3/21/2007

How to Start a Venture Capital Fund

Trevor Loy
March 20, 2007

INFORMATION CONTAINED IN THIS PRESENTATION IS CONFIDENTIAL AND PROVIDED FOR CONVENIENCE ONLY AND MAY NOT BE RELIED UPON. PROSPECTIVE INVESTORS MAY RELY ONLY
UPON A FLYWHEEL PRIVATE PLACEMENT MEMORANDUM OR AN OFFICIAL SUPPLEMENT THERETO.

How to Start a Venture Capital Fund

AGENDA

Introduction & Orientation

Basics of a Venture Capital Fund

Entrepreneurship in the VC Industry Context
 Opportunity
 Strategy
 Team & Track Record

Logistics & Fundraising

1
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

1
 3/21/2007

Introduction & Orientation

BUSINESS/CONSULTING CAREER
Trevor Loy
Consulting with 20+ tech start-ups

Gigabeat (acq. by Napster)
Founder &
Visio (acq. by Microsoft)
Managing Partner
ParkingNet (failed)
Flywheel Ventures
Brooktree (acq. by Conexant)

Intel (Pentium, Pentium II)

Teradyne
VC CAREER NON-PROFIT INVOLVEMENT

3 Flywheel funds (1
Social Venture Partners
institutional size fund)

$34 million under mgmt
Social Venture Network

51% annual IRR since 2002
Southwest Creations Collaborative

5 current company boards

4 VC-related non-profit / ACADEMIC CAREER
university boards
BSEE, MSEE, MS MS&E Stanford

Founding Director of Stanford
SCTI, Kyoto Japan
OTL Gap Fund
Stanford Technology Ventures Program
2

Venture Capital Institute, NVCA
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Flywheel Ventures At A Glance

THE METRICS THE PEOPLE

Founded 1999
5 full-time team members

3 “phases”
Several part-time & outsourced

3 funds (2002,2005,2007) team members

$34 million under management
5-person Limited Partner

18 portfolio company Advisory Committee
investments
15-person Strategic Advisory

New Mexico, Arizona, Colorado, Board
Utah, Montana, Nevada,
24-person Acceleration Partners
California
62 Limited Partners (investors)

2 exits/realizations
12 Flywheel Leaders

1 shutdown
3 offices

51% annualized IRR since 2002

3
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

2
 3/21/2007

How to Start a Venture Capital Fund

AGENDA

Introduction & Orientation

Basics of a Venture Capital Fund

Entrepreneurship in the VC Industry Context
 Opportunity
 Strategy
 Team & Track Record

Logistics & Fundraising

4
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Portfolio Investment Allocation

Traditional Assets

Institutional Cash & Publicly-Traded Publicly-

Investors Money Stocks & Traded
Pension Funds Market Mutual Funds Bonds
Government Funds Funds
Corporate Funds
Univ. Endowments
Private Foundations Hedge Commodities Options &
“Alternative” Investments

Family Offices Funds & Currencies Derivatives

Insurance Co’s
Banks
Wealthy Individuals Venture Private Equity “Special
“Fund of Funds” Capital &Leveraged Situation”
Funds Buyout Private
Funds Funds

5
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

3
 3/21/2007

Relative Size of Asset Classes

Mutual funds $8,906,000,000,000

Hedge funds $1,000,000,000,000

Venture capital $ 250,000,000,000

Source: BLS website, Investment Company Institute, Thomson Financial, NVCA

6
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Private Equity Versus Hedge Funds

Private Equity Funds: Hedge Funds:

Mostly sophisticated
Mostly “qualified” individual
institutional investors investors

Most interests in fund sold
Interest often sold to
directly to limited partners investors by a broker

10-12 year investment
Designed to meet short term
horizon; no short term liquidity needs
liquidity
Investor has control over

No investor control over liquidity
liquidity
Invest in variety of vehicles

Invest in stock of small and markets, taking short and
number of private companies long positions
for 2- 15 years
Can advise investors

