PROSPECTUS
--------------------------------------------------------------------------------
16,500,000 Shares
[MEVC LOGO]
meVC Draper Fisher Jurvetson Fund I, Inc.
AN INFORMATION TECHNOLOGY VENTURE CAPITAL FUND
Common Stock
-------------------------------------------------------------------------
meVC Draper Fisher Jurvetson Fund I, Inc., or the Fund, is offering 16,500,000
shares of its common stock. We are a closed-end investment company that has
elected to be treated as a business development company under the Investment
Company Act. Our investment objective is long-term capital appreciation from
venture capital investments in information technology companies, primarily in
the Internet, e-commerce, telecommunications, networking, software and
information services industries. We will invest in companies that we believe
have high growth potential over the long term.
March 28, 2000
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is long-term capital appreciation from venture
capital investments in information technology companies, primarily in the
Internet, e-commerce, telecommunications, networking, software and information
services industries. Venture capital investments are typically long-term
investments in technology-based companies with high growth potential whose stock
is not publicly traded. We seek capital appreciation by investing only in
companies that we believe have high growth potential over the long term. We
intend to invest in companies in various stages of development, with an emphasis
on companies in their second or third round of financing, called an expansion
round, and companies in their final round of financing prior to an anticipated
merger or initial public offering, called a mezzanine round. We believe that
mezzanine and expansion round investments will allow us to make larger
investments with lower risk and an earlier opportunity for realization of gains.
We may also use a portion of our capital to invest in start-up companies in
their first round of financing, called a seed round. Seed rounds generally
present the potential for larger gains, but are riskier and generally require a
longer holding period than mezzanine and expansion round financing.
After carefully selecting our portfolio companies, we will seek to enhance
their competitiveness by offering to provide managerial assistance, including
assistance in preparing for future rounds of private or public financing,
recruiting management, refining business strategy, assisting with general
business operations and making introductions to venture firms, investment banks
and other potential sources of capital. We will seek to provide returns to our
stockholders through long-term appreciation in the value of our portfolio
companies and through distributions of capital gains on our investments. In
addition, if a portfolio company is sold, merged or goes public, we may
distribute cash or stock in either the portfolio company or the acquiring
company.
INVESTMENT RATIONALE
Information technology, including Internet, e-commerce, telecommunications,
networking, software and information services, is one of the most rapidly
growing sectors of the U.S. economy. Many new companies are at the forefront of
innovation in these industries. The Internet, in particular, has created a
playing field where information technology businesses can grow at an
unprecedented pace. By moving quickly, new companies can position themselves as
leaders in their respective markets, often attracting key strategic partners and
influential early adopting customers. These new companies often build category-
defining brands that create an ongoing competitive advantage. We intend to
invest in companies that we believe have the greatest potential to become
leading information technology businesses. There can be no assurance, however,
that we will achieve our investment objective or that the performance of the
companies in which we make investments will be as anticipated.
HISTORICAL PERFORMANCE OF VENTURE CAPITAL FUNDS
Based upon information provided by Venture Economics, the venture capital
industry as a whole has experienced long-term returns that have exceeded the S&P
500 Index by over 8% per year for a one, five and ten year period. According to
Venture Economics, for all reporting venture capital funds formed between 1988
and 1998, the historical annual rate of return, net of fees and expenses, as of
September 30, 1999 was as follows:
<TABLE>
<CAPTION>
1 YEAR RETURN 5 YEAR RETURN 10 YEAR RETURN
------------- ------------- --------------
<S> <C> <C> <C>
Later Stage Venture Capital (1)(2)............ 58.3% 34.6% 29.6%
Balanced Venture Capital (1)(3)............... 55.9% 37.0% 24.9%
All Venture Capital (1)....................... 68.6% 41.1% 27.6%
S&P 500 Index (4)............................. 27.8% 25.0% 16.8%
</TABLE>
------------------------------
(1) The venture capital return figures were calculated by Venture Economics, a
division of Thompson Financial Securities Data. These figures represent the
pooled internal rates of return of venture capital funds, or pooled IRR.
Unlike the S&P 500 Index, pooled IRR is a method of calculating an aggregate
internal rate of return for a group of venture capital funds by summing cash
flows together and calculating the internal rate of return on the portfolio
cash flow. These benchmarks include all funds formed between 1988 and 1998
as of September 30, 1999. Data is net of fees and carried interest.
(2) Later stage venture capital funds generally focus their investments on
mezzanine and expansion rounds of financing.
(3) Balanced venture capital funds invest in all stages of venture financing,
including seed, mezzanine and expansion rounds.
(4) S&P 500 Index as of September 30, 1999, according to Standard & Poor's.
Past performance of the venture capital industry is not neccesarily
indicative of that sector's future performance, nor is it a proxy for predicting
the returns of the Fund. We cannot guarantee that we will meet or exceed the
rates of return historically realized by the venture capital industry as a
whole. Moreover, our overall return will be reduced by certain factors related
to our structure as a publicly-traded business development company. Such factors
include the lower return we are likely to realize on short-term liquid
investments during the period in which we are identifying potential investments,
as compared to many venture capital funds that draw capital from investors
periodically to make investments and do not commit significant capital to
short-term liquid investments. In addition, periodic disclosure is required of
business development companies, which could result in the Fund being less
attractive as an investor to certain potential portfolio companies.
