50% 37.50% 34.50% 33.00%
Series E+ 52% 53% 52.50% 42% 44.50% 32%
20%
25%
30%
35%
40%
45%
50%
2008 2009 2010 2011 2012 Q1'2013
PercentageSeniorLiquidation
Preference
Series B
Series C
Series D
Series E+
 Least common in series B
 Steady decline in later rounds
2008 2009 2010 2011 2012 Q1'2013

38. Multiple Liquidation Preferences
2008 2009 2010 2011 2012 Q1'2013
>1x-2x 74% 75% 86% 61% 96.50% 57%
>2x-3x 23% 25% 9% 25% 3.50% 29%
>3x 3% 0% 5% 14% 0% 14%
80%
90%
100%
>3x 3% 0% 5% 14% 0% 14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2008 2009 2010 2011 2012 Q1'2013
>1x-2x
>2x-3x
>3x
 Very surprising jump in multiple liquidation
preference in Q1’2013
2008 2009 2010 2011 2012 Q1'2013

39. Participating v. Non-participating
2008 2009 2010 2011 2012 Q1'2013
58% 51% 50% 42% 33% 32%
55%
60%
30%
35%
40%
45%
50%
2008 2009 2010 2011 2012 Q1'2013
 Steady decline in participating liquidation
preference
2008 2009 2010 2011 2012 Q1'2013

40. Cumulative Dividends
2008 2009 2010 2011 2012 Q1'2013
6.00% 5.70% 6.50% 6.00% 6.25% 3%
5.00%
6.00%
7.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
2008 2009 2010 2011 2012 Q1'2013
 More common in East Coast VC financings

41. Anti-Dilution
2008 2009 2010 2011 2012 Q1'2
Full Ratchet 4% 3.70% 4% 4% 3% 1%
Weighted Average 94% 96% 94% 94% 95% 96%
None 2% 0.30% 2% 2% 2% 3%80%
100%
4%
0%
20%
40%
60%
Full Ratchet
Weighted Average
None
0%
2%
4%
 Full Ratchet is almost never used

42. Redemption
2008 2009 2010 2011 2012 Q1'2013
23% 19.50% 22% 17.50% 16.70% 0.14
20%
22%
24%
10%
12%
14%
16%
18%
20%
2008 2009 2010 2011 2012 Q1'2013

43. ANY QUESTIONS OR IF YOU
NEED A LAWYER, EMAIL MENEED A LAWYER, EMAIL ME
LGrayver@GWTLLP.com