Do not advise limited partners
Actively participate in and can

Do not trade in or affect affect public markets
public markets

7
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

4
 3/21/2007

Private Equity Vs. Venture Capital

Private Equity Funds Venture Capital Funds

A.k.a. “Buyout Funds”
Invest in Fledgling Ventures

Buy Existing Operating
Almost Always Private
Companies or Divisions
Often Own a Minority Interest

Rarely Use Debt

Buy Public or Private Companies

Key Focus on Market

Usually Own All or a Majority Validation, Product Strategy,
Interest Business Model, & Team-
Building

Often Use Debt (“Leverage”)

Rarely Accept Much Raw

Key Focus on Financial & Tech Risk
Operational Improvements
Time Horizon 3-7 Years

Time Horizon 1-5 Years
High Risk, High Return

Lower Risk, Lower Return  Often Lose 100% of $
 “Home Runs” Pay for
 Rarely Lose $ on a Deal Losses
 Still Aim to Beat Public Mkt
8
Note: Confusion as Both Are Often Called Private Equity
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Returns Show Risk Vs. Reward

Fund Type 1yr 5 yr 20 yr

Early VC 11% -8% 21%
Later VC 16% 0% 14%
> All VC 16% -3% 17%
Buyouts 27% 7% 13%
All PE 22% 4% 14%
S&P 500 7% 1% 10%
NASDAQ 6% 2% 12%
Source: Thomson Financial/National Venture Capital Association
9
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

5
 3/21/2007

PE/VC Has Much Higher Fund Risk

Manager Universe 10 Year Performance

90%

95th Percentile
75%

60%

45%
75th Percentile
30%

50th Percentile
15%
25th Percentile
5th Percentile
0%
US Large Cap US Small Cap
Mutual Funds2 Mutual Funds2 US Private Equity 3
-15%
1. This exhibit compares time-weighted and dollar-weighted 10-year returns to illustrate the dispersion of active returns in the public and private equity markets. For a more
detailed explanation of the data used in this exhibit, see Ilkiw, John H. and Karl Scheer, (2002) “What is the Relative importance of manager selection in the US public and
private equity markets?”, Consulting Practice Note, Frank Russell Company, November.
2. Source: Russell/Mellon; time-weighted returns, gross of manager fees.
3. Source: Venture Economics; dollar-weighted vintage year returns, net of manager/partnership fees and fund manager’s carried interest. Data extracted on
November 5, 2002 Private equity includes venture capital, buyouts, mezzanine debt and mezzanine equity.
10
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Growth of the US Venture Industry

At Year # Venture Capital Under

End Firms Mgt
1970 28 $1B
1980 89 $4B
1990 399 $31B
2001 943 $257B
2004 1,068 $261B

11 Source: 2004 NVCA Yearbook, prepared by Thomson Financial, page 18

Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

6
 3/21/2007

Structure of the VC Industry

Limited Fund of
Pension Fund Endowment
Partners (CalPERS) (Stanford)
Funds
(Investors) (Grove St)

VC Firms ABC 123 XYZ

(“General
Partners” or Ventures Ventures Fund
“Fund
Managers”)

Portfolio eBay
Cisco Google
Companies Intel

Yahoo Amazon
SUN
12
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Sources of Venture Fund Investors

Pension
Funds
42% Financial &
Insurance
25%

Corps. (as
LPs)
2%
Endow &
Indiv. & Fndn
Families 21%
10%
Source: 2003 data from 2004 NVCA Yearbook, prepared by Thomson Financial, page 22
13
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

7
 3/21/2007

Structure of An Individual Firm

LP

LP

LP
LP

LP
LP

LP
LP

Fund Entity Investments Portfolio

(Usually a Limited Partnership) Distributions Companies
Management Fee +
Share of Profits
Governance
General Partner Entity Investment Decisions
Investment
(Usually a Share of Profits Team
Limited Liability Company) (“Carried Interest”) Members
Management Fee Services
Management Company Services Employees,
(Usually a
Compensation Infrastructure,
Limited Liability Company) Brand

