Venture Capital

Risks

Potential investors should be aware that an investment in Non-Publically Traded Offerings involve a high degree of risk. There can be no assurance that such offerings investment objectives will be achieved, or that an investor will receive a return of any or all of its capital. Potential investors should consider, among other things, the factors set forth below in determining whether an investment in such an investment is a suitable investment.

 Risk Inherent in Venture Capital Investments. The types of investments that the Fund anticipates making involve a high degree of risk. In general, financial and operating risks confronting portfolio companies can be significant. While targeted returns should reflect the perceived level of risk in any investment situation, there can be no assurance that the Fund will be adequately compensated for risks taken. A loss of principal is possible. The timing of profit realization is highly uncertain. Losses are likely to occur early, while successes may require a long maturation.

Early-stage and development stage companies often experience unexpected problems in the areas of product development, manufacturing, marketing, financing and general management, which, in some cases, cannot be adequately solved. In addition, such companies may require substantial amounts of financing which may not be available through institutional private placements or the public markets. The percentage of companies that survive and prosper can be small.

Investments in more mature companies in the expansion or profitable stage also involve substantial risks. The companies typically have obtained capital in the form of debt and/or equity to expand rapidly, reorganize operations, acquire a business or develop new products and markets. These activities by definition involve a significant amount of change in a company and could give rise to significant problems in sales, manufacturing and general management of these activities.

The Fund may not have opportunities to make suitable investments. The Fund may be unable to identify companies that complement its strategy, and even if it identifies appropriate opportunities, the Fund may be unable to acquire an interest in the company for many reasons including: a failure to agree on the terms of the investment, such as the amount or price of the sought after interest; incompatibility between the Fund’s management and management of the company; competition from other capital providers; and the unwillingness of the company to accept an investment offer from the Fund. Failure to identify sufficient investment opportunities and the overall inability of the Fund to generate sufficient deal flow could affect the Fund’s ability to deploy all of its capital, which could adversely affect the return to the Partners.

The Fund may be unable to obtain maximum value for its investment interests.  The Fund intends to hold positions in non-public companies which are generally illiquid investments. While the Fund does not anticipate selling its interests in its portfolio company before an acquisition, initial public offering, or specified put prevision if it were to divest of its interests prior to such an event, the Fund may not receive maximum value for these positions. In such case, the realizable value of the Fund’s interests may ultimately prove to be lower than the carrying value reflected on its financial statements.

Competition. The Fund expects to encounter competition from other entities having similar investment objectives. Potential competitors include other venture capital and other private equity funds, business development companies, investment partnerships and corporations, small business investment companies, and large industrial and financial companies investing directly or through affiliates and individuals. Some of these competitors may have significant experience, greater financial and technical resources and a greater number of qualified personnel than the General Partner or the Management Company. To the extent that the Fund encounters competition for investments, investment opportunities may decrease requiring the Fund to invest at higher prices which may ultimately reduce the returns to investors.

The Fund’s success could be impaired by valuations placed on companies or sectors the Fund invests in, by the financial marketplace. Securities markets, in general, and certain sectors the Fund may invest in, in particular, have experienced periods of significant volatility. Increased volatility in the future could increase the risk of loss in securities investments as compared to the risk of loss in more stable market conditions. Interest rate volatility, general levels of economic activity and participation by other investors in the financial markets may materially adversely affect the value of investments made or held by the Fund. Should equity markets, particularly those affecting certain sectors the Fund may invest in, weaken or experience a recession, the Fund will have difficulty raising investment capital and liquidating investments in the public and private markets. The Fund may also experience difficulty in identifying investment opportunities and securing follow-on financing for the Fund’s investments.

Furthermore, the value of businesses and the price of the equity and equity-related securities of those businesses, in which the Fund intends to invest in, may be based upon factors and multiples used for publicly-traded companies. The public market for the stocks of certain sectors the Fund may invest in has experienced extreme price and volume fluctuations. Investors’ interest in certain sectors the Fund may invest in may decline in the future and may cause extreme volatility in, including significant decreases in, the price from which these stocks have been trading. A decrease in the price of publicly-traded stocks from sectors the Fund may invest in would likely have a negative effect on the valuations given to the Fund’s portfolio companies, which would have a material adverse effect on the value of the Fund’s assets.

