Waveland Ventures, LLC

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Waveland Ventures, LLC
Investing in Emerging Domestic Markets
Waveland NCP Texas Ventures
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Executive Summary

• Waveland Ventures, LLC (Waveland) is a holding
  company for various investment funds that serve
  the dual bottom line goals of investment return
  and economic development. These programs have a
  central theme of job growth/retention and
• are targeted at what can best be classified as
  Emerging Domestic Markets.
• Emerging Domestic Markets (EDMs) can be
  defined as people, places or enterprises that
  face constraints in accessing capital due to
  systematic undervaluation as a result of
  imperfect information and include
• Low and moderate income (LMI) urban and rural
  areas.
• Small and medium sized businesses.
• Seed and early stage businesses.
• Companies serving LMI populations.
• Minority and/or women-owned or operated small
  and medium sized businesses.

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Executive Summary

• Major trends contributing to the growth of
  Emerging Domestic Markets include1
• Demographic Shifts.
• Explosive projected growth of ethnic minorities
  in both population and percentage of labor
  market.
• Financial Market Consolidation.
• Shift away from bank-based financial system.
• Small businesses represent 99.7 of US
  companies and provide 50 of private sector
  output but only represent 10 of total
  financings.
• Legislative and Policy.
• State and Local Programs.
• Competition for corporate relocations and
  start-ups.
• State based tax credit programs.
• VCA-type programs.
• Enterprise Zones, Job Credits, and similar
  incentives.
• Federal Programs.
• New Market Tax Credits.
• SBA.
• SBICs.

1 Milken Institute/Ford Foundation, Creating
Capital, Jobs and Wealth in Emerging Domestic
Markets, January 2003.
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Executive Summary

• Waveland Ventures has two primary areas of focus
• State-based Venture Capital Programs.
• Waveland Colorado Ventures, LLC formed in
  April, 2002.
• Reached 50 investment threshold 2nd
  Quarter, 2004, three years ahead of schedule
  as mandated by the Colorado CAPCO Act.
• Waveland NCP Alabama Ventures, LLC formed in
  January 2004.
• 100MM program.
• Allocated approximately 19.5 million in
  certified capital.
• One of two CAPCOs nationwide to raise the
  maximum allowable under the program - 100
  million.
• Waveland NCP Texas Ventures, LP.
• 200 Million program.
• 1st Quarter 2005
• Federal Initiatives - New Markets Tax Credits
  (NMTC).
• Wisconsin Community Development Legacy Fund
  (WCDLF).
• Received 100 million allocation in May, 2004.
• Sponsored 2005 NMTC applications for 150
  million allocation for Denver-based Native
  American Bank and 150 million for WCDLF.

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CAPCO Background

• Certified Capital Companies are
  state-sponsored, private venture capital
  companies formed to increase the availability
  of growth capital for small businesses.
• Investment capital is raised through
  issuance of Certified Capital Notes to insurance
  company investors.
• Dollar for dollar tax credits issued by
  state (realized over 8 to 10 years).
• CAPCOs invest debt and equity much like
  traditional venture firms.
• To date, eight states and the District of
  Columbia have collectively passed approximately
  2.41 billion in legislation that allows the
  formation of CAPCOs, and the use of insurance
  premium tax credits as investment incentives.

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CAPCO Sample Program

• A CAPCO Program is created by the State
  Legislature which passes a CAPCO Act setting
  forth the operating guidelines for the program.
  Most enabling statutes are substantially similar
  but have varying provisions regarding the vesting
  of tax credits. A typical CAPCO Act may be
  summarized as follows
• CAPCO Act authorizes premium tax credits.
• Each CAPCO must have an initial capitalization
  of 500,000.
• Each insurance company investor may claim a
  maximum of 15 of the states total tax credit
  allocation amount.
• Each CAPCO must have two principals or
  employees with money management experience in
  the venture capital industry.

