Investment Brief Vehizero S.A.

1. Investment BriefVehizero S.A. Final Report March 19, 2002 Prepared for Mr. Sean O’Hea by the Fuqua Team Fuqua Faculty Advisor: Campbell Harvey Fuqua Team: Carlos Montalvan Jill Naughton Brian O’Connor Oleg Osipenko Jeremy Rogers

2. Outline of the Material • The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors • Overall Hybrid Vehicle Market does not look attractive, however the small delivery truck segment looks promising • Our valuation of Vehizero sets a range between $ –3.3 million to $ 10.2 million, while the project’s IRR is estimated to be 14% • Based on the characteristics of the project, Vehizero is more likely to attract socially-oriented investors than strictly financial investors • Thus, we recommend that Vehizero launch an exploratory effort in the U.S. and other countries internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage

3. Outline of the Material  • The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors • Overview of the work done • Overall Hybrid Vehicle Market does not look attractive, however the small delivery truck segment looks promising • Our valuation of Vehizero sets a range between $ –3.3 million and $ 10.2 million, while the project’s IRR is estimated to be 14% • Based on the characteristics of the project, Vehizero is more likely to attract socially-oriented investors than strictly financial investors • Thus, we recommend that Vehizero launch an exploratory effort in the U.S. and other countries internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage

4. Overview of the Work Done • The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors • Researched web and literature to: • Understand overall trends in global hybrid vehicle market • Understand Mexico automotive market • Evaluated project Vehizero: company valuation • Identified key variables to be analyzed as key variables (Tornado Simulation) • Looked at different scenarios and their probabilities • Estimated the cash flows • Calculated the cost of capital • Evaluated the imbedded options of the project • Analyzed the attractiveness of different types of investors to Vehizero • Research of investment policies and objectives • Interviewed VC specialists and academics • Discussed the future of carbon trading with Chicago Exchange

5. Outline of the Material • The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors • Overall Hybrid Vehicle Market does not look attractive, however the small delivery truck segment looks promising • Overall Automotive trends point toward intensifying competition, however, the truck segment appears to be attractive • Moreover, the hybrid vehicle segment offers niche opportunity for small players like Vehizero • Although Mexican labor costs are rising sharply, the country will continue to have cost advantage in foreseeable future • Our valuation of Vehizero sets a range between $ –3.3 million and $ 10.2 million, while the project’s IRR is estimated to be 14% • Based on the characteristics of the project, Vehizero is more likely to attract socially-oriented investors than strictly financial investors • Thus, we recommend that Vehizero launch an exploratory effort in the U.S. and other countries internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage 

6. MARKET OVERVIEW Overall automotive trends suggest intensifying competition • Automotive Trends in Mexico and worldwide point toward increased competition • Increased competition. In 2004, local content rules within NAFTA will be eliminated. Experts believe competition will intensify as a result, and margins of domestic producers will decrease • Toyota enters the market. Toyota will start production of the light trucks in Mexico in year 2004 with full production taking effect in 2006 • Contraband. There are about 2 million illegal vehicles – or auto chocolates – of the total 14 million cars in Mexico. Trucks assembled from the used parts cost legitimate truck producers 1/3 of their sales • Hybrids for Emerging Markets. Big Automakers start focusing on producing simplified models for emerging markets. In 2003, the world will see 9 models specifically developed for emerging markets Source: Automotive News International /Mexican Truck Producer Association/Automotive News Europe These trends indicate that taxi market will be much more difficult to penetrate than delivery truck market

7. MARKET OVERVIEW However trucking industry appears to be attractive segment • The Mexican truck fleet is large. Estimated to be 450,000 units • Growing. At approximately 3% p.a. • Old. Average fleet age is 16.3 years • Not concentrated. There are some 5,000 trucking firms in Mexico city, plus large number of owners who own only a truck or two • And partially illegal. Approximately 20,000 trucks enter Mexico illegally Source: U.S. Commercial Service. International Market Insight, 1999 Truck segment appears to offer some niche opportunities to Vehizero

