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Raising Venture Capital An Entrepreneurial
GP/LP Perspective April 2 4, 2008
John Cook Executive Director WJ Hopper Co.
Limited Chairman Thunderbird Private Equity
Center Executive Advisory Board
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• WJ Hopper Co. Limited
• www.wjhopper.com
• Boutique Investment Bank with global
  representation
• London, Zurich, San Francisco, Brussels
• Tokyo, Tel Aviv, Sao Paolo, Reykjavik
• Focus International Private Placements
• Clients Leading Private Equity Firms and
  Private Companies
• Investors Institutional, Government and Private
  Investors
• John Cook Purdue University BS Thunderbird
  MBA International Harvester, Merrill Lynch,
  Security Pacific Bank

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What are effective strategies and tactics to
raise capital, both for entrepreneurs and fund
managers? Vision, strategy, tactics
and lessons learned
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Importance of Fundraising

Raising a new fund is an event of singular
strategic importance for a private equity fund.
The firms future is, in effect, placed into the
hands of institutional investorswhose capital
allocation decisionsare a key influence in
shaping the private equity industry. These
investors will, by choosing whether or not to
participate in the fund, either provide a mandate
for continued growth or cast a collective vote of
no confidence from which very few managers will
ever recover.
Source Fundamentals of Private Equity - PEI
2008
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Fundraising Ecosystem
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Three Layer Cake
(USA / EUROPE / ASIA / LATAM / MIDEAST)

Sovereign Wealth Funds
Banks
Limited Partners
Insurance
Governments
Family Offices
Corporations
Endowments
Secondaries
Foundations
Pension Funds
Fund of Funds
USA / EUROPE/ ASIA/ LATAM/ MIDEAST
General Partners
CARLYLE
GOLDMAN
NEA
CVC
Portfolio Companies
A
H
B
G
F
E
C
D
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Stakeholders
Audit
Regulatory
Legal
LPs Europe
LPs ASIA
LPs USA
Acct
LPs LATAM
Advisor
500 MM Thunderbird Private Equity Partners
GPCabrera Mgt LLC
EXIT IPO TRADE SALE
CUSTOMERS SUPPLIERS EMPLOYEES LENDERS
E
C
A
D
B
ENTREPRENEURS
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Fundraising Process
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Five Step Process Total Time 12-24 Months
DD/Closing
Road-shows
Marketing
Pre-Marketing
Strategy Formulation

• LPs with decision-making process move forward.
• Due Diligence documents sent to LPs
• LPs visit managers office
• LPs agree to commitments
• Communicate closings to remaining LPs

• Contact potential LPs and distribute Fund
  marketing material
• Send overview / teaser to initial targeted
  parties
• Send PPM to requesting parties
• Set up conference calls or face-to-face meetings
  for road-show period
• Complete LP Questionnaires
• Invite LPs to visit HQ

• Understand and articulate market opportunity
• Initial formulation of fund strategy and tactics
• Internal and external review and evaluation
  resources, competition, market opportunity, team
• General agreement on fund strategy, terms, team,
  process and documentation

• Preparation of documents/DD material
• Select key advisors
• Work with advisors to create suite of documents.
• Map universe of LPs, decide on who to approach
  and when and by whom
• Finalize LPA, PPM, PPT, overview, diligence
  package, subscription agreements.
• Develop communications strategy
• Form new fund entity

• On-site presentations and meetings with
  interested LPs
• Various formats possible depending on size of
  team and geography
• Individual visits to LPs combined into a tour
• or
• LP group invited to luncheon or other event
  hosted by GP

Proceed with final closing process
Begin to get signed subscription agreements
Decision to Proceed
Prepare to go to market
Manage process and monitor feedback
Identify and interview advisors
Marketing strategy agreed
Incorporate feedback from market
Monitor objections, make refinement in process
Begin investment process
Retain Advisors, Form Team
Completed Marketing Docs
Face-to-face meetings with LPs
First, interim and final closings
Road-show set up with LPs
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Documents

Marketing Package
Due Dilligence Package
Overview Flip chart presentation Private
Placement Memorandum

