Venture Capital Staying the Course

1
Venture CapitalStaying the Course

• Charles Froland, Managing Director
• GM Asset Management
• Global Private Markets

2
Overview of GM Program

• 25 year program of investing
• Over 14 billion invested cumulatively
• Current program over 6 billion
• Over 125 GP relationship globally
• Direct investing program of 700 million
• Global scope from venture to bankruptcy investing
• Third asset management over 1 billion
• Staff of 15 exclusively devoted to program

3
Venture Capital Investments

• Why venture should be in program
• Where is venture now?
• What does GM do?
• How to get started
• Conclusion

4
Why Venture?

• Superior Long Term Returns
• Portfolio Diversification
• Exposure to growing IT/Healthcare markets
• Access to Growth Opportunities
• Private Equity, in general, has a value
  orientation

Venture Economics as of 9/30/03
5
Risk/Return Profile
Venture Startup
Emerging Private
Small Buyout
Venture Late Stage
Bankruptcy / Distress
Large Buyout
Expected Return ()
Venture Mezzanine
Mezzanine
Infrastructure
Expected Risk ()
6
Venture Offers Outperformance
Outperformance by vintage year in both IRR and
Distributions
Venture Economics as of 9/30/03
7
Expected VC Returns
8
Institutional Allocations

• Endowment most aggressive with 5-10
• Corporate pensions have been mixed investors at
  about 1-2
• Public pensions have been late to game but now
  aggressive in interest

9
Venture Market Where are we?

• Continued low levels of investing pricing good
• Overhang lower due to downsizing and slow
  fundraising pace
• Fundraising looking stronger end of 2004 through
  2005

10
Valuations by Stage
11
Profits lead IPOs
12
MA Leading Exits
13
GMAM Venture Strategy
Selection is Key

• Identify and maintain access to top performing
  relationships
• Longstanding personal relationships with top-tier
  venture teams
• Operationally stable firms with long-term staying
  power
• Strong discipline
• Maintain preferred LP status
• Advisory Board
• Network of relationships
• Value-added investor
• Balanced Portfolio
• Diversify by industry, geography, stage and time

14
Venture Strategy

• Historical Performance
• Partner attribution of deal record
• Cohort relative performance
• Breadth, continuity and loss ratio
• Sector performance
• Adjustment for risk
• Partnership Structure and Terms
• Alignment of interests fees and carry
• Covenants, representations and warranties
• LP rights
• LP advisory role
• Distribution policies

• Firm and General Partners
• Firm depth and stability of operations
• General Partners deal experience
• Technology domain expertise
• Operational capabilities
• Incentive structure
• Investment Strategy
• Network of entrepreneurs
• Sources of value added
• Corporate contacts
• Business development
• Recruitment
• Board activity
• Exiting management skills
• First mover capabilities
• Risk management strategy

15
Dimensions of Diversification
STAGE
STRATEGY
TIME
16
Building a Program

• Questions
• What is the minimum amount of venture that makes
  sense?
• How important are brand name funds?
• How important is it to be top quartile?
• How many relationships will be needed?
• Approaches
• Build it yourself
• Partner as you build it yourself
• Outsource
• Fund of Funds
• Separate Account

17
Conclusion

• Venture provides opportunity to enhance portfolio
  returns
• Attractive timing
• Reasonable pricing
• Signs of rebound in IT spending
• IPO window cyclical
• Venture serves large, growing markets
• Access to top tier managers requires partnering