COMPENSATION OF INVESTMENT ADVISER AND INVESTMENT SUB-ADVISER
As compensation for its investment advisory and management and
administrative services, we have agreed to pay meVC Advisers an annual
management fee equal to 2.5% of our average weekly net assets, payable in
monthly installments. We have also agreed to pay meVC Advisers annual incentive
compensation equal to 20% of our annual realized capital gains net of realized
and unrealized capital losses. Payment of this type of incentive compensation,
referred to as a "carried interest," is typical in the venture capital industry.
Carried interest payments provide an economic incentive for venture capital fund
managers to select investments with the potential to achieve the greatest
increase in value over time. We believe that payment of a carried interest is an
important component of our ability to attract and retain high quality venture
capital fund managers.
As payment for its services as our investment sub-adviser, meVC Advisers has
agreed to pay Draper Advisers 40% of the management fee, or an annual fee equal
to 1.0% of our average weekly net assets, payable in monthly installments. meVC
Advisers has also agreed to pay Draper Advisers additional compensation equal to
90% of any carried interest payment it receives from us.
LIQUIDATION
Our board of directors may elect to liquidate the Fund and distribute to our
stockholders any proceeds in cash or securities after March 31, 2010 if it
believes doing so would be in our stockholders' best interests.
RISK FACTORS
Purchasing shares of our common stock carries significant risk of losing
some or all of your investment. Prior to investing in our stock, you should
consider the risk factors described on pages 10 to 15 of this prospectus and the
impact of events that could adversely affect our business.
FEE TABLE AND SYNOPSIS
You can expect to bear, directly or indirectly, the following costs and
expenses in connection with an investment in shares of our common stock.
OFFERING EXPENSES
STOCKHOLDER TRANSACTION EXPENSES (1)
TRANSACTION EXPENSES (AS A PERCENTAGE OF THE OFFERING PRICE PER SHARE)
<TABLE>
<S> <C>
Sales load.................................................. 5.0%
Dividend Reinvestment Plan fees............................. None
------
TOTAL STOCKHOLDER TRANSACTION EXPENSES.................. 5.0%
======
</TABLE>
------------------------
(1) Does not include organizational and offering expenses, which are estimated
to be approximately $1,200,000, and which will be shared by meVC Advisers
and the Fund.
ANNUAL EXPENSES
ANNUAL EXPENSES
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS)
<TABLE>
<S> <C>
Management fee to meVC Advisers (2)......................... 2.50%
------
TOTAL ANNUAL EXPENSES................................... 2.50%
======
</TABLE>
------------------------
(2) meVC Advisers has agreed to pay Draper Advisers 40% of this amount, or an
annual fee equal to 1.0% of our average weekly net assets payable in
monthly installments. See "Management--The Investment Adviser" and "--The
Investment Sub-Adviser."
In addition to the management fee, we have agreed to pay meVC Advisers
annual incentive compensation equal to 20% of our annual realized capital gains,
net of realized and unrealized capital losses. In exchange for the services
rendered by Draper Advisers, meVC Advisers has agreed to pay Draper Advisers 90%
of the incentive compensation it receives from the Fund. See "Management--The
Investment Adviser" and "--The Investment Sub-Adviser."
EXAMPLE OF COSTS AND EXPENSES CALCULATION
THE FOLLOWING EXAMPLE DOES NOT INCLUDE CARRIED INTEREST COMPENSATION, WHICH
IS TIED TO OUR GENERATION OF NET CAPITAL GAINS ON OUR INVESTMENTS.
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Assuming a 5% annual return, you can expect to pay the
following cumulative amounts in management fees on a
$1,000 investment......................................... $26 $81 $138 $292
</TABLE>
Our actual rate of return may be greater or less than the hypothetical 5%
return used above. The 5% return is merely a hypothetical return that is
required by law to be used to demonstrate the costs and expenses of an
investment in shares of our common stock, and does not reflect our expectation
of the actual return that you may or may not realize from an investment in our
shares.
RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information set forth in this prospectus before purchasing our shares.
Investing in our common stock involves a high degree of risk. Purchasing shares
of our common stock carries significant risk of losing some or all of your
investment.
INVESTMENT RISK
INVESTING IN OUR STOCK IS HIGHLY SPECULATIVE AND YOU COULD LOSE SOME OR ALL
OF THE AMOUNT YOU INVEST.
The value of our common stock may decline and may be affected by numerous
market conditions, which could result in the loss of some or all of your
investment in our shares. The securities markets frequently experience extreme
price and volume fluctuation which affect market prices for securities of
companies generally, and technology companies in particular. Because of our
focus on the technology sector, our stock price is likely to be impacted by
these market conditions. General economic conditions, and general conditions in
the Internet and information technology industries, will also affect our stock
price.
INVESTING IN OUR SHARES MAY BE INAPPROPRIATE FOR YOUR RISK TOLERANCE.
Investing in our shares may be inappropriate for your risk tolerance. The
Fund's investments in accordance with its investment objective and principal
strategies may result in an above average amount of risk and volatility or loss
of principal. Our investments in portfolio companies may be highly speculative
and aggressive and, therefore, an investment in our shares may not be suitable
for you.
VENTURE CAPITAL RISKS
THE INABILITY OF OUR PORTFOLIO COMPANIES TO COMMERCIALIZE THEIR TECHNOLOGY OR
CREATE OR DEVELOP COMMERCIALLY VIABLE PRODUCTS OR BUSINESSES WOULD HAVE A
NEGATIVE IMPACT ON OUR INVESTMENT RETURNS.