• Subscription agreement
• Summary of all contracts
• Actual contracts
• (only if requested)
• Names of advisors to the fund
• Sample reports to investors
• Estimated timelines
• Asset allocations

• Curricula vitae
• Attribution analysis
• Investment transactions
• Management references
• Pipeline of deals
• Articles of incorporation
• Risk mitigation

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Private Placement Memorandum

• Executive Summary
• Investment Thesis and Rationale
• Investment Strategy, USPs and Value Add
• Sector and Geographic Focus
• Investment Process, Diligence Process, Use of
  Debt, Exits
• Team Members and Advisory Board
• Track Record with Attribution Analysis
• Deal Sourcing and Pipeline
• Key Terms of the Fund
• Risk Factors and Conflicts of Interest
• Legal and Regulatory Matters
• Appendices

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Standard Limited Partnership Terms Objective
Alignment of Interests

Fund name Thunderbird Private Equity Partners
LP Legal structure Delaware Limited
Partnership Manager Cabrera Capital Management
LLC Fund size 500 Million Minimum 5
Million Term 10 years Two Extensions Manageme
nt fee 2 during investment period then
declining Carried interest 20 with 8 Hurdle
Rate GP contribution 2 of Committed
Capital Co-investments Yes for Large Commitments
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• Vision, Strategies
• and Tactics

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What is the Fundraising Vision?

• To raise the right size fund
• With the right team
• With the right strategy
• On the right terms
• With the right mix of LPs
• At reasonable time and cost

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Strategic Questions

• Blanket The Market Or Be Selective?
• Geographic Target Local, Regional, National,
  Global?
• Types of Target Corporate Venture, Active
  Passive, Govt?
• Which Staff Should Undertake The Task?
• Documents Who, What, When, Where, How?
• Selecting Advisors Legal, Accounting,
  Communications
• How Much Time and Money Will It Take?
• Use Placement Agents Or Go It Alone?

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What General Partners Need

• HIGH QUALITY, VALUE-ADD INVESTORS
• Good Relationships with LPs
• Strong LPs with Patience, Understanding,
  Insights and Trust
• LPs with Sophisticated Approach to the Asset
  Class
• Low Turnover of LP Investment Managers
• Global Diversification of Investor Base
• Value Added LP Base Advisory Board Members,
  Co-Investors
• No Interference in Running the Fund Little
  Friction
• Help with Exits, MA Opportunities, Company
  Building
• Help with Secondary Market for LPs Who Need to
  Sell

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What Limited Partners Want?

• DIVERSIFICATION, HIGH RETURNS, LOW RISK
• Attractive Market Opportunity Over Long Time
  Horizon
• Broad and Deep Pipeline of Deals Systematic
  Approach
• High Quality Team with Cohesion, Credibility,
  Balance, Stability
• Prefer to Back Strong Teams No One-Man-Band
• Portfolio Diversification Across Sectors,
  Stages, Geography
• Special Terms Co-Investments, Technology
  Window, MA or IPO Rights
• Stable Investment Environment Regulatory,
  Economic, Fiscal
• Controlled and Manageable Risk Parameters
• Clear Value Creation Strategy of the Team
• Serial Relationship with GPs
• Clear Exit Routes via MA, IPO, Strategic Sales
• Lower Fees Equitable Risk Sharing

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Target Investors LP Decision Process

• Insurance Companies Institutional Model
• Commercial Banks Institutional Model
• Investment Banks Strategic / MA / IPO
• Pension Funds Institutional Model
• Corporate Investors Strategic Drivers
• Foundations Opportunistic / Strategic
• Endowments Opportunistic / Strategic
• Fund of Funds Institutional Model
• Governments Strategic / Social Objectives
• Private Investors Opportunistic / Personal

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Sovereign Wealth Funds 2.5 Trillion Problem