8. MARKET OVERVIEW Hybrid vehicle offers opportunity Several trends in the global hybrid vehicle market indicate that this segment will remain an attractive niche for small players like Vehizero • Different strategies. Different countries are pursuing different strategies in the search of a cleaner car. Japan is focusing on hybrid compact cars, Europe on fuel cell technology (i.e. pure electric vehicles), and US is focusing on hybrid trucks • Top priority in the US. President Bush recently requested that Congress approve tax breaks of up to $ 4,000 per hybrid car and up to $ 8,000 per fuel cell car • Its everybody’s game. Large numbers of small firms are involved production around the world • Emerging markets have local players. India and Brazil are known to have domestic electric/hybrid vehicle manufacturers • Big guns move in. Every automaker is either already engaged in production of electric/hybrid vehicles or announced a program to introduce the first models in 2003-2004. As a result, the US hybrid market alone is estimated to reach 500,000 in 5 years. • Hybrid cars are still expensive. Hybrid compact cars are sold by Honda and Toyota in the range of $ 20,000 and hybrid trucks are priced at a $5,000 premium to their gasoline equivalent Hybrid vehicles segment offers opportunity for small players but the window of opportunity is closing rapidly.

9. Competition is coming from Big Automakers, but not in trucks segment Honda Insight The Insight is the first gasoline-electric hybrid vehicle to be sold in the United States. This two-seat coupe gets 70 miles per gallon (mpg), and meets California’s stringent ultra low emission vehicle (ULEV) standards. It was endorsed by the Sierra Club and heralded in the ACEEE's Green Book. Priced under $20,000, it is available through Honda dealers nationwide. The 2002 model is available with continuously variable transmission. www.honda.com The Toyota Prius is a five-seat hybrid-electric sedan that combines the range and performance of a gasoline engine with the silence, efficiency, and clean running of an electric motor. The vehicle never requires external source recharging. It meets California's Super-Ultra-Low Emission Vehicle (SULEV standards. It is sold nation-wide through Toyota dealers for $20,000. www.prius.toyota.com Even though every global automotive player has at least one “cleaner” model, no company has yet developed a light truck model

10. MARKET OVERVIEW … And Hybrid Vehicle Market Newcomers Electric Postal Vehicle by Baker Electromotive, Inc and Ford are producing 5,000 electric postal service vehicles for the US Postal Service. The vehicles are battery powered and can be driven between 50 and 80 miles before recharging. They accelerate from 0 to 50 mph in 12.5 seconds and produce virtually no tailpipe emissions. Email Baker Electromotive, Inc, sales@vaenergy.com. The Solectria CitiVan: a walk-in delivery van, comes in an all-electric or a hybrid-electric model. Rugged construction assures long vehicle life and low maintenance costs. Powered by the same state-of-the-art Solectria technology found in over 1000 EVs on the road worldwide, the Solectria CitiVan is in service in Massachusetts, California, New York, Canada, and Chile. www.solectria.com The delivery truck niche is being quickly filled up by relatively unknown newcomers

11. MARKET OVERVIEW … Heavy/Medium Truck Companies in Mexico Navistar International, world leader in the manufacture of trucks and buses, is on the vanguard of corporate environmental reform…The company has its own Escobedo Plant in Nuevo Leon... Company has more than 1,100 dealers worldwide, and 9 parts distribution centers Source: Business Mexico, December 1999 The company is also working with Lockheed Martin to produce Hybrid Electric Vehicles (HEV), which run from a combination of traditional diesel engines and electric battery power. The two are currently test driving a HEV medium truck and are developing HEV school buses and delivery trucks. www.navistar.com Sources: American Chamber of Commerce of Mexico, A.C. , 1999 Small delivery truck niche could potentially be attacked by the large/medium truck manufacturers

12. MARKET OVERVIEW The 19-day strike earned VW employees a 14.7% increase in wages, from $ 25.50/day to $28.50/day plus food coupons… Still Mexican companies will retain labor cost advantage over US rivals… • …Yet the cost of one union worker in US is $ 120 to $ 190 per day Source: Guillermo Valdes, Economists Associates Group, Mexico City

13. MARKET OVERVIEW … despite quickly rising labor costs Labor costs are rising sharply …but still much lower than US level • “Real wages in [the Mexican automotive] industry will increase 33% while productivity will increase by 9% for the period of 2000-2004.” Armando Soto, Ciemex-Wefa economic consultancy • "It's no longer an easy answer to produce cars in Mexico… labor costs in the industry have risen 50% in dollar terms since the end of 1998” Economist Rogelio Ramirez de la O • “Output per head is about a quarter of what is achieved in the United States … given cooked and tested technology and fairly simple production lines, Mexico can match U.S. productivity rates for some vehicles," Sean McAlinden, analyst, University of Michigan • Labor Unions are quite strong. Recent strike at Volkswagen plant in Pueblo, ended with 14.7% wages increase