The possibility that our portfolio companies will not be able to
commercialize their technology, product or business concept presents significant
risk. Additionally, although some of our portfolio companies may already have a
commercially successful product or product line when we invest, information
technology products and services often have a more limited market or life span
than products in other industries. Thus, the ultimate success of these companies
often depends on their ability to continually innovate in increasingly
competitive markets. Their inability to do so could affect our investment
returns.
THE INABILITY OF OUR PORTFOLIO COMPANIES TO SUCCESSFULLY MARKET THEIR
PRODUCTS WOULD HAVE A NEGATIVE IMPACT ON OUR INVESTMENT RETURNS.
Even if our portfolio companies are able to develop commercially viable
products, the market for new products and services is highly competitive and
rapidly changing. Commercial success is difficult to predict and the marketing
efforts of our portfolio companies may not be successful.
AN INVESTMENT STRATEGY FOCUSED PRIMARILY ON PRIVATELY-HELD COMPANIES PRESENTS
CERTAIN CHALLENGES, INCLUDING THE LACK OF AVAILABLE INFORMATION ABOUT THESE
COMPANIES, A DEPENDENCE ON THE TALENTS AND EFFORTS OF ONLY A FEW INDIVIDUAL
PORTFOLIO COMPANY MANAGERS AND A GREATER VULNERABILITY TO ECONOMIC DOWNTURNS.
We will invest primarily in privately-held companies. Generally, very little
public information exists about these companies and we will be required to rely
on the ability of the members of Draper Advisers to obtain adequate information
to evaluate the potential returns from investing in these companies. Also,
privately-held companies frequently have less diverse product lines and smaller
market presence than larger competitors. They are thus generally more vulnerable
to economic downturns and may experience substantial variations in operating
results. These factors could affect our investment returns.
OUR PORTFOLIO COMPANIES WILL LIKELY HAVE SIGNIFICANT COMPETITION, BOTH FROM
OTHER EARLY-STAGE COMPANIES AND MORE ESTABLISHED COMPANIES.
Emerging growth companies often face significant competition, both from
other early-stage companies and from more established companies. Early-stage
competitors may have strategic capabilities such as an innovative management
team or an ability to react quickly to changing market conditions, while more
established companies may possess significantly more experience and greater
financial resources than our portfolio companies. These factors could affect our
investment returns.
OUR INVESTMENT RETURNS WILL DEPEND ON THE SUCCESS OF OUR PORTFOLIO COMPANIES
AND, ULTIMATELY, THE ABILITIES OF THEIR KEY PERSONNEL.
Our success will depend upon the success of our portfolio companies. Their
success, in turn, will depend in large part upon the abilities of their key
personnel. The day-to-day operations of our portfolio companies will remain the
responsibility of their key personnel. Competition for qualified personnel is
intense at any stage of a company's development and high turnover of personnel
is common in information technology companies. The loss of one or a few key
managers can hinder or delay a company's implementation of its business plan.
Our portfolio companies may not be able to attract and retain qualified managers
and personnel. Any inability to do so may negatively impact our investment
returns.
SOME OF OUR PORTFOLIO COMPANIES MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT
BE READILY AVAILABLE.
Companies in which we make seed or expansion round investments will often
require substantial additional equity financing to satisfy their continuing
working capital requirements. Each round of venture financing is typically
intended to provide a company with only enough capital to reach the next stage
of development. We cannot predict the circumstances or market conditions under
which our portfolio companies will seek additional capital. It is possible that
one or more of our portfolio companies will not be able to raise additional
financing or may be able to do so only at a price or on terms which are
unfavorable to us, either of which could negatively impact our investment
returns.
WE ARE NOT LIKELY TO REALIZE RETURNS ON OUR INVESTMENTS IN PORTFOLIO
COMPANIES FOR SEVERAL YEARS. THUS, AN INVESTMENT IN SHARES OF OUR COMMON
STOCK IS ONLY APPROPRIATE FOR INVESTORS WHO DO NOT NEED SHORT-TERM LIQUIDITY
IN AN INVESTMENT IN OUR SHARES.
We intend to make investments as rapidly as possible consistent with our
investment objective. However, it is likely that a significant period of time
will be required before we are able to fully invest the proceeds of this
offering, and a portion of our funds will be held in reserve for follow-on
investments and future management fees. Additionally, a venture capital
investment typically takes at least several years before the portfolio company
is in a position to sell its shares in a public offering or engage in a sale or
merger. The securities of our portfolio companies will be "restricted" under
Rule 144 of the Securities Act and thus can not be sold unless we satisfy the
requirements of Rule 144. Accordingly, it will likely be several years before we
are able to sell our investments and make any distributions of gains to our
stockholders.
WE HAVE NOT YET IDENTIFIED ANY PORTFOLIO COMPANY INVESTMENTS.
We have not yet identified any potential investments for our portfolio and,
thus, you will not be able to evaluate any specific portfolio company
investments prior to purchasing shares of our common stock. Additionally, our
investments will be selected by the managing member of Draper Advisers, subject
to the approval of our board of directors, and our shareholders will not have
input into our investment decisions. Both of these factors will increase the
uncertainty, and thus the risk, of investing in our shares.
THERE ARE SIGNIFICANT POTENTIAL CONFLICTS OF INTEREST WHICH COULD IMPACT OUR
INVESTMENT RETURNS.