• Abu Dhabi Investment Authority 875 billion
• Government Pension Fund of Norway 350 billion
• Government of Singapore GIC 330 billion
• Saudi Arabia 300 billion
• Kuwait Investment Authority 250 billion
• China Investment Corporation 200 billion
• Singapore Temasek 159 billion
• Stabilization Fund of Russia 158 billion
• Canada Pension Plan 119 billion
• Australian Government Future Fund 61 billion
• Qatar Investment Authority 50 billion
• Alaska Permanent Fund 40 billion
• Libyan Investment Authority 40 billion
• Brunei Investment Authority 30 billion
• Korea Investment Corporation 20 billion
• Malaysia Kazahana National 18 billion

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Wrong Attitude

• This is a Piece of Cake
• My Fund Was Made In Heaven
• Every LP Will Want My Fund
• Raise as Much Capital as Possible
• This Will Take No Time At All
• LPs Are Real Dummies
• Target All LPs Of All Types In All Categories
  Everywhere
• No Need For Personal Visits
• No Need For Professional Advisors

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Right Attitude

• My Fund Must Have Its IssuesAnd Problems
• Only A Few LPs Will Be Interested In My Fund
• Better To Pace Myself, Do This In Stages
• Work My Network Personally
• This Will Take 5 Times Longer Than I Planned
• This Will Cost 5 Times More Than I Planned
• LPs Are Pretty Experienced Folks
• Target Specific LPs Of Specific Types
• Be Prepared For Travel
• Good Advisers Add Value

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Fundraising Trends
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Big Picture

• Explosion of Private Equity Globally
• Greater Acceptance of Asset Class by
  Stakeholders
• Larger Fund Sizes, Larger Institutional
  Allocations
• Top Firms Produce Best Returns - Persistence
• Growth of Secondary Market but at a price
• Greater Sophistication at GP and LP Levels
• More Transparency, Better Investor Relations
• Standardization of Terms Conditions
• Greater Value Added Role of GP
• Better Governance and Regulatory Environment
• Better Risk Measurement and Control
• However --- Much More Criticism of the Industry

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Current Environment

• Buyout boom of 2003-2007 has come to an end (or
  paused)
• Buyout firms paid too much for deals at the
  2006-2007 peak
• Debt market closed for larger deals, more equity
  to complete deals
• Recession is fully underway may be long
  recovery
• Dollar at all time low and dropping
• Mortgage market in turmoil with subprime mess
• Stock markets increasing volatility
• Financial sector Bear Stearns, UBS, Merrill
  Lynch, Northern Rock
• Sovereign Wealth Funds coming on stream big time
• Fed and White House taking emergency steps to
  provide stability
• AND YET --- private equity allocations are
  increasing!!

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Popular Sectors / Trends

• Traditional TMT, Life Sciences, Healthcare
• Mid-Market Buyouts / Expansion / Growth
• Specialized
• Clean Tech Sector
• Energy the hydrocarbon problem
• Infrastructure electric grid, telecoms, ports,
  transportation
• Emerging Markets BRICS N11
• First Tier India, China, Central Eastern
  Europe
• Second Tier Latin America, CIS, Middle East,
  Africa
• Increasing Interest in Venture Growth versus
  Buyouts
• Globalization / Regionalization Opportunities

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Predictions for 2008

• Slow Down in Mega Buyouts (credit
  crunch/recession/falling markets)
• Pick Up in Late Stage Venture Other Sectors
  (less leverage)
• Non-US Markets to Stay Strong (less mature,
  still growing)
• Secondaries Distressed Strong Growth, Tighter
  Pricing
• Sovereign Wealth Funds Petro Dollars Make
  Bigger Splash
• Think Contrarian - Take Advantage of the Carnage
• Biggest Challenge Build the Case for Value Add
• Greater Convergence of Asset Classes

Source Dow Jones Private Equity Analyst Review
Outlook
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Survey of Institutional Investors 2008

• Plans to Increase / Decrease Allocations
• 78 plan to maintain or increase allocations to
  private equity
• 22 plan to reduce or terminate allocations to
  private equity
• Areas of Increasing Interest
• Distressed debt, mezzanine, secondaries,
  co-investments, venture capital, growth equity,
  small and mid-market buyouts, cleantech, China,
  India, Russia, Western and Eastern Europe, Latin
  America
• Biggest Areas of Concern
• Credit crunch, economy, recession, exit markets,
  massive fund sizes, manager selection, tax law
  changes

Source Dow Jones Private Equity Analyst Review
Outlook
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Where Does The Money Flow?