14. Outline of the Material • The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors • Overall Hybrid Vehicle Market does not look attractive, however the small delivery truck segment looks promising • Our valuation of Vehizero sets a range between $ –3.3 million and $ 10.2 million, while the project’s IRR is estimated to be 14% • Valuation • Risk assessment • Imbedded options • Based on the characteristics of the project, Vehizero is more likely to attract socially-oriented investors than strictly financial investors • Thus, we recommend that Vehizero launch an exploratory effort in the U.S. and other countries internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage 

15. VALUATION Funding Requirements appear to be higher than initially estimated • Funding requirements range from $4.1M to 6.9M • Recommended funding: $5.5M • capital outlay of $3.4M • $300K for prototypes • $3.1M to build plant and WC • $2.1M to sustain losses for 3 years • expected accumulative accounting losses for three years is $2.1M

16. VALUATION Approach to valuation • Key variables • Tornado chart identifies key variables to analyze and monitor • Probabilities and ranges • Crystal Ball simulation • Trucks Only • Price, COGS, sales in full production • Taxi Cab option • Market size, price of taxis (assumed margin), 1st year penetration, growth during following years, cost of expansion

17. VALUATION Key Variables used in the valuation • Tornado chart to identify impact of variables 9,500

18. VALUATION Simulated Key variables HYBRID TRUCKS DATA Price Post Plant Truck COGS Terminal Quarterly Sales Rate TAXI OPTION DATA Price Penetration (i.e. Market Share) – 1st Year of Taxi Sales Penetration Growth Rate (from 1st Year Market Share) Quarterly Market Size for Taxis – 1st Year of Taxi Sales Plant Expansion Costs

19. VALUATION Cost of Capital • Cost of Capital: 17.9% • ICCRC (International Cost of Capital Risk Calculator): 18.9% • Based on a risk free rate of 5% • Risk premium of 5% • Anchored to the US • Adjustments: -1% • Vehizero has mitigated some risks because you are aligned with government and environmental initiatives • Company exposed to most standard risks in Mexico ICCRC calculates the cost of capital for 135 international capital markets. It provides an alternative calculation to the CAPM and other traditional approaches that are less accurate for emerging markets. The ICCRC return reflects countries’ risk premiums based on a comprehensive methodology with strong economic foundations. The ICCRC accounts for risks such as a country’s economic and political stability. It is also anchored to the U.S. rate, so that the country rates are calibrated from that of the US. The intent is to adjust the denominator for countrywide affects.

20. VALUATION Internal Rate of Return of the Project is around 14% • We have performed 25 runs of the model to determine the IRR for both taxi and truck markets. The results are summarized below:

21. VALUATION NPV of the trucks only ranges from $ –3.3 million to $ 9.6 million Mean $1.02 M Entire Range -$3.3 M to $9.6 M

22. VALUATION NPV of the project ranges from $ –3.3 million to $ 10.2 million Mean $1.30 M Entire Range -$3.3 M to $10.2 M

23. VALUATION Cost of Capital Review financial model

24. Taxi option increases the upside but does not mitigate the downside Taxi option is attractive only if truck market is a success. Thus, taxi option does nothing to mitigate the downside risk for the investor

25. RISK ASSESSMENT Each variable is affected by variety of economic factors • Price fluctuations • Competition • Increased cost of labor • Ability to shift all supply purchases to Mexico • Economic crisis / recession / inflation • Sales • On time production development • Ability to produce and sell at full capacity • Dependence on price fluctuations • Competition • Taxi option • Execute option to expand into taxi market • Ability to penetrate market

26. RISK ASSESSMENT Sovereign Risk Currency exchange and convertibility Moderate No. Currently, Vehizero is purchasing some parts from the US. Operations and sales will be in Mexico, and they plan to purchase all of their supplies in Mexico as well. As they expand into other countries, this will become a larger risk. Impact Expropriation Low No. Government is relatively stabilized under Fox, and Mexico is a low risk country for expropriation. Vehizero has small amounts of equity and cash flows making it a low risk target. Risk Mitigated Regulatory reforms, legal changes Low Yes. Incentives aligned with government initiatives to reduce pollution. Incentives also aligned with global initiatives such as the Kyoto Protocol and Chicago Climate Exchange (CCX) Economic stability Moderate No. Mexico has a long history of high inflation and periodic economic crises. However, President Fox achieved unprecedented financial and economic stability since being elected in 2000. Corruption Moderate No. Fox issued its most comprehensive anti-corruption plan in 2001. Still ranked 51 out of 91 countries on the 2001 Corruption Perception Index issued by Transparency International.[1] Sovereign risk is low