There are significant potential conflicts of interest inherent in our
structure and business model. We do not anticipate having independent managers
or employees and thus must rely upon meVC Advisers and Draper Advisers to
provide administrative services as well as investment advisory services. The
principals of both meVC Advisers and Draper Advisers perform or may perform
similar services for other investment funds and serve as officers or directors
of other entities, and are thus not able to devote all of their time to the
Fund. They may also have obligations to investors in those other investment
funds, the fulfillment of which might not be in the best interests of the Fund.
It is possible that new investment opportunities that meet the Fund's investment
objective that are offered to or reviewed by an affiliated fund may not be
offered to or reviewed by either the Managing Member of Draper Advisers or the
Fund. Additionally, both meVC Advisers and Draper Advisers have an interest in
our profits which may impact any decisions they may make with respect to our
investments in portfolio companies. Moreover, our legal counsel may also serve
as legal counsel to meVC Advisers and Draper Advisers. Finally, the interests of
a company in which we invest may, from time to time, conflict with the best
interests of one or more of our shareholders.
VALUING OUR PORTFOLIO IN THE FUTURE WILL BE DIFFICULT AND INEXACT AND MAY NOT
REFLECT THE TRUE VALUE OF OUR INVESTMENTS IN PORTFOLIO COMPANIES.
Our board of directors will value our portfolio from time to time based on
their best estimate of the value of each of our individual investments in
portfolio companies. There is typically no public market for the securities of
small, privately-held companies. Our board of directors may also consult with
accounting firms, investment banks and other consulting firms when needed, to
assist in valuation of our investments. Portfolio valuation, however, is
inherently subjective. The net asset value set by our board of directors may not
reflect the price at which you could sell our shares in the open market.
BOTH THE FUND AND OUR INVESTMENT ADVISER WERE ONLY RECENTLY FORMED AND HAVE
NO PRIOR OPERATING HISTORY. THUS, OUR SUCCESS WILL DEPEND, TO A LARGE DEGREE,
ON THE EXPERTISE AND EXPERIENCE OF THE MEMBERS OF DRAPER ADVISERS.
Although the members of Draper Advisers have considerable experience in
making venture capital investments, both the Fund and meVC Advisers were only
recently formed and have no operating history. Our success in identifying
investment opportunities and pursuing and managing such investments is, to a
large degree, dependent upon the expertise and experience of the members of
Draper Advisers and its ability to attract and retain quality personnel.
A CHANGE IN OUR RELATIONSHIP WITH DRAPER ADVISERS COULD HAVE AN ADVERSE
EFFECT ON OUR ABILITY TO ACHIEVE OUR INVESTMENT OBJECTIVE.
Achieving our investment objective depends in large part on our ability to
utilize the experience, contacts and specialized knowledge in venture capital
investing of the members of Draper Advisers. The sub-advisory agreement may be
terminated by meVC Advisers, Draper Advisers or the Fund, and the advisory
agreement may be terminated by meVC Advisers or the Fund, in either case upon
delivery of written notice of termination at least 60 days prior to the
termination date. Moreover, meVC Advisers and Draper Advisers have agreed that,
in the event either such agreement is terminated involuntarily with respect to
the other party, both parties will be prohibited from providing, directly or
indirectly, future investment advisory services to the Fund. Thus, if the
advisory agreement or sub-advisory agreement is terminated, our success will
depend in large part on our ability to obtain investment advisory services
similar to those offered by Draper Advisers. We are likely to experience
difficulty in obtaining comparable services. If we are unable to obtain these
services, or if we are only able to do so on less favorable terms than those
offered by Draper Advisers, it will have a significant negative impact on our
investment returns.
CHANGES IN THE COMPOSITION OF DRAPER ADVISERS MAY HAVE AN ADVERSE EFFECT ON
OUR ABILITY TO ACHIEVE OUR INVESTMENT OBJECTIVE.
Achieving our investment objective depends in large part on our ability to
utilize the experience, contacts and specialized knowledge in venture capital
investing of the members of Draper Advisers. Over the life of the fund,
membership in Draper Advisers may change, having an adverse effect on our
ability to achieve our investment objective.
OUR ABILITY TO ACHIEVE OUR INVESTMENT OBJECTIVE DEPENDS UPON OUR ABILITY TO
UTILIZE THE NATIONAL VENTURE CAPITAL PRESENCE OF THE DRAPER FISHER JURVETSON
AFFILIATE NETWORK. THE VENTURE CAPITAL FUNDS IN THE DRAPER FISHER JURVETSON
AFFILIATED NETWORK HOWEVER ARE NOT OBLIGATED TO REFER INVESTMENT
OPPORTUNITIES TO US.
Our success depends, in large part, on our ability to utilize the
experience, contacts and specialized knowledge of the venture capital fund
managers employed by Draper Advisers. We expect that many of our investments
will be made in portfolio companies in transactions in which we will co-invest
with an affiliate of Draper Advisers. However, the affiliated funds are not
obligated to refer any investment opportunities to our Fund. Further, Access
Venture Partners will generally offer its limited partners the opportunity to
invest alongside its fund prior to offering co-investment opportunities to other
parties, including our Fund. The Investment Company Act also restricts our
ability to perform transactions with affiliated parties. We have applied to the
SEC for exemptive relief from this provision to allow the Fund to make
co-investments with affiliates of Draper Advisers and follow-on co-investments
with such affiliates in portfolio companies in which the Fund is an existing
investor. Although the SEC has granted similar relief in the past, we cannot be
certain that our application for such relief will be granted. We have also
applied to the SEC for exemptive relief from this provision to allow the Fund to
make follow-on investments in portfolio companies in which an affiliate of
Draper Advisers is an existing investor, but the Fund is not an existing
investor. To our knowledge, an application for such relief has not been made and
this type of relief has not been granted. Thus, we cannot be certain that our
application for such relief will be granted or that it will be granted within a
reasonable period of time following this offering. If we are unable to obtain
the requested exemptive relief to make such follow-on investments, or if we are
unable to do so within a reasonable period of time after the offering, we would
be prohibited from making investments in companies where an affiliate of Draper
Advisers has previously invested in the company, but the Fund has not. Even if
we are granted the requested relief, it will likely be subject to conditions.