Concentration of investments. The Fund intends on diversifying into various sectors, however, the success of the Fund depends largely on making investments in portfolio companies, which may be isolated to certain sectors or regions such as the US. The value of companies in these sectors and/or regions may be particularly vulnerable to rapidly changing technology, government regulation and relatively high risks of obsolescence caused by scientific and technological advances. Adverse changes in economic conditions in the geographic markets that the portfolio companies serve would likely impair such companies’ ability to realize revenue growth and could otherwise have a negative effect on the Fund’s rate of return. Although the Fund will limit the amount of its aggregate capital commitments invested in any single portfolio company, it will have a high concentration of its assets in the securities of a limited number of issuers. This concentration risk may be heightened by the Fund’s participation in follow-on rounds of financing.  Such lack of diversification could magnify potential losses. Accordingly, the investment portfolio of the Fund may be subject to more rapid changes in value than would be the case if the Fund were subject to more stringent requirements with respect to diversification among companies, securities and types of securities, as well as other types of investments.

General economic conditions. General economic conditions may affect the activities of the Fund. Interest rates, the price of marketable securities and participation by other investors in the financial markets may also affect the value of securities purchased by the Fund or considered for purchase. Potential investors should realize that distributions may not be made by the Fund due to general economic conditions, illiquidity of portfolio investments, contractual prohibitions or other reasons mentioned above.

Nature of private investments. Investment in the Fund requires a long-term commitment, with no certainty of return. The Fund may invest in companies that are experiencing or are expected to experience financial difficulties, which will require additional equity capital to be successful. Identifying potentially profitable enterprises is a difficult task. The companies in which the Fund will invest may involve a high degree of risk. Such companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and service capabilities, and a larger number of qualified managerial and technical personnel. Many of the Fund’s investments will be highly illiquid, and there can be no assurance that the Fund will be able to realize a return on such investments in a timely manner, if at all. Additionally, the Fund may acquire securities that cannot be sold except pursuant to a registration statement filed under the Securities Act or in accordance with Rule 144 of the Securities Act or another exemption under the Securities Act. There will likely be no

near-term cash flow available to investors. Since the Fund may only make a limited number of investments and since many of the Fund’s investments may involve a high degree of risk, poor performance by a few of the investments could severely affect the total returns to investors. Additionally, it should be noted that past performance is not a guarantee of future results.

Illiquidity of investment. Investment in private companies involves extreme business and financial risks and can result in substantial or total loss. Investment in the Fund requires the financial ability and willingness to accept significant risks of illiquidity. There is no public market for the Interests and none is expected to develop. The Interests will generally not be redeemable and will not be transferable without the prior consent of the General Partner, which may be granted or withheld in its sole and absolute discretion. Consequently, notwithstanding the distribution provisions of the Partnership Agreement, investors may not be able to liquidate their Interests prior to the end of the Commitment Period.

In addition, because the Fund’s General Partner may close the Fund on a specific date (thus creating a finite term), investments made by it may not be ready for disposition at the end of such term. As a result, there may be in-kind distributions of interests in such investments, which may be illiquid securities. The proceeds upon disposition of such securities could be significantly less than their fair value. The Interests have not been registered under the Securities Act, the securities laws of any state thereof or the securities laws of any other jurisdiction, and, therefore, cannot be resold unless they are subsequently registered under the Securities Act and other applicable securities laws or an exemption from registration is available. It is not contemplated that registration of the Interests under the Securities Act or other securities laws will ever be affected.

Minority Investments. The Fund may invest in minority positions of companies and in companies for which the Fund has no right to appoint a director or otherwise exert significant influence. In such cases, the Fund will be significantly reliant on the existing management and board of directors of such companies, which may include representatives of other financial investors with whom the Fund is not affiliated and whose interests may conflict with the interests of the Fund.

No Assurance of Additional Capital for Investments. After the Fund has financed a company, continued development and marketing of products will require that additional financing be provided. Companies in the target sectors in which the Fund expects to invest have substantial capital needs that are typically funded over several stages of investment. No assurance can be made that such additional financing will be available and no assurance can be made as to the terms upon which such financing may be obtained.

