THE FUTURE OF HIGH TECH STARTUPS by mirit35

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									THE FUTURE
OF HIGH TECH
STARTUPS
 Investments by Venture Capitalists
          in 2000 v. 2001
The number of companies
funded by VC’s:


 • 7,094 (with 842 in telecom) in 2000
 • 3,928 (with 484 in telecom) in 2001
Total Amount Invested in
U.S. down 63%:

 • $99.6 billion in 2000
    – $17.9 billion in telecom
 • $36.5 billion in 2001
    – $5.9 billion in telecom
Average
Investment Size:
 • Approximately $14.0 million in 2000
   -   $21.3 million in telecom



 • Approximately $9.3 million in 2001
   -   $12.2 million in telecom
Small Growth in 4Q over 3Q
2001:

 • $7.1 billion invested in 4Q2001
 • $7.0 billion invested in 3Q2001

 • 856 companies funded in 4Q2001
 • 810 companies funded in 3Q2001
     SAMPLE TERMS FOR VENTURE CAPITAL
     EARLY ROUND INVESTMENTS DURING AND
     AFTER THE INTERNET BUBBLE


TERM          BEFORE              AFTER

CLOSING       1-2 month cycle,   3-5 month cycle,
              single closing     tranches based
                                 on milestones
TERM         BEFORE              AFTER

Dividends   None, or non-        Mandatory,
            cumulative payable   cumulative 8%
            when, as and if      per year
            declared by Board
TERM          BEFORE                AFTER

Liquidation   Original purchase    Multiple of
Preferences   price plus accrued   2-3x original
              dividends, and       purchase price
              participation with   plus
              common stock         participation
              with cap             with common
                                   stock
TERM         BEFORE   AFTER

Redemption   None     At option of holders,
                      up to 50% in 5 years
                      and remaining 50% in
                      6 years at purchase
                      price plus accrued
                      dividends
TERM              BEFORE                AFTER

Automatic    Qualified IPO with   Qualified IPO of
Conversion   no per share price   at least 5x
             limit                purchase price
TERM            BEFORE            AFTER

Anti-      Standard broad-based   Same
Dilution   weighted average
           anti-dilution
TERM            BEFORE                       AFTER

Voting   Investors must approve:      Investors must approve: change
Rights   change of rights, creation   of rights, creation of senior or
         of senior securities,         pari passu securities; payment of
         payment of dividends,         dividends, liquidation, board
         liquidation                   size, merger, consolidation or
                                       acquisition, redemption, debt
                                       or other
TERM          BEFORE              AFTER

Board Seats   2-3 Investors;      Same
              2-3 Common Stock;
              1 outsider
TERM         BEFORE               AFTER

Preemptive   Right to maintain    Same
Rights       pro rata ownership
TERM          BEFORE           AFTER

Pay to Play   None     Preferred loses anti-
                       dilution if don’t
                       participate in later
                       down round, or
                       preferred converts to
                       common if don’t
                       participate in later
                       down round
TERM            BEFORE                 AFTER

Right of        Investors have          Same
First Refusal   right to purchase
                shares not purchased
                by Company to be
                sold by other
                shareholders
TERM          BEFORE            AFTER

Co-Sale   None or limited to   Right to sell
Rights    right to sell with   with founder
          founder who sells    or any other
          shares               shareholder
                               (other than
                               another investor)
                               whosells shares
TERM         BEFORE    AFTER

Drag-Along   None     Right to force
Rights                shareholders to
                      approve sale of
                      company upon Board
                      and majority
                      shareholder approval
TERM              BEFORE               AFTER

Registration   Two demand rights      Two demand rights
Rights         after IPO, piggyback   on earlier of 4-5
               rights subject to      years of closing
               cutback, S-3 rights    or following IPO,
                                      piggyback rights
                                      subject to cutback,
                                      S-3 rights
TERM      BEFORE              AFTER

Founder   Portion up front,    Same
Vesting   2-4 year vesting
TERM         BEFORE              AFTER

Employment    None    May have with founders,
Agreements            key technical employees
TERM             BEFORE               AFTER

Information   Quarterly and annual   Monthly,
Rights        financial statements   quarterly and
                                     annual financial
                                     statements,
                                     annual business
                                     plan and budget

								
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