27. RISK ASSESSMENT Pre Completion Risk Completed on time Moderate No. Completed before major automakers introduce competitive alternatives. Projected returns delayed if Vehizero does not complete construction on time. Impact On budget Low Yes. Management and construction team have project and development expertise. Barriers to entry Low Somewhat. Small niche market and unattractive to large automakers. Product is in line with current government initiatives to reduce air pollution. Risk Mitigated Force Majeure Low No. Mexico City is on a fault and experiences periodic earthquakes. Although the probability of this occurring is low, it would have significant financial consequences. Pre-completion risk is low with certain ability to mitigate it further

28. RISK ASSESSMENT Operation Risk Supply interruption Low No. Mexico has a large automotive parts industry in place. Impact Technology High No. Product quality and competitive advantage depends on their ability to get and enforce patents and develop fuel cell and battery technology. Labor Quality Low No. There is an abundance of labor qualified to do the job. Risk Mitigated Market risk: Price of vehicle Moderate No. Strong competitors. Major automakers have large market share and production efficiencies. Lowering prices will have a significant adverse impact on Vehizero. Market risk: Quantity of vehicles Moderate No. The quantity risk is dependent on the substitution effect. Although Vehizero has a unique market niche as a producer of one-ton hybrid electric vehicles, large automakers pose a viable threat by providing competitive substitutes. Environmental Low Yes. The company meets environmental standards in their production and paint process. They use lead-acid batteries that are 100% recyclable. Management Moderate No. Weak incentives make management more likely to leave the company. Operation risk is moderate with little ability for Vehizero to mitigate

29. RISK ASSESSMENT Financing Risk Funding High No. Financial return on the project is likely to be insufficient to attract pure financial investor. The company is likely to revert to limited pool of socially conscience investors. Impact Interest rate Moderate No. Although inflation is stabilized under the current government, Mexico has a long history of economic crises and is vulnerable to monetary policy changes if new government takes office. Such events could cause significant interest rate spikes. Risk Mitigated High financial risk with no clear opportunity to mitigate

30. IMBEDDED OPTIONS Carbon trading option is not viable • The possibility to trade carbon emissions quotas is extremely unlikely: • Although Mexico ratified the Kyoto Protocol no clear carbon bond valuation has been established • Although alternatives to the Kyoto Protocol are being discussed in various sectors of the world community, they face the same challenges as Kyoto Protocol. • Given Vehizero’s size, value of the carbon bond would be minimal “CREATION OF THE CARBON BONDS TRADING MARKET IN THE IMMEDIATE FUTURE IS UNLIKELY” Source in the Chicago Carbon Emissions Exchange The creation of the carbon emission market seems will not be viable for the next few years

31. IMBEDDED OPTIONS Latin America expansion option is difficult • Other Latin American Cities are much less polluted than Mexico City • Of all Latin American Cities, only Mexico City made it top # 10 most polluted world cities • Mexico City pollution level is 2 times higher than any other Latin American City • Some Latin American Countries already have local competition • Solectria already operates in Chile • Brazil has its own electric vehicle manufacturer that specializes in buses • Public transportation systems in Latin America are at different stages of development • Different per capita incomes as well as different gasoline vehicle prices will influence the possibility of expanding into other Latin American Cities The possibility of success of Latin American expansion option seems less likely than possibility of success in the Mexico City, as some cities in Latin America have already established players.

32. IMBEDDED OPTIONS Mexico City remains among the world’s dirtiest cities Source: World Bank, World Development Indicators, 1998; Air pollution Mexico City has a highest air pollution level among Latin American Cities. As a result, the government effort to clean the environment is one of the strongest in Latin America

33. Outline of the Material • The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors • Overall Hybrid Vehicle Market does not look attractive, however the small delivery truck segment looks promising • Our valuation of Vehizero sets a range between $ –3.3 million and $ 10.2 million, while the project’s IRR is estimated to be 14% • Based on the characteristics of the project, Vehizero is more likely to attract socially-oriented investors than strictly financial investors • Identified 5 groups of potential investor • Developed a rating system to evaluate the capital opportunities • Evaluated the probability of securing funds from each group • Thus, we recommend that Vehizero launch an exploratory effort in the U.S. and internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage 