Importance of key management. The success of the Fund will depend on the ability of the General Partner and the Management Company to identify opportunities, to negotiate and arrange the closing of transactions, to stimulate good performance by portfolio companies and to arrange timely disposition of securities at a profit. There can be no assurance that the General Partner and the Management Company will generate an adequate stream of investment opportunities. Additionally, the success of the Fund will depend on the continued involvement of the Principals in the business and affairs of the Fund, particularly Adrian Eddleman. Although the Investment Committee will manage the business and affairs of the Fund in the event that Adrian Eddleman ceases to do so, there can be no assurance that the Investment Committee will generate an adequate stream of investment opportunities or continue to manage the Fund as effectively as Mr. Eddleman.

Control by General Partner. Limited Partners of the Fund will have no opportunity to control the day-to-day operations, including investment and disposition decisions, of the Fund. In addition, Investors will have no ability to remove the General Partner. In order to safeguard their limited liability for the liabilities and obligations of the Fund, Investors must rely entirely on the General Partner and the Management Company to conduct and manage the affairs of the Fund.

Risks of certain investments.In connection with the disposition of an investment in a portfolio company, the General Partner, and/or the Fund may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of any business. They may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate. These arrangements may result in contingent liabilities, which might ultimately have to be funded by the General Partner, its members, and/or the investors, as the case may be.

Potential Liabilities. In connection with its investments, the Fund may negotiate the right to appoint one of the managers of the General Partner as a member of the portfolio company’s board of directors. Such membership on the board of directors of a company can result in the Fund or the individual director being named as a defendant in litigation. Typically, portfolio companies will have insurance to protect directors and officers, but this insurance may be inadequate. The Fund will also indemnify the General Partner and its principals, among others, for liabilities incurred in connection with operations of the Fund, including liabilities arising from such suits. Such indemnification obligations and other liabilities could be substantial.

Risk of dilution. Partners admitted at subsequent closings will participate in existing investments of the Fund, diluting the interest of existing investors therein. [Although such investors will contribute their pro rata share of previously-made Fund draws there can be no assurance that this payment will reflect the fair value of the Fund’s existing investments at the time such additional investors are admitted].

Failure to Make Capital Contributions. The failure of any investor to contribute any portion of its commitment on a timely basis may adversely affect the Fund’s access to capital and, among other things, the ability of the Fund to enter into or consummate investments.

Lack of operating history. Although the Principals and the Investment Committee have prior experience relating to the financing of companies and in investments similar to those to be made by the Fund, the Fund itself has no operating history and an investment in the Fund must be considered in light of the risk, expense and difficulties encountered by funds in an early stage of development.

Conflicts of interest. Instances may arise where the interests of the General Partner or the Management Company may potentially or actually conflict with the interests of the Fund and its investors. The General Partner’s distributive share of the Incentive Investment may create an incentive for the General Partner to make more speculative investments on behalf of the Fund than it would otherwise make in the absence of such arrangement. [There also exists common ownership among the General Partner and the Management Company. Clients, employees, members and/or affiliates of these entities may also have an ownership interest in the General Partner and/or may be a Limited Partner in the Fund.]

Additionally, the Principals and any other member of the General Partner shall not be required to manage the General Partner or the Fund as their sole and exclusive function, and shall be entitled to have other business interests and may engage in other business activities in addition to those relating to the Fund, including forming and managing other investment partnerships or separate accounts with activities similar to those of the Fund. The Principals and any other member of the General Partner in connection with other business activities or other investment management roles may have access to investment opportunities that may be within the Fund’s investment strategy and such investment opportunities may or may not be referred to the Fund as determined by the Principals in their sole discretion.   In light of the foregoing, the Advisor, the General Partner, the Management Company and the Principals may be conflicted with regards to how they allocate their time and resources, as well as determining what investments are appropriate for the Fund or otherwise allocated to the Fund.