14
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Firms Manage Multiple Funds

LP

LP

LP

LP

LP

LP
LP

LP

LP

LP
LP

LP

Fund Entity Fund Entity Fund Entity

“I” “II” “III”

General Partner General Partner General Partner

Entity “I” Entity “II” Entity “III”

Management Company
(PERMANENT FIRM)

15
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

8
 3/21/2007

How People are Organized in a VC Firm

People Process

Several “general partners” drive
Each deal must have an
investment process identified “lead partner” who will
 Typically 5-10 deals per partner champion to the rest of the team
 Partners are often former
Lead partner organizes
entrepreneurs evaluation process

Mid-level associates/ analysts/
Other partners act as “checks
principals drive the process and balances” to ensure proper
 Deal screening due diligence, avoid known
 Due diligence human psychology risks
 Help for existing portfolio
Deals often require unanimous

Other in-house roles partner decisions to approve
 Finance
Firm offers a “term sheet” to
 Marketing entrepreneurs once it is ready to
 Recruiting/HR commit
 Operations
Legal documents completed after
term sheet is signed

Reference: Will Price, Hummer Winblad

16
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

How Does A Typical VC Fund Make Money?

35%

30

25

20

15

10

0
Total Loss Partial Loss 0-1.9x 2-4.9x 5-9.9x >10x

Source: Journal of Venture Economics, Sahlman 1990

17
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

9
 3/21/2007

How to Start a Venture Capital Fund

AGENDA

Introduction & Orientation

Basics of a Venture Capital Fund

Entrepreneurship in the VC Industry

 Opportunity
 Strategy
 Team & Track Record

Logistics & Fundraising

18
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

What Is Entrepreneurship?

“The pursuit of opportunity without

regard to resources currently controlled.”

 A Way of Thinking, Managing and Leading

References: Howard Stevenson, Harvard Business School

Tom Byers, Stanford Technology Ventures Program

19
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

10
 3/21/2007

What Does This Mean for a New VC?

You Have to Fish Where Everyone Else Isn’t

20
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Opportunities for New VC Firms

Criteria for VC Industry Flywheel Strategy
Differentiation Opportunity
Size of Fund Growth in Fund Sizes

Stage of Shift to Later Stage

Investment Deals

Region of Focus Geographic

Concentration in CA
and MA; focus on Asia
for expansion
Exit Strategy Shift to M&A (and
smaller exit amounts)
from IPOs
21
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

11
 3/21/2007

Fund Size Has Grown Tremendously

40
35
Number of New Funds

30
25
20
15
10
5
0 $25.1- $50.1- $100.1- $250.1- 500.1M-
>$1b
50M 100M 250M 500M $1B
1995 32 38 17 6 1 0
2005 14 14 28 32 10 1

Source: VentureXpert™ Database by VE & NVCA

22
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Average Fund Size Quadrupled in 10 Years

$200m

180

160

140

120

100

80

60

40

20

0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Sources: Venture Source (US)

23
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

12
 3/21/2007

VCs Moving Away From Seed Stage

90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%

0.0%
5

2
19

39

19

39

19

39

19

39

19

39

10

30

10

30

10

30
Q

Q
Early/Seed Late r/Expansion Linear (Early/Seed) Linear (Later/Expansion)

Source: PricewaterhouseCoopers/Venture Economics/National Venture Capital Association Mone yTree™

24
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Historic Opportunity in Seed /Early VC

Seed
Seed As
As Percentage
Percentage of
of All
All VC
VC Seed
Seed &
& Early
Early Valuations
Valuations

