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1. Managing Conflicts Between International and RMB Fundsand Emerging Trends in International Fund Terms 1353992

2. Overview • Managing Conflicts Between International and RMB Funds • Emerging Trends in International Fund Terms

3. International and RMB Fund Conflicts A. International Fund Concerns Will the “good deals” go to the RMB Fund? Will the manager’s time and attention be diverted so that less time will be spent finding and managing international fund investment opportunities? a. High valuations on the domestic market further fuel these concerns B. Common Responses where International Fund precedes RMB Fund 1. Limit size of RMB Fund so that it clearly is not the driving economic force 2. Provide lower carry on the RMB Fund so that there is no economic incentive for the managers to favor the RMB Fund when allocating deal flow 3

4. International and RMB Fund Conflicts (cont) Provide separate investment teams for the RMB and International Funds Have a pre-determined scheme for deal sharing Example I a. Investments in restricted enterprises go solely to RMB Fund b. Investments in companies formed outside of PRC go solely to International Fund c. Investments within PRC that allow foreign investors split between RMB Fund and International Fund based on size of funds, capital available for investment, or some other predetermined ratio Example 2 a. RMB Fund pursues late stage deals intended for local listing b. International Fund pursues early stage deals and all deals expected to list internationally 4

5. International and RMB Fund Conflicts (cont) RMB Fund cannot start investing until managers get an approved allocation scheme and conflict arrangement with Advisory Board of International Fund Provide Advisory Board of International Fund periodic reports regarding deal flow of RMB Fund, investments made by RMB Fund and, in a few instances, investment results a. Must be careful not to promise to disclose information that may be confidential C. Considerations RMB Fund investors increasingly have same concerns as International Fund investors - i.e., concerns about deal allocation and time spent by managers Must be careful not to promise so much to International Fund investors that RMB fundraising will become difficult Similarly, if RMB Fund is raised first, must be careful not to promise so much to RMB Fund investors that International Fund fundraising will become difficult Ultimately must ensure that obligations to RMB Fund and International Fund do not conflict with each other 5

6. Emerging Trends in International Fund Terms A. Coordination with RMB Funds  See Part I above B. Pressure on “Management Fee Allocation”  Increasing Pressure on Gross-Carry Computations Example: a. Assumptions: (i) $100M Fund raised (ii) $20M cumulative management fees (iii) $80M invested capital (iv) $180M total return (v) 20% carry b. Carry, Net of Fees Result: ($180M Return - $100M Raised = $80MM Net Profit) x 20% = $16MM Carry c. Carry, Gross of Fees Result: ($180M Return - $80M Invested = $100MM Gross Profit) x 20% = $20MM Carry 6

7. Emerging Trends in International Fund Terms C. Tiered Carry Typically begin with traditional 80/20 LP/GP split of profits. Once investors receive some return multiple on committed capital (e.g., 3x), LP/GP split of successive profits moves to 75/25 Certain funds allows for additional tiers. For example, split of successive profits may move to 70/30. Other funds move directly from 80/20 to 70/30. Over the life of the fund, will carry be blended or will there be a catch-up mechanism such that GP receives the highest carry on a cumulative basis? D. Investor Pressure to implement European-style Hurdle While unusual for US venture funds, a hurdle rate of 6% or 8% on committed capital prior to GP taking carry is fairly common for European venture funds  This hurdle is almost always a “disappearing” hurdle, so once achieved the 20% carry is based on all profits (as opposed to being based only on profits above the hurdle) 7

8. Emerging Trends in Fund Terms • Continued Avoidance of Fee Stacking • Pressure to provide for a decrease of management fees upon formation of successor funds  Typically RMB Fund is not a “successor fund” to an International Fund, and vice-versa • Given the longer time horizon for investing capital and harvesting investments in the VC fund context vis-à-vis PE funds, a predictable stream of management fees over the course of the first five or six years of a venture fund’s life is ideal  Accordingly, any take-downs based on cost basis or FMV of portfolio should be avoided