1. Walnut Investing Process
Walnut Venture Associates
November 1999

2. Walnut Venture Associates: Overview
Investment Focus
Walnut’s Company Building Expertise
Individuals in Walnut Venture Associates have been:
Founders of 15 companies
CEOs of more than 20 companies
Invested in over 150 private companies
On the Board of Directors of over 60 companies
These companies include:
Concord Communications
Stratus Computer
Axon Networks
MicroSource Financial
Keyfile
Avid Technology
First Call, ComputerLand
Fenwick Partners
Xyplex
Morris Decision Systems
Applix
Natural MicroSystems
Microcom
Cambridge Technology Partners
Adams, Harkness & Hill,
and many others.
Objective: To help talented entrepreneurs build lasting businesses of significant value and to participate as active investors
Walnut Venture Associates looks for exceptional people with exceptional ideas.
Geography: New England
Industries: Information Technology, Software, Internet in Rapidly Growing Markets
Stage: Seed, First Round, Recapitalizations
Typical Round: $250,000-1,000,000
Skill sets include depth in all functional areas including general management, marketing, sales, product development, marketing communications, and finance.

3. Walnut Investing Process
Pre-Screening
Tuesday Presentation
Due Diligence
Investment and Support
Geography
Industry
Potential For High Returns
Initial Assessment of Business Idea/Model
Initial Assessment of Entrepreneur
Initial Assessment of Management Team
30 Minute Presentation to Walnut Group
- 15 Min. Presentation
- 15 Min. Q&A
Problem Solved
Market Size/Growth
Solution
Initial Markets and/or Customers
Team Track Record
Business Model
Capital Needs and Milestones
- Now
- Next Rounds
Follow-up Meeting: Meet with Key Management at Company Office
Thorough Due Diligence
- Personal References
- Customer References
- Competitive Assessment
- Financial Review
Negotiate Term Sheet
Board Seat
Refine your business plan
Help Recruit Key Management
Introduce Company to Sources of Follow-on Financing
Guidance on Financial Strategy
Make key contacts for strategic partnerships
Configure the company for an IPO or being acquired

4. Introduction and Concept Finances and Capital Needs
In the Tuesday Meeting, the Company Should Concisely Cover the Key Areas That Will Drive the Company’s Success in 15 Minutes; Allow 15 Minutes for Q&A
Introduction and Concept
Competition
Elevator Pitch- Briefly tell us what important problem you solve and how you will make money
Concept- Describe the product or service you will offer and how it solves an important problem
What are the alternative ways of solving the problem?
Who are the competitors?
How does your offering differ from the others?
Tell us why and how you can win
Finances and Capital Needs
Markets and Customers
Show high level revenues and costs, and include the major driving assumptions of your business model
Tell us how much total capital you will need to achieve cash flow breakeven and profitability; and when you will need these financing rounds over time
How much capital do you need for this financing and what do you feel is the valuation of you company
How will investors exit?
IPO-why is this a good company for an IPO
Being acquired- who would buy and why
Demonstrate there is a rapidly growing market and briefly describe one or two driving forces
Customers: Who will buy this and what is it worth to them?
How will you reach/sell to the customers?
Management Team
Tell us why your team can execute and win
Relevant industry experience
Customer knowledge/contacts
Technology expertise
Company/organization building skills
Other experience or skills you will need to bring in
Other
Are there any crucial alliances required to execute the business model such as distribution or technology?

5. 1. Market, Customers, Sales 2. Produce/Service Offering
During Due Diligence, We Assess the Key Elements of the Business to Decide Whether to Invest and with Which Terms
1. Market, Customers, Sales
Documents
Business plan
Sales Pipeline Documents - Prospects, revenue projections, probability
Interviews
Customer references: validate need, willingness to pay, comments on competition, impression of the team
Current, prospective and rejected channel partners references
Industry experts
Assessment
Growth and size of market
Initial customers
Sales cycle: revenue velocity
Distribution channel: motivated
3. Management Team
Documents- Full resumes
Interviews
Reference checks on top management
Assessment
Work with them to see leadership, coachability, commitment
Weaknesses or gaps in the team
Are they finaceable by VCs?
5. Financials
Documents
Revenue and costs going forward with driving assumptions
Cash flow- past and future
Equity ownership table
Options plan
Capitalization plan with milestones
Financing history with valuations
Interviews
Discuss business model assumptions, costs, hiring with management
Assessment
Valuation for this round
Follow-on capital needs and likely sources
Milestones and valuations
Robustness of business model; sensitivity to driving assumptions
Straightforward capital structure
Previous investors
Realistic path to exit
Due Diligence
4. Competition
Documents
Business plan
Interviews
Customer & Alliance references and industry experts; discuss competition
Assessment
Assess threats of players to company; positioning, strength, focus, lead-time, financing, management team
2. Produce/Service Offering
Documents
Business plan, marketing literature
Interviews
Alliance partners
Customers- functionality
Assessment- Technical Assessment & Demo

6. After Investing, Walnut Can Help Build a Valuable, Lasting Company
Walnut Provides Value After Investing
Recruit and Coach Management: Walnut can help identify and assess management candidates and check on their track records.
Recruit the Board: Walnut can help identify and recruit board members. Our strong industry and venture contacts and prior start-up experience help us identify effective board members.
Recruit Venture Capitalists: For certain companies, our primary post-investment role is to help prepare the company for subsequent venture capital funding. We have strong venture capital contacts and can make introductions once the company is well positioned.
Help with Financial Structuring: We can help craft the company’s financial strategy in raising follow-on capital. Many individuals in Walnut have deep experience in financial structuring for mergers, acquisitions, and strategic partner investing. We can also advise on option and incentive plans.
Customer and Alliance Building: Our extensive industry experience and relationships can provide a useful means to access customers and alliance partners.
Company Building: We can advise on organizational structuring; defining and establishing the marketing, sales and distribution strategies and other growth issues in building a valuable company.
Configure the company for an IPO or an acquisition
Make key acquisitions to drive company growth