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850 Woodside Drive Woodside, California 94062 (650) 368-5545 www.woodsidefund.com

W O O D S I D E F U N D. Venture Capital Forum. Early Stage Investing. December 6, 1999. 850 Woodside Drive Woodside, California 94062 (650) 368-5545 www.woodsidefund.com. O VERVIEW. Woodside Fund Background. History.

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850 Woodside Drive Woodside, California 94062 (650) 368-5545 www.woodsidefund.com

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  1. W O O D S I D E F U N D Venture Capital Forum Early Stage Investing December 6, 1999 850 Woodside Drive Woodside, California 94062 (650) 368-5545 www.woodsidefund.com

  2. OVERVIEW Woodside Fund Background History Founded 16 years ago; closing Fund IV, a $125 million fund Each senior partner have served as a founder and CEO of a high technology company; The fund has five investment professionals Seed and early stage Internet, e-commerce, telecommunications, networking, computer software Management Stage of Investing Industry Focus W O O D S I D E F U N D I V

  3. EARLY STAGE INVESTING The Challenges of Seed and Early Stage Investing Early Stage Investing is Labor Intensive • One early stage investment equals 5 to 6 later stage investments • As the size of funds have increased, the proportion of senior venture capital professionals devoted to seed and early stage investing has diminished • Assuming an active role in virtually all of its portfolio companies, a typical seed and early stage fund that has 20 to 25 companies requires at least 4 investment professionals Early Stage Funds Require Specialized Skills • It requires senior team members who have significant start-up and operating experience • Complementary skills within the fund to provide more potential assistance to portfolio companies W O O D S I D E F U N D I V

  4. A Strategy for Organizational Development Hiring a strong CEO and other management early Affiliations with executive recruiters Network and database for executive search Resources and a Willingness to Help Portfolio Companies Strengthen business plans Obtain initial and follow-on financing - building a strong syndicate Assist with strategic relationships Serve as a constructive partner when problems occur EARLY STAGE INVESTING Early Stage Funds Must be Organized to do Early Stage Investing W O O D S I D E F U N D I V

  5. Affiliations and Deal Flow Development Incubators Provides for screening and mentoring Their deal flow is larger than the companies in the incubators The Fund’s early mentoring strategy Portfolio company referrals Early Stage Venture Capital Alliance (ESVCA) and other seed and early stage funds EARLY STAGE INVESTING Segmenting the Fund W O O D S I D E F U N D I V

  6. EARLY STAGE INVESTING Segmenting the Fund Fellow Entrepreneurs • General Partners share their entrepreneurial experience - the “Zucchini” example • Trust is particularly important for seed and early stage investing • Negotiation of terms • Strengthening management and organizational development • A management assessment process that establishes mutual trust • A strong testimonial base from its portfolio companies • Do we do what we say we do? • Who do they call first when there is a problem? W O O D S I D E F U N D I V

  7. EARLY STAGE INVESTING Segmenting the Fund A Local Focus • We benefit from a local focus; all team members visit our “A-List” companies early • Helps build mutual trust • Improves the Fund’s assessment process • Other team members can help later, as needed W O O D S I D E F U N D I V

  8. EARLY STAGE INVESTING Why Seed and Early Stage Investing? Managed Risk • Fewer losses than perceived • Return for success is substantial • Close partnership and supervision • Staged financing Window on Technologies and New Businesses High Potential Return • Lower initial valuations • Opportunities for leverage • Higher upside potential Creates Jobs and Provides Economic Development W O O D S I D E F U N D I V

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