Institution type and geographical split of
investors in private equity funds
Source PEI 1600 active LPs worldwide
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Sector Allocations Who Gets Most?
Top 50 US pension funds current
average allocation breakdown by fund type.

Source PEI 1600 active LPs worldwide
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Regional Allocations PE Stays Close to Home

Global plus North America, Europe,
Asia/Pacific based LPs average geographical split
of Investments
Source PEI 1600 active LPs worldwide
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Source Probitas Partners
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Source Probitas Partners
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Source Probitas Partners
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EMPEAs 2007 fundraising statistics show that
private equity funds investing in emerging
markets raised US59 billion in fresh capital in
2007, a 78 increase over the US33 billion
raised in 2006. Fund sizes broke records, with 19
funds raising US1 billion or more. The average
size of closed funds grew dramatically, from
US272 million in 2006 to US426 million in 2007.
Source Emerging Markets Private Equity
Association
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Source Emerging Markets Private Equity
Association
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Source Emerging Markets Private Equity
Association
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2007 REVIEW 2008 OUTLOOK USA Changes in
Capital Commitments
2007 ACTUAL 2007 ACTUAL 2008 PROJECTED 2008 PROJECTED 2008 PROJECTED
ALL USA PRIVATE EQUITY 300 B 100 180 B 320 B 100
BUYOUTS 230 B 75 125 B 250 B 65-70
VENTURE 32 B 10 23 B 37 B 12-15
OTHER 45 B 15 30 B 50 B 15-28
Source Dow Jones Private Equity Analyst
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Lessons Learned Tips Tricks
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The Marketing Push

• New LP Relationships are the Hardest to Cement
• Start Pre-Marketing Two Years Ahead of
  Fundraising
• Be Prepared for the Long Journey!
• Assemble All Documents Before Fundraising
• Document Everything, Especially Track Record
• Get Local Anchor Investors in First
• Think of Every Question Ahead of Time
• Designate One Senior Partner As Point Person
• Brief Your References, Keep Them Informed
• Use Professional Advisors
• Use Technology Video OK But Face to Face
  Better

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The Marketing Push

• Determine Priorities Close To Home LPs First
• Leverage Your Secret Sauce Why Are You Unique?
• Spoon Feed LPs What They Need No Big Push
• Use of Virtual Data Room
• Learn From Each Presentation Adopt and Adapt
• Do Not Push LPs for Early Decisions (Court a
  Negative)
• Deal Attribution Critically Important
• Track Record Is 90 of the Game Present it
  Well!
• Answer Each LP Question Carefully
• Must Involve Most Senior Team Members
• Must Have Market Terms (For Your Fund-Type)

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The Marketing Push

• Keep in Front of LPs Send Stuff Regularly
• Must be a Good Fit with LP Strategy and Timing
  
• Talk About the Mistakes and Lessons Learned
• Show Succession Plan is in Place
• Think Long Term -- Ten Year Marriage
• Be Anecdotal, Personal Relationships Matter
• Two Way Conversation Learn to Listen and
  Question
• Lighten the Atmosphere Be Relaxed
• Send Thank You Notes for Meeting and Advice
• Get used to it -- Fundraising is a Life Style!

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Conclusion What it Takes?

• Takes Time 12-18 months to raise new funds
• Takes Skill It is an art, not a science
• Takes Luck External events impact success
• Takes Money 1 million per launch
• Takes a Team Cohesive, hungry, smart,
  dedicated
• Takes a Story who, what, how, when, where, why
• Takes Persistence Must turn over many rocks!

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Happy Ending Thunderbird Private Equity Partners
Closes Fund at 600 million 20 Over-Subscribed!
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Thank You! john.cook_at_wjhopper.com