34. POTENTIAL INVESTORS Identified 5 groups of potential investors • Development Agencies • International organizations such as World Bank, International Finance Corporation, USAID, and others • Social Venture Capital • Private Capital pursuing dual objectives of financial return and social benefit • Publicly traded mutual funds that invest in socially responsible enterprises • Wealth Individuals • Wealthy Individuals that donate money to various social causes • Bank debt • Traditional bank loans • Traditional Venture Capital • Private capital seeking financial returns

35. POTENTIAL INVESTORS Attractiveness to Vehizero Ability to secure funds Developed Rating System to Evaluate Capital Opportunities CRITERIA RATED AS LOW, FAIR, GOOD OR HIGH • Does the current Vehizero management retain control over strategic decisions? • Is there financial flexibility regarding the timing of the payout to investors? • Will investor stick with Vehizero in the long-term • Does Vehizero offer attractive returns to this particular type of investor? • Are the risks inherent to Vehizero project acceptable to investor? • Is there strategic fit between Vehizero project and investor’s objectives?

36. POTENTIAL INVESTORS Ability to secure Funds Developed Matrix to Compare Sources of Financing Excellent Sources High • Attractive return • Low risk • Strategic fit Attractiveness to Vehizero Good Ability to obtain funds Fair • Strategic Control • Financial Flexibility • Risk of abandonment Unattractive Sources Low Low Fair Good High Attractiveness To Vehizero The matrix evaluates the attractiveness of the different sources of financing from the prospective of the potential investor and Vehizero using the criteria above

37. POTENTIAL INVESTORS Development Agencies are a likely group to provide capital to Vehizero • Accept lower returns. Development Agencies accept lower returns than strictly financial lenders • Tolerate higher financial risk but very cautious towards social risks. Although Development Agencies may tolerate high financial risks, they are quite cautious of the risk of negative publicity, such as misused funds, negative social or environmental impact. To secure funds, Vehizero must demonstrate the positive environmental effect of the project • Strategic fit. Development Agencies have very good strategic fit with Vehizero, as both entities are trying to improve the environment • Strategic control. Although Development Agencies strictly monitor the use of their funds, they usually do not interfere into daily operations of the enterprise • Financial Flexibility. Most financing from Development Agencies comes in the form of debt, which limits the financial flexibility for Vehizero • Risk of abandonment. Development Agencies are usually more tolerant towards downside in operational performance and rarely abandon their projects

38. POTENTIAL INVESTORS Development Agencies are a very likely group to provide capital to Vehizero WORLD BANK – International Finance Corporation • Mexico accounts for the second largest in the Bank's disbursed and outstanding portfolio, totaling US$ 11.1 billion or 9.4 percent of the Bank's total portfolio • Bank’s Strategy in Mexico involves expansion of the “Air Quality Program” to a second phase in Mexico City • Currently, the World Bank studies the granting of a US$ 11.8 million loan for the Santiago (Chile) plan, whose main objective is to reduce the emissions of polluting gases in the city. Some money will go the the local producer of the electric buses. • Our initial contact with the Bank’s private investment arm – International Finance Corporation – indicated the possibility of funding

39. POTENTIAL INVESTORS A related business in Mexico City has already secured funding from IFC INTERNATIONAL FINANCE CORPORATION • In year 2001, IFC approved $ 10 million investment to Combustibles Ecologicos Mexicanos (Ecomex), the only supplier of the compressed natural gas for vehicles in Mexico City. • The investment is split between $ 1.5 million quasi-equity and $ 8.5 million debt • Ecomex has proved to IFC the strong positive environmental effect of the venture.

40. POTENTIAL INVESTORS Vehizero may qualify for funding from IFC INTERNATIONAL FINANCE CORPORATION • IFC funds different type of projects based on their expected financial performance and the economic sector in which they are developed. • IFC invests in either equity or debt. • The minimum amount of investment is US$10M, which can’t exceed 25% of the equity of the company. Also, the investment can’t exceed 50% of the project value. • However, exceptions can be made on a case-by-case basis. Source: Country Officer IFC Mexico

41. POTENTIAL INVESTORS We recommend Vehizero to contact the IFC representative in Mexico INTERNATIONAL FINANCE CORPORATION Mr. Manuel Núñez, Resident Manager Email: Mnunez@ifc.org Prado Sur 240, Suite 402 Lomas de Chapultepec Delegación Miguel Hidalgo Mexico D.F. 11000, Mexico Phone: (52-5) 520-6191 Fax: (52-5) 520-5659 Ing. Gabriel España Carbajal Investment Officer/Country Officer gespana@ifc.org

