National Venture Capital Association Releases Recommendations to Restore Liquidity in the U.S. Venture Capital Industry

BOSTON, MA, Apr 29 (MARKET WIRE) --
The National Venture Capital Association (NVCA) kicked off its 2009
Annual Meeting today by unveiling a set of recommendations aimed at
addressing the capital markets crisis for venture-backed companies in the
United States. During the last decade, the number of initial public
offerings (IPOs) by venture-backed companies has declined to alarmingly
low levels, culminating in the 2008 drought when only six companies
entered the public markets. Given the proven contribution of
venture-backed companies to America's economic growth, the NVCA sought
analysis and recommendations from leaders throughout the capital markets
ecosystem over the last several months. The resulting set of proposals
looks to the venture capital industry, investment banking, accounting
professions, law firms, stock exchanges and the government to enact
measures to restore a vibrant IPO environment once the overall economy
stabilizes.

The initiative was spearheaded by NVCA chairman and co-founder and general
partner at DCM, Dixon Doll, who articulated the important work that has
both been completed and has yet to be done:

"On behalf of the NVCA, I want to commend the group of thought leaders who
continue to support us in our efforts to assess and address a situation
that has become untenable for venture-backed companies and the U.S.
economy. The consensus is that the most significant improvement to our
capital markets will only be achieved if both the private sector and the
government address the breakdowns that have occurred within their
respective systems. While there are regulatory and legislative avenues to
explore, the venture capital industry recognizes that we can affect
positive change by adjusting the way we do business and are willing to do
so to enact this change," said Doll.

Venture-Backed Public Companies Are Critical to U.S. Economic Growth

The revitalization of the venture-backed IPO market is critical to U.S.
economic recovery and to the ongoing viability of America's
competitiveness. In a report to be released in early May, Global Insight
estimates that in 2008 public companies that were once venture-backed
accounted for more than 12 million U.S. jobs and $2.9 trillion in
revenues, which equates to 21 percent of U.S. GDP. Further, it is
estimated that 92 percent of job growth at these companies occurs once
the company enters the public markets.

"This capital markets issue is not just a venture capital industry
problem; it is a U.S. economic concern," said Mark Heesen, president of
the NVCA. "If America wants to maintain its economic leadership and
continue to grow and innovate, we must re-invigorate the public markets
and strive towards healthier IPO levels similar to that which our country
enjoyed in the 1980s and 1990s. Without this activity, we can expect job
growth to disappear over time."

The NVCA Four Pillar Plan to Restore the Venture-Backed IPO Market

At the core of the issue is a recognition that today's market environment
is challenging with respect to the issuance of small cap IPOs. There are
multiple reasons as to why this is the case including the high costs of
going public, the constituents involved in the process, and the
restrictions placed on potential public companies. The NVCA
recommendations, which seek to address these issues, comprise four
categories or pillars, two which focus on changing behavior in the venture
capital market and two which involve the government exploring policies
conducive to venture-backed IPOs.

Pillar I: Ecosystem Partners

Within the last decade, venture-backed companies have been faced with
fewer choices as it relates to investment banks and accounting firms that
will assist in the IPO process. While the major investment banks continue
to operate, the "four horsemen" boutique investment banks of the 1990s
(Alex Brown, Hambrecht & Quist, Montgomery Securities, and Robertson
Stephens), which specialized in IPOs of venture-backed companies, no
longer exist. Further, the fall of Arthur Andersen and the resulting
pressure placed on the Big Four accounting firms has, in many markets,
left a void in terms of quality auditing services available for these
smaller companies.

Against this backdrop, the NVCA believes that the venture capital industry
must do more to promote alternative ecosystem partners while engaging with
existing members to identify ways to better serve the needs of emerging
growth companies. The Association has begun to engage in talks with
boutique and major investment banks as well as the Big Four and other
public accounting firms about how they can also better serve the needs of
small cap companies. The NVCA also intends to encourage the use of a
broader array of service providers such as the "Global Six" including
Deloitte LLP, Ernst & Young LLP, Grant Thornton LLP, KPMG LLP,
PricewaterhouseCoopers LLP and BDO Seidman LLP.

Pillar II: Enhanced Liquidity Paths

There is consensus among many within the capital markets ecosystem that
the distribution system that connects sellers and buyers of venture-backed
company new issues is broken. There are many drivers behind this
disconnect including mismatched expectations in terms of issue size, the
lack of sell side analysts, and the propensity of hedge funds to buy and
sell stock quickly. All of these factors contribute to a lack of an
adequate distribution channel and considerable post-IPO market volatility.