For example, we expect that prior to investing with an affiliated party, Draper
Advisers will be required to present the investment opportunity to our board of
directors for its review and, furthermore, that at least a majority of our
independent directors must conclude that:
- The terms of the transaction, including the price to be paid, are
reasonable and fair to our stockholders and do not involve overreaching of
us or our stockholders by any other party;
- The transaction is consistent with the interests of our stockholders and
our investment objective and strategies;
- We will not be disadvantaged by making, maintaining or disposing of the
investment; and
- Our participation in such investment opportunity will not benefit any
affiliated party or any of their respective affiliates, except as
specifically permitted in the Investment Company Act.
OUR RETURNS MAY BE SUBSTANTIALLY LOWER THAN THE AVERAGE RETURNS HISTORICALLY
REALIZED BY THE VENTURE CAPITAL INDUSTRY AS A WHOLE.
Past performance of the venture capital industry is not necessarily
indicative of that sector's future performance, nor is it necessarily a good
proxy for predicting the returns of the Fund. We cannot guarantee that we will
meet or exceed the rates of return historically realized by the venture capital
industry as a whole. Additionally, our overall return will almost certainly be
reduced by certain factors related to our structure as a publicly-traded
business development company, including:
- the lower return we are likely to realize on short-term liquid investments
during the period in which we are identifying potential investments, and
- the periodic disclosure required of business development companies, which
could result in the Fund being less attractive as an investor to certain
potential portfolio companies.
OUR RETURNS MAY BE SIGNIFICANTLY LOWER THAN THOSE EXPERIENCED BY OTHER FUNDS
MANAGED BY MEMBERS OF DRAPER ADVISERS.
Although we intend to utilize the national venture capital presence of
Draper Advisers and in many cases to co-invest with one or more private
investment funds managed by the members of Draper Advisers, our investment
strategy is different from that of our affiliated funds. Moreover, there will be
a substantial period of time before we have invested a majority of our capital
in portfolio companies. Thus, our investment returns or operating results could
be substantially lower than the returns and results achieved by our affiliated
funds.
THE MARKET FOR VENTURE CAPITAL INVESTMENTS IS HIGHLY COMPETITIVE. IN SOME
CASES, OUR STATUS AS A REGULATED BUSINESS DEVELOPMENT COMPANY MAY HINDER OUR
ABILITY TO PARTICIPATE IN INVESTMENT OPPORTUNITIES.
We will likely face substantial competition in our investing activities from
private venture capital funds, investment affiliates of large industrial,
technology, service and financial companies, small business investment
companies, wealthy individuals and foreign investors. As a regulated business
development company, we are required to disclose quarterly the name and business
description of portfolio companies and the value of any portfolio securities.
Many of our competitors are not subject to this disclosure requirement. Our
obligation to disclose this information could hinder our ability to invest in
certain portfolio companies. Additionally, other regulations, current and
future, may make us less attractive as a potential investor to a given portfolio
company than a private venture capital fund not subject to the same regulations.
OUR SUCCESS DEPENDS GREATLY ON INCREASED USE OF THE INTERNET BY BUSINESSES
AND INDIVIDUALS.
Our success depends greatly on increased use of the Internet. Commercial use
of the Internet is currently at an early stage of development and the future
success of Internet-based companies is not guaranteed. Because a significant
portion of our capital will likely be invested in companies operating in the
Internet space, our returns may be negatively impacted if use of the Internet
fails to grow in the future.
IF THE UNITED STATES OR OTHER GOVERNMENTS INCREASE REGULATION OF THE
INTERNET, OUR INVESTMENTS IN INTERNET-RELATED PORTFOLIO COMPANIES COULD BE
NEGATIVELY IMPACTED.
Because of the Internet's popularity and increasing use, new laws and
regulations may be adopted. These laws and regulations may cover issues such as
privacy, pricing, content and taxation. The enactment of any additional laws or
regulations may impede the growth of the Internet and our investments in
Internet-related companies could be negatively impacted.
THE VENTURE CAPITAL BUSINESS IS GROWING, AND WITH MORE CAPITAL READILY
AVAILABLE, OUR SUCCESS WILL BE LARGELY DEPENDENT ON A CONTINUING SUPPLY OF
FAVORABLE INVESTMENT OPPORTUNITIES.
There has been a significant amount of new capital invested in venture
capital funds in recent years and this trend is likely to continue. With the
amount of capital available, some companies that may have had difficulty in
obtaining funding in the past may be able to do so, notwithstanding that the
chances for success in these investments may be marginal. In addition, there is
likely to be an increasing amount of competition among venture capital funds for
the best investment prospects, particularly in the Internet and information
technology sectors. Thus, our success will be largely dependent on our ability
to find the most favorable opportunities in a highly competitive venture capital
market, while avoiding the marginal prospects.
