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Adam Grosser's Arresting E-Mail

Foundation Capital's September financing alert, in the general partner's own words

From: Adam Grosser

Sent: Monday, September 29, 2008 10:02 AM

Subject: thoughts on the economic environment

It is likely that there will be extremely limited liquidity opportunities for the next two years.

Expense management will be the key to success for most private companies. If you cannot get to cash flow positive with cash-on-hand, we need to think carefully about the expectations for future financing, both from a cash availability standpoint as well as to make sure that valuation expectations are well understood.

I think we all need to review staffing levels—and make sure that every hire is absolutely crucial, or to see if there are opportunities for reductions.

We all need to be extremely cautious about venture debt—banks are starting to sweep accounts aggressively.

We have seen hedge fund co-investors pull back from participation in the past week, which has interjected a level of uncertainty into follow-on financings.

Foundation is a long-term investor, and believes that out of chaos will also come opportunity. That could be in the form of acquisition candidates, or a contraction of the competitive landscape.

I'd urge you to think about your 2009 operating plans in light of these macro-environmental trends.

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