The General Partner, and other members of and strategic advisors to the General Partner, may receive origination, transaction, break-up, consulting, advisory or directors’ fees from portfolio companies of the Fund, including Due Diligence Fees (and such fees will not inure, or only partially inure, to the benefit of the Fund). The existence of such compensation arrangements may create more of an incentive for the General Partner to cause the Fund to invest in a portfolio company than would otherwise exist in the absence of such fees, and such arrangements may influence such investments generally.

In-kind distributions. The Fund’s investments will be in the form of illiquid securities.  If the General Partner so determines it necessary or in the best interest of the investors or the Fund, the Limited Partners may receive in-kind distributions of illiquid securities in lieu of any cash distributions. Any securities

distributed may not be readily marketable or saleable and may have to be held by the investors for an indefinite period of time.

Absence of regulatory oversight. While the Fund may be considered similar to an investment company, it is not registered as such under the Investment Company Act of 1940 (the “Investment Company Act”) in reliance upon an exemption available to privately offered investment companies and, accordingly, the provisions of the Investment Company Act (which, among other things, places restrictions on certain investment practices, require an investment company to have a majority of disinterested directors, require securities held in custody to be at all times individually segregated from the securities of any other person and marked to clearly identify those securities as the property of that investment company, and regulate the relationship between the adviser and the investment company) are not applicable.

Exculpation; Indemnification. The Partnership Agreement of the Fund will provide that the General Partner, the Management Company and/or their members and employees will not be liable to the Fund or to any investor for any loss or damage sustained in connection with the Fund’s business, including errors in judgment or other acts or omissions reasonably believed to be within the authority granted to it under the Partnership Agreement, unless such loss or damage is the result of gross negligence or willful misconduct. As a result, investors effectively may have a more limited right of action against the General Partner, the Management Company and/or  their members and employees than they would otherwise have absent such provisions in the Partnership Agreement. The Partnership Agreement will also provide for indemnification of the General Partner, the Management Company and/or their members and employees against liability arising out of any act or omission in connection with business of the Fund if such act or omission does not constitute gross negligence or willful misconduct.

 No independent representation. No independent counsel or investment advisor has been retained to represent the interests of the Limited Partners. Each prospective investor is therefore urged to consult with his own counsel as to the terms and provisions of this offering and all documents relating thereto.

Clients of the Management Company may choose, whether solicited or unsolicited, to purchase an ownership interest in the Fund. To the extent that such a recommendation is made by the Management Company or one of its representatives and/or affiliates, the client agrees that such a recommendation is in line with his investment objectives and understands the risks related to investing in a venture capital or other similar type fund and acknowledges the fees payable pursuant to the Fund’s Partnership Agreement and any fees payable by the Limited Partner pursuant to a separate management or advisory agreement with the Management Company.

Foreign Securities. The Fund will reserve the right to invest in securities of companies headquartered or operating in one or more non-U.S. countries, although at present the Fund intends to invest primarily in companies operating in the U.S. Investing in non-U.S. companies involves considerations and possible risks not typically involved in investing in securities of companies headquartered in the U.S., including instability of some governments, the possibility of expropriation, limitations on the use or removal of funds or other assets, changes in governmental administration or economic or monetary policy (in the U.S. or abroad) or changed circumstances in dealings between nations. The application of local tax laws (e.g., the imposition of withholding or other taxes on investment income) or confiscatory taxation may also affect investment in non-U.S. securities. If a non-U.S. portfolio company were to become a publicly traded company, the non-U.S. securities market would likely be less liquid, more volatile and less subject to governmental supervision than in the U.S.. Such investments could be affected by other factors not present in the U.S., including lack of uniform accounting, auditing and financial reporting standards and potential difficulties in enforcing contractual obligations.

In addition, the Fund’s investments that are denominated in currencies other than the U.S. dollar are subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short- term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. The Fund does not intend to hedge currency risks.

Loss of pass-through tax treatment. The Fund intends to be classified as a partnership for federal income tax purposes. Failure to maintain that status would have material adverse tax consequences for members.

General Tax Considerations. In view of the complexity of the tax aspects of an investment in the Fund, particularly in light of the fact that certain of the tax aspects will not be the same for all investors, prospective investors are strongly advised to consult their tax advisors with specific reference to their own tax situations prior to an investment in the Fund. See “Certain Federal Income Tax and Regulatory Considerations.”