40% $16,000,000

$14,000,000
35%

30% $12,000,000

25% $10,000,000

20% $8,000,000

15% $6,000,000 Early

10% $4,000,000

5% $2,000,000
Seed
0% $0
Q295

Q196

Q496

Q397

Q298

Q499

Q300

Q201

Q102

Q402
A199

1980 1990 2000 2002

Source for both graphs: PwC/VentureEconomics/NVCA MoneyTree™

25
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

13
 3/21/2007

VC Still Dominated by USA

$25,000

$20,000

$15,000

$10,000
$5,000

$0
US ($M) Europe ($M)
Expansion/Later 16,916 5,892
Seed/Early 4,325 2,562

Source: PricewaterhouseCoopers/Thomson Financial/National Venture Capital Association MoneyTree™

26
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Within USA, CA and MA Dominate

CA
42%

22 others MA
22% 17%
MD
NJ NC
4%
5% 6%
PA
4%
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Financial
27
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

14
 3/21/2007

New Mexico Market Opportunity

Largest Funding Gap in U.S.

5.68%

4.56%
4.10%
3.39% 3.58%

2.66%

1.10%

0.02%

New Mexico CA MA U.S.

R&D as a Percentage of Gross State Product (R&D Intensity)
Venture Capital as a Percentage of Gross State Product

Source: National Science Foundation, AAAS & National Venture Capital Association, 2000 data
28
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Dramatic Shift from IPOs to M&A

700
600 M&A
IPO
500
Number of Issues

400
300
200
100
0
9M
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
'00
'01
'02
'03
'04
'05

Year
Source: Thomson Financial/National Venture Capital Association
29
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

15
 3/21/2007

Liquidity Drop in shift from IPO to M&A

400

300
Average IPO 200
Value > $200M 100

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 9M06
Median Val ($M) 112 108 182 342 247 322 223 228 255 203 236

$400
Ave. Disclosed
Acq Price $M

$300
Average M&A
Value < $100M $200

$100

$0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 9M06
$M 111 65 69 233 338 102 52 63 83 96 99
30
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

No Surprise: Exit $ Trailing Investments

$120,000

$100,000

$80,000
$ Million

$60,000

$40,000

$20,000

$0
1996

1998

2000

2002

2004

Investments ($M) Distributions to LPs ($M)

Source: Thomson Financial/National Venture Capital Association

31
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

16
 3/21/2007

Opportunities for New VC Firms

Criteria for VC Industry Opportunity Flywheel Strategy
Differentiation
Size of Fund Most funds can’t do deals Small fund ($32M) allows
less than $5M deals in $1M range

Stage of Fund size and risk profile Primary focus on

Investment have abandoned seed/early stage = little
seed/early stage (despite competition + better
continued highest % valuations
returns for seed/early
stage)
Region of Focus Most funds overlook the Geographic focus on
USA Mountain West region underserved region of USA
Mountain West

Exit Strategy Most funds can’t make M&A focus; capital effiency
money at the average M&A to ensure positive ROI on
exit size today small exit $
32
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Opportunity  Strategy  TEAM

33
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

17
 3/21/2007

The Flywheel Mission

Premier Seed & Early-Stage VC Firm in Southwest/Rockies…

…as
Measured
by
Superior
Financial
Returns

34
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Flywheel Investment Criteria

Geography Investment Size

AZ
CO
UT Up to $3M
NM $100K-
$1M

Sector Business Model

Semi- Advanced
conductors Materials Re-Segmentation + Capital Efficiency
CleanTech
Telecom / Disruptive
Networking
Software / Internet

35
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

18
 3/21/2007

Deal Sourcing & “Matching” Strategy

Entrepreneurial
Talent

Technology Active Unique,

Innovations Matching Proprietary
Process Deal Flow

Market
“The enduring competitive advantages in a
global economy lie increasingly in local
”
Identification things—knowledge, relationships, motivation—
that distant rivals cannot match.
—Michael Porter, HBS
36
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Opportunity  Strategy  TEAM

Trevor Loy Scott Caruso

Managing Partner General Partner

Founded Flywheel in 1999
Angel investor in NM & CO

Conexant, Gigabeat, Intel,
Founder of HotSpare
ParkingNet, Stanford, Teradyne
Co-Founder of