OUR SUCCESS WILL BE SIGNIFICANTLY AFFECTED BY THE STATE OF THE SECURITIES
MARKETS IN GENERAL, AND MORE SPECIFICALLY BY THE MARKET FOR INITIAL PUBLIC
OFFERINGS AND THE MARKET FOR THE INFORMATION TECHNOLOGY SECTOR.
We anticipate that a substantial portion of our returns will be realized
through initial public offerings of our portfolio companies. The market for
initial public offerings is cyclical in nature. Thus, we cannot be certain that
the securities markets will be receptive to initial public offerings,
particularly those of early-stage companies. Any adverse change in the market
for public offerings could significantly impact our ability to realize our
investment objective. Our ability to achieve attractive investment returns will
also depend upon the availability of strategic or financial acquirers of our
portfolio companies. The interest of potential buyers in acquiring our portfolio
companies will vary with general economic conditions and the valuations that
they are willing to place on our portfolio companies will vary with the
valuations of comparable publicly-traded companies.
FORWARD-LOOKING STATEMENTS
This prospectus and the SAI include forward-looking statements. We have
based such statements largely on our current expectations and projections about
future events and trends in the technology sector, the venture capital industry
and the state of the financial markets and the economy in general. These
forward-looking statements are subject to a number of risks, uncertainties and
assumptions about the Fund, including, among other things:
- general economic and business conditions and the general state of the
financial markets;
- our expectations and estimates concerning the future growth and
performance of the venture capital sector;
- our expectations and estimates concerning the future growth and
performance of information technology companies, particularly Internet
companies;
- existing and future laws and regulations imposed on information technology
companies, including future laws and regulations governing the Internet;
- our ability to successfully implement our investment objective and
strategies;
- our relationship with Draper Fisher Jurvetson and its network of
affiliated venture capital firms;
- technological changes in the Internet industry; and
- other risk factors described under "Risk Factors" in this prospectus.
In addition, in this prospectus and the SAI, the words "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "expect," and similar
expressions, as they relate to the Fund, meVC Advisers or Draper Advisers and
our investment objective, business or management, are intended to identify
forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
after the date of this prospectus or the SAI. Because of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
prospectus and the SAI may not occur and actual results could differ materially
from those anticipated or implied in the forward-looking statements.
USE OF PROCEEDS
We plan to reserve approximately 20% of the net offering proceeds for
follow-on investments and future management fees. We expect to invest the net
proceeds after reserves in accordance with our investment objective at the
following rate: approximately 20% to 25% at or about six months from the
offering date, approximately 50% at or about one year from the offering date,
and full investment at or about two years from the offering date. There can be
no assurances that the Fund will be able to achieve its targeted investment
pace. This lengthy period is due to the rigorous review process that the members
of Draper Advisers will undertake in an effort to select the best possible
portfolio companies for investment. The investment review process will typically
include:
- Management interviews
- Reference checks
- Company and industry assessment
- Market analysis
- Competitive analysis
- Risk analysis
We anticipate that we will only invest in a small percentage of the
companies and business plans that Draper Advisers evaluates as potential
investment opportunities.
BUSINESS
We are a newly organized, non-diversified, closed-end management investment
company that has elected to be treated as a business development company under
the Investment Company Act. A business development company is an investment
company organized under the laws of, and having its principal place of business
in, the United States that is operated for the purpose of making investments
primarily to foster smaller, developing businesses and makes available
significant managerial assistance to the businesses in which it invests. For
Internal Revenue Service purposes, we are classified as a non-diversified
investment company under Subchapter M of the Code. Our investment adviser is
meVC Advisers, Inc., or meVC Advisers. Our investment sub-adviser is Draper
Fisher Jurvetson MeVC Management Co., LLC, or Draper Advisers. Both meVC
Advisers and Draper Advisers are registered investment advisers under the
Investment Advisers Act. Our fiscal year ends on October 31.
meVC Advisers will implement our investment objective and strategies and
will set our strategic and operational direction. meVC Advisers will also manage
our day-to-day operations, including our accounting, finance, marketing,
record-keeping and regulatory compliance efforts.
Draper Advisers will identify, structure and negotiate investments for the
Fund, as well as monitor and assist our portfolio companies. The managing member
of Draper Advisers is John M. Grillos, who has over ten years of venture capital
experience and twenty years of entrepreneurial, professional and managerial
experience in the information technology industry. The non-managing members of
Draper Advisers include the senior investment professionals of Draper Fisher
Jurvetson and its nationwide network of seven affiliated venture capital firms
in eight regional locations. Collectively, the members of Draper Advisers have
over 100 years of investing and entrepreneurial management experience, have
raised over one billion dollars across 16 venture capital funds, and have
investments in over 150 companies.