To offer small venture-backed companies an enhanced distribution system
for the sale of initial stock, the NVCA endorses concepts such as Inside
Venture which is a private market platform that connects qualified
companies that intend to IPO within 18 months with pre-screened cross-over
investors. These buyers commit to buy and hold these stocks for the long
term. Other providers with similar models include Portal Alliance
(NASDAQ), SecondMarket and Xchange. Additionally, the NVCA will help raise
awareness about pro-active M&A roll up strategies of smaller portfolio
companies to achieve IPO critical mass and global alternatives to the U.S.
public markets.

Pillar III: Tax Incentives

The NVCA has long asserted that the government must support a tax
structure that fosters capital formation and rewards long term measured
risk taking. To support a more vibrant IPO market, the U.S. must maintain
tax policies that have been proven to encourage venture capital
investment so that the pipeline of promising IPOs is as robust as
possible. Further, Congress should consider adopting new tax incentives
which would stimulate IPOs, at least in the short term.

The NVCA will continue to advocate strongly for a capital gains tax rate
that is globally competitive and preserves a meaningful differential from
the ordinary income rate. The Association asserts that venture
capitalists who are successful in building new companies should continue
to be taxed at a capital gains rate for any carried interest that is
earned over the long term. The Association also intends to explore the
possibility of a one time tax incentive for buyers and holders of IPOs as
well as increasing the holding rate for capital gains status to two or
more years.

Pillar IV: Regulatory Review

From a regulatory perspective, the last decade has been characterized by a
series of broad sweeping regulations aimed at curbing serious abuses
within the financial system but fraught with unintended consequences for
small pre-public and public companies. From Sarbanes Oxley (SOX) to the
Global Settlement to Reg FD, small venture-backed companies have been
faced with costly compliance and increasing obstacles to enter the public
markets as a result of regulations intended for larger multi-national
corporations. The NVCA strongly supports regulation and protecting
investors where necessary but does not support a "one-size-fits-all"
regulatory approach.

To wit, the NVCA will advocate for a full systematic review by the
Securities and Exchange Commission of recent regulations which impact
small cap companies. This review would include interpretations of SOX,
pre-IPO financial reporting requirements, the separation of analyst and
investment banking functions, and private placement requirements. There
are opportunities within existing regulations to tier compliance so as
not to overburden emerging growth pre-public and public companies at a
time when they need support from the government, their auditors, and the
markets.

"We are optimistic that the recommendations included in the Four Pillar
Plan will contribute to a more vibrant IPO market for venture-backed
companies over the long term," concluded Doll. "The NVCA remains committed
to fostering an environment that fuels significant economic growth and job
creation. The adoption of our recommendations is a critical element of our
country's continued global leadership and ability to bring high growth,
innovative public companies to market."

Press conferences to discuss the Four Pillar Plan will be today, April 29,
2009 at 9:00 a.m. and 3:00 p.m. eastern time. Journalists may access
either event with the following information:

NVCA Press Conference 1
Wednesday April 29, 2009
9:00 a.m.- 10:00 a.m. eastern time
Phone line: 800 920 0677
No password is required. You may refer to the NVCA Press Roundtable call
URL to follow slide presentation:
https://www2.gotomeeting.com/join/996633050
Meeting ID: 996-633-050

NVCA Press Conference 2
Wednesday April 29, 2009
3:00 p.m. - 4:00 p.m. eastern time
Phone line: 800 926 4951

No password is required. You may refer to the NVCA Press Roundtable call
URL to follow slide presentation:
https://www2.gotomeeting.com/join/497540898
Meeting ID: 497-540-898

To view the NVCA Four Pillar Plan presentation, which will be
available after 10:00 a.m. eastern on April 29th, please visit:
http://www.slideshare.net/NVCA/nvca-4pillar-plan-to-restore-liquidity-in-the-us-
enture-capital-industry-1360905

About National Venture Capital Association

The National Venture Capital Association (NVCA) represents approximately
460 venture capital firms in the United States. NVCA's mission is to
foster greater understanding of the importance of venture capital to the
U.S. economy and support entrepreneurial activity and innovation.
According to a 2009 Global Insight study, venture-backed companies
accounted for 12.1 million jobs and $2.9 trillion in revenue in the
United States in 2008. The NVCA represents the public policy interests of
the venture capital community, strives to maintain high professional
standards, provides reliable industry data, sponsors professional
development, and facilitates interaction among its members. For more
information about the NVCA, please visit www.nvca.org

Contact:
Emily Mendell
NVCA
215-520-8713
emendell@nvca.org

Channa Brooks
Middleberg Communications for NVCA
202-641-6959
cbrooks@middlebergcommunications.com

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