Founding board member, Stanford ComputeIntensive
“Gap” Fund, NMSU Arrowhead (sold to NTT Verio; $140M)
Center, UNM LoboLab
SUN Microsystems

BSEE, MSEE, MS MS&E, Stanford
BS New Mexico State

Kim Sanchez Rael Chris Traylor

General Partner Senior Associate

Co-Founder, Qynergy (SNL spinout)
Start-up experience with PSI

Senior exec, Intel
MBA from Univ. of New Mexico

Senator Bingaman (D-NM)
BA Kansas State University

BA Harvard, MBA Stanford

All Team Members Have Entrepreneurial

Experience in Technology Ventures
37
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

19
 3/21/2007

Flywheel Track Record

Historical IRR Performance of VC Funds by Vintage Year

100 50% IRR

80
60
40
20
0
-20
-40
0

2
5

0
-7

19

19

19

19

19

19

19

19

19

19

20

20
69
19

Source: Thomson Financial Venture Economics Database

38
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

How to Start a Venture Capital Fund

AGENDA

Introduction & Orientation

Basics of a Venture Capital Fund

Entrepreneurship in the VC Industry Context
 Opportunity
 Strategy
 Team & Track Record

Logistics & Fundraising

39
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

20
 3/21/2007

Logistics & Fundraising

1. Just Like a Start-Up, Develop Fundraising Materials
1. Business Plan (called a Private Placement Memorandum)
2. Powerpoint Presentation
3. Executive Summary
4. Case Studies of Past Portfolio Company Success Stories

2. Just Like an Entrepreneur, Prepare to Sacrifice

1. Typical First-Time Fund Requires 18 months to Close
2. Total Cost Can Exceed $250,000 in Addition to Lost Salary
3. Make Sure You Have “Skin In the Game”

3. Fundraising is Just Sales; Manage it the Same Way

1. Success is a Direct Result of Effort
2. Don’t Forget To Keep Your Investment Pipeline Warm As Well

4. Focus on the Message : the 2 or 3 Areas of Differentiation

5. Hire a Great Law Firm and Other Experts with Specific VC Fund Expertise
40
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

Question & Answer

Trevor Loy
Founder & Managing Partner, Flywheel Ventures
trevor@flywheelventures.com
+1.800.750.7870 x702
www.flywheelventures.com

INFORMATION CONTAINED IN THIS PRESENTATION IS CONFIDENTIAL AND PROVIDED FOR CONVENIENCE ONLY AND MAY NOT BE RELIED UPON. PROSPECTIVE INVESTORS MAY RELY ONLY
UPON A FLYWHEEL PRIVATE PLACEMENT MEMORANDUM OR AN OFFICIAL SUPPLEMENT THERETO.

21
 3/21/2007

Backup material

INFORMATION CONTAINED IN THIS PRESENTATION IS CONFIDENTIAL AND PROVIDED FOR CONVENIENCE ONLY AND MAY NOT BE RELIED UPON. PROSPECTIVE INVESTORS MAY RELY ONLY
UPON A FLYWHEEL PRIVATE PLACEMENT MEMORANDUM OR AN OFFICIAL SUPPLEMENT THERETO.

Necessary Ingredients to Support VC

Culture that supports

entrepreneurship/risk/failure/restarts

Available capital

Available talent at all levels

Exit markets

Unlimited ability to scale to penetrate global markets

43
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

22
 3/21/2007

Keys to USA Success in VC Industry

Capital formation
 Prudent man rule – enabled pension investment
 LP laws
 Capital gains tax reduction

Empowered entrepreneurs
 Capital gains tax reductions
 Stock options/team building tools
 Reasonable bankruptcy laws

Protect companies – IP laws

Abundant customers willing to do business with SMEs

Exit markets – the NASDAQ

Face-to-face investing/proximity

Cultural acceptance
44
Information contained in this presentation is confidential and provided for convenience only and may not be relied upon.
Prospective investors may rely only upon a Flywheel private placement memorandum or an official supplement thereto.

23