The managing member of Draper Advisers will be responsible for the
investment recommendations of Draper Advisers. The non-managing members of
Draper Advisers will be the source of much of our deal flow by presenting
potential investment opportunities to the managing member for evaluation. The
non-managing members will also provide post-investment managerial assistance to
many of our portfolio companies. The members of Draper Advisers have raised
capital for and are managing their own private venture capital funds and we
anticipate that many of our investments will be co-investments with these
private funds or follow-on investments in portfolio companies in which one or
more of our affiliated funds has previously invested, subject in both cases to
the Fund's ability to obtain appropriate exemptive relief from the SEC. The
non-managing members of Draper Advisers will not make or otherwise participate
in investment decisions on our behalf and have no obligation to provide services
to us on an exclusive basis.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
INVESTMENT OBJECTIVE
Our investment objective is long-term capital appreciation from venture
capital investments in information technology companies, primarily in the
Internet, e-commerce, telecommunications, networking, software and information
services industries. We will invest in companies that we believe have high
growth potential over the long term. After carefully selecting our portfolio
companies, we will seek to enhance their competitiveness by offering to provide
managerial assistance, including assistance in preparing for future rounds of
private or public financing, recruiting management, refining business strategy,
assisting with general business operations and making introductions to venture
firms, investment banks and other potential sources of capital. We will seek to
provide returns to our stockholders through long-term appreciation in the value
of our portfolio companies and through distributions of capital gains on our
investments. In addition, if a portfolio company is sold, merged or offers its
shares to the public, we may distribute cash or stock in either the portfolio
company or the acquiring company.
PRINCIPAL STRATEGIES
We plan to use the following principal strategies to accomplish our
investment objective:
FOCUS ON MEZZANINE AND EXPANSION ROUND VENTURE CAPITAL INVESTMENTS
- We intend to make venture capital investments in information technology
companies with high growth potential. These investments will be made in
various stages of venture capital financing with an emphasis on mezzanine
and expansion round financing. We believe that mezzanine and expansion
round investments will allow us to make larger investments with lower risk
and an earlier opportunity for realization of gains than seed round
financing.
UTILIZE NATIONAL VENTURE CAPITAL PRESENCE OF DRAPER FISHER JURVETSON
- Build on the expertise, contacts and deal flow of Draper Fisher Jurvetson
and its growing venture capital affiliate network.
EMPHASIZE INFORMATION TECHNOLOGY BUSINESSES
- Focus our investments on companies operating in the information technology
markets, primarily the Internet, e-commerce, telecommunications,
networking, software and information services industries, which we believe
have significant high growth potential.
- Direct our investments to companies in new markets and to companies in
existing markets with new technologies or business models that we believe
have the greatest possibility of success in the marketplace.
EXERCISE INVESTMENT DISCIPLINE
- Undertake a rigorous review process to select for investment the portfolio
companies we believe to have the highest growth potential.
- Spread our risk by investing in many companies located throughout the
country and in many different sectors of information technology.
- Provide additional funding to the companies we believe will perform the
best in the future and, conversely, decline follow-on investments in
portfolio companies that we feel no longer have the potential for high
growth.
ENHANCE THE COMPETITIVE ADVANTAGE OF THE COMPANIES IN WHICH WE INVEST
- Assist our portfolio companies in operations and general business strategy
with a goal of positioning them for high value follow-on rounds of
financing or liquidity events such as an initial public offering or sale
or merger.
- Help build superior management teams for the companies in which we invest.
FOCUS ON MEZZANINE AND EXPANSION ROUND VENTURE CAPITAL INVESTMENTS
Venture capital financing typically occurs in three stages. A seed round is
the first round of professional venture capital financing received by a
newly-formed company in a high-growth industry. The proceeds of a seed round are
often used to complete product development and to fund operations of a company's
core technical and management team. An expansion round is the second or third
round of professional venture capital financing. The proceeds of an expansion
round are often used to expand sales, marketing or production capabilities, to
further develop corporate infrastructure and to add necessary staffing. A
mezzanine round is typically the last round of venture capital financing prior
to an anticipated merger or initial public offering. The proceeds of a mezzanine
round are generally used for strategic purposes.
We intend to make venture capital investments in information technology
companies with high-growth potential. Our investment strategy will emphasize
mezzanine and expansion round financing. We believe that mezzanine and expansion
round investments will allow us to make larger investments with lower risk and
an earlier opportunity for realization of gains. We may also invest a portion of
our capital in start-up companies in their seed round of financing. We believe
seed round investments present a potential for larger gains, but with increased
risk and a longer horizon for the potential realization of gains.
We intend to invest in companies in various stages of development which we
believe exhibit desirable risk/reward characteristics generally consistent with
our business objectives. When searching for and evaluating mezzanine round
investment opportunities, we will seek companies which we believe will produce
excellent investment returns and which (i) possess a complete and strong
management team, (ii) have a strong board of directors and investor support,
(iii) occupy a position as a clear market niche leader and (iv) expect a
liquidity event within 12 to 18 months.
When searching for and evaluating expansion round investment opportunities,
we intend to seek companies with proven technologies, products or service
offerings that require additional capital to achieve sustained growth. When
searching for and evaluating seed round investment opportunities, we intend to
seek companies in the earliest stage of development with (i) strong core
management and technical teams, (ii) unique product concepts or a business model
indicating high growth potential and (iii) a focus on dynamic markets. We will
seek management teams with insightful ideas who we believe to be unusually
talented and motivated.
UTILIZE NATIONAL VENTURE CAPITAL PRESENCE
We intend to utilize the investment expertise, contacts, networks, access to
deal flow and company monitoring and managerial assistance capabilities of
Draper Fisher Jurvetson and its venture capital affiliates.
We expect a significant number of our mezzanine, expansion and seed round
investments to be referred by Draper Fisher Jurvetson and its venture capital
affiliates. The remainder of our investments will be sourced through our
relationships with other venture capital firms, investment banks and other
intermediaries.