42. POTENTIAL INVESTORS Other Development and Government Agencies Development Agencies USAID Provides Grants and Other Financial Aid to Promote the Environment U.S. Agency for International Development Information Center Ronald Reagan Building Washington, D.C. 20523-1000 Telephone: 202-712-4810 FAX: 202-216-3524 US Environmental Protection Agency (EPA) Works with Private Sector to promote the use of energy-efficient equipment U.S. Environmental Protection Agency Office of the Comptroller Environmental Finance Program (Mail Code) 2731R Ariel Rios Building 1200 Pennsylvania Ave., NW Washington, D.C 20460 Government Agencies México City’s Department of the Environment

43. POTENTIAL INVESTORS Development Agency, and IFC specifically, are attractive option for Vehizero Good strategic fit indicates the opportunity for Vehizero to attract funds from Development Agencies. However, the small size of the project might be an issue to overcome

44. POTENTIAL INVESTORS Securing Bank debt is highly unlikely • Project returns are acceptable. Vehizero’s projected return of 14% will probably be sufficient to guarantee the repayment of the bank’s loan. • However, the risk is totally unacceptable. There are 2 issues that make risk of Vehizero project to high for the traditional lending institution • Collateral. Lack of tangible, marketable assets that could be pledged as a collateral increases the risk of negative returns. • Credit History. Vehizero has not built up a credit history, as a result is considered a highly risky investment • Poor Strategic fit. Commercial Banks rarely invest in the start-up entities, such as Vehizero. • Strategic control. Banks rarely interfere in a day-to-day operations of the borrower. • Financial Flexibility. Strict interest payment, principle repayment schedule, and debt covenants make the bank debt the least flexible category of capital. • Risk of abandonment. High risk of abandonment as bank can pull out the capital at the first minor violation.

45. POTENTIAL INVESTORS Securing bank loan seems unlikely Lack of collateral and credit history, as well as early stage of the development of Vehizero makes obtaining bank loan unlikely

46. POTENTIAL INVESTORS Traditional Venture Capital Firms are not a good option to pursue • Vehizero returns are inadequate. Even in the United States VC do not invest in projects that offer less than 25% returns • Tolerate risk. VC accept the fact that 7-8 of the ventures will eventually fail. • Strategic fit. Good strategic fit due to the interesting product concept, however, traditional VC do not value the social/environmental impact. In addition, this group will be most concerned with Vehizero exit strategy, which at this point is not clear. • Strategic control. Depends on the style, could be very hands-on • Financial Flexibility. Relatively flexible • Risk of abandonment. Venture Capital firms will sell the investment at first available opportunity

47. POTENTIAL INVESTORS Venture Capital in Mexico • Total investment by international private equity funds in Mexico is $ 250 million • Private equity investors in Latin America will increase Mexico weight from 27% to 37% of the total Latin America portfolio • The hurdle rate on the Venture Capital investment is 30%-40% • Investments are made in variety of different sectors Mexican Private Equity Investment by Sector Source: Venture Capital Journal March 1, 2001;

48. The supply of foreign venture capital is almost exclusively foreign As the local institutional investor base is still underdeveloped, the supply of venture capital is almost exclusively foreign Source: Venture Capital Journal March 1, 2001; The Economist Intelligence Unit, Country Finance Report, April 2001 In most cases, Vehizero size will too small for large international players

49. POTENTIAL INVESTORS Securing capital from traditional VC firms seems unlikely Lack of strategic industry fit, small size, and low return make Vehizero extremely unattractive to traditional Venture Capital Firms

50. POTENTIAL INVESTORS Social Investment Funds offer the opportunity of raising some capital • Accept lower returns. Social Investment Funds accept lower returns than strictly financial lenders • Tolerate higher financial risk but very cautious towards social risks. Just like Development Agencies, Social Investment Funds may tolerate high financial risks, they are quite cautious of the risk of negative publicity, such as misused funds, negative social or environmental impact. To secure funds, Vehizero must demonstrate the positive environmental effect of the project • Strategic fit. Social Investment Fund have very good strategic fit with Vehizero, although they prefer to fund expansion phase, not seed/start-up phase. • Strategic control. Usually exercise laissez-faire approach to investment • Financial Flexibility. Very flexible • Risk of abandonment. Rarely abandon their projects, however, the financial viability of the funds themselves is sometimes a question.