Draper Fisher Jurvetson has established and continues to expand its network
of venture capital affiliates located in several metropolitan regions of the
United States. We believe that many regions throughout the country continue to
be underserved by venture capital. Draper Fisher Jurvetson's presence in many
regions of the United States improves the Fund's ability to monitor portfolio
companies located throughout the country. Additionally, Draper Fisher
Jurvetson's national network of contacts and expertise
is designed to help portfolio companies recruit managers, identify potential
customers and strategic partners and share best practices.
We intend to leverage the specialized investment knowledge and local
presence of the Draper Fisher Jurvetson venture capital affiliate network to
provide us with investment opportunities and portfolio company oversight. The
following is a current list of the name and location of venture capital firms
comprising the Draper Fisher Jurvetson affiliate network:
- Draper Fisher Jurvetson, Redwood City, CA
- Access Venture Partners, Westminster, CO and Austin, TX
- Draper Atlantic, Reston, VA
- Draper Fisher Jurvetson Gotham Ventures, New York City, NY
- Draper Triangle Ventures, Pittsburgh, PA
- Timberline Venture Partners, Vancouver, WA
- Wasatch Venture Fund, Salt Lake City, UT
- Zone Ventures, Los Angeles, CA
In addition to working closely with the main office of Draper Fisher
Jurvetson in Redwood City, California, we intend to initiate a program of
frequent direct communication with the principals of the affiliate network, who
are non-managing members of Draper Advisers, to discuss portfolio companies,
potential investment opportunities and the likely schedule for upcoming seed,
expansion and mezzanine rounds of financing.
We also intend to track and visit on an ongoing basis portfolio companies of
Draper Fisher Jurvetson and its affiliate network that we anticipate will seek
financing in the near term. In addition, we intend to increase the number and
breadth of investment opportunities that are presented to us by developing
relationships with a network of other venture capital firms, investment banks
and other financial intermediaries.
EMPHASIZE INFORMATION TECHNOLOGY BUSINESSES
We plan to emphasize investments in information technology companies,
primarily in the Internet, e-commerce, telecommunications, networking, software
and information services industries. We believe that the information technology
sector offers outstanding growth opportunities, and many new markets in which
emerging companies can thrive.
We seek to identify markets where technology will lead to rapid change in
customer behavior. We are particularly focused on sectors driven by increased
demand for Internet applications and services by consumers and businesses. We
also believe that the hardware and software telecommunications and networking
infrastructure required to support such growth will present numerous attractive
areas for venture capital investing.
Although new areas of investment opportunity will continue to emerge, the
following are examples of the areas of investment interest we have today:
- Internet applications and services
- Optoelectronics and fiber optics
- Intranet applications (front office and back office automation)
- Data communications, telecommunications and wireless advances
- E-commerce (business-to-business and business-to-consumer)
- Bandwidth improvement software and hardware
- Semiconductors with high intellectual property content
- Groupware applications
- Knowledge management applications
- Telephony software applications
- Networking software advances
- Service organizations that support Internet business development and
business function outsourcing
In addition, we plan to identify and invest in attractive new technology
markets as they develop.
EXERCISE INVESTMENT DISCIPLINE
We will undertake a rigorous review process to select for investment the
companies that meet our investment objective. For companies presenting
investment opportunities, we will perform extensive due diligence including
company visits, management interviews, reference checks, company and industry
assessments and market and risk analyses.
We plan to diversify our investment portfolio in order to increase our
chances of investing in companies with high returns, and in an effort to offset
the impact of investments in companies that yield losses. We intend to monitor
our portfolio companies closely to determine whether or not they continue to be
attractive candidates for further investment. We plan to decline additional
investments in portfolio companies that do not continue to show promise. We
will, however, seek to reinvest in the portfolio companies we believe will
perform well in the future, in an effort to reap greater positive returns as a
whole, and to protect our investments from dilution.
We believe that risk management is essential to achieving our investment
objective. We will manage our risk through extensive portfolio diversification.
We intend to invest in at least 50 different companies, although the actual
number of companies in which we invest will be a function of total funds
available. To ensure that our board of directors has the freedom to select
investments in companies that meet our investment objective, we do not
anticipate imposing formal limits on the amount of our capital that may be
invested in individual portfolio companies. However, we anticipate that no more
than 5% of our assets, based on the cost of our investments, will be committed
at any one time to any one company. We also intend to balance our portfolio by
industry and geography:
- INDUSTRY. We intend to invest in a number of different sectors of
information technology, including the Internet, e-commerce,
telecommunications, networking, software and information services
industries.
- GEOGRAPHY. We intend to invest in several regions throughout the country.
Our initial focus will be in many areas where high growth potential
information technology companies are being created, including the
Northeast, Mid-Atlantic, Southwest and Northwest regions of the United
States. Many of these regions are not as well served by existing venture
capital firms as northern California, and therefore may offer improved
opportunities for venture capital investing. We will seek to continue to
expand our efforts into promising regions of technological innovation.
OFFER MANAGERIAL ASSISTANCE TO OUR PORTFOLIO COMPANIES
We will offer to provide managerial assistance and guidance to our portfolio
companies. Such assistance may include serving on the board of directors of many
of the companies in which we invest, as well as providing expertise in
developing and implementing business strategy and tactics, selecting and
recruiting management personnel, and general business development. We believe
that such assistance will enable us to exercise significant influence with
respect to such matters as financing, budgeting, marketing, management selection
and exit strategy of our portfolio companies. We will also introduce the
companies in which we invest to appropriate business partners and sources of
capital for larger rounds of follow-on financing.