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CAPCO Sample Program

• To maintain certification, a CAPCO is required
  to
• Make investments in Qualified Businesses,
  which are typically defined as being
  headquartered or having its principal office in
  the relevant state and whose size generally
  would qualify it as a Small Business as defined
  by the SBA.
• Invest 30 of Certified Capital within 3 years,
  and 50 within 5 years.
• No more than 15 of Certified Capital may be
  invested in any single portfolio company.
• Comply with various regulatory compliance and
  reporting requirements.

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Texas CAPCO Act

• The Act creates 200 million of insurance
  premium tax credits.
• Certified Capital Company A partnership,
  corporation, trust, or limited liability
  company, whether organized on a profit or
  not-for-profit basis, that is in good standing
  with the State of Texas, is headquartered in
  Texas and has as its primary business activity
  the investment of cash in qualified businesses
  and that is certified as meeting the criteria of
  this section.
• Certified Capital An investment of cash by a
  certified investor in a CAPCO that fully funds
  the purchase price of an equity interest in the
  company or a qualified debt instrument issued by
  the CAPCO.
• Certified Investor An insurance company or
  other entity or person that has state premium
  tax liability, that contributes Certified
  Capital pursuant to an allocation of premium tax
  credits.
• A Certified Investor may take up to 25 of the
  vested premium tax credit beginning with the
  2008 tax year (filed with the tax report due
  March 1, 2009).
• The maximum amount of premium tax credit
  allocation claims that may be filed on behalf of
  any one insurance company, on an aggregate basis
  (including affiliates), shall not exceed 30
  million.

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Texas CAPCO Act

• Qualified Investment An investment of cash by
  a CAPCO in a Qualified Business for the purchase
  of any debt, debt participation, equity, or
  hybrid security of any nature or description,
  including a debt instrument.
• CAPCO cannot own 50 or more of a qualified
  business in which it invests.
• No more than 50 of any investment can be used
  to refinance existing debt.
• Qualified Business A business that, at the
  time of a CAPCOs first investment in the
  business
• Is headquartered in Texas and intends to
  remain in Texas, or intends to relocate to Texas
  within 90 days after receiving a Qualified
  Investment.
• Has no more than 100 employees and either
  employs, or pays at least 80 of its payroll to
  employees residing in Texas, and is primarily
  engaged in
• Manufacturing, processing, or assembling
  products.
• Conducting research and development.
• Providing Services.
• Is not primarily engaged in any of the following
• Retail sales.
• Real estate development.
• The business of insurance, banking, or lending.
  
• Professional services.

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Texas CAPCO Act

• Key Structural Aspects
• A CAPCO must have made Qualified Investments in
  an amount equal to at least 30 of Certified
  Capital by the third anniversary date of its
  allocation.
• A CAPCO must have made Qualified Investments in
  an amount equal to at least 50 of Certified
  Capital by the fifth anniversary date of its
  allocation with
• at least 50 of the investment dollars going to
  Early Stage Businesses.
• at least 30 of the investment dollars going to
  Strategic Investment Businesses.
• Early Stage Business is defined as meeting one
  of the following criteria
• is involved, at the time of a CAPCO's first
  investment, in activities related to the
  development of initial product or service
  offerings, such as prototype development or
  establishment of initial production or service
  processes
• was initially organized less than two years
  before the date of the CAPCO's first
  investment or
• during the fiscal year immediately preceding
  the year of the CAPCO's first investment had,
  on a consolidated basis with its affiliates,
  gross revenues of not more than 2 million as
  determined in accordance with generally accepted
  accounting principles.

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Texas CAPCO Act

• Strategic investment area means an area of
  Texas that qualifies at the time of investment
  as a strategic investment area under Tax Code,
  Chapter 171, Subchapter O, or after the
  expiration of that subchapter, an area that
  qualified as an investment area under that
  subchapter immediately before its expiration.
• Once a CAPCO has made Qualified Investments in
  an amount cumulatively equal to 100 of the
  Certified Capital allocated to it, the CAPCO
  shall no longer be subject to regulation under
  the Act.

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Rick Hayes - Biography

Rick Hayes Rick has been associated with the
securities industry since 1980. He has
originated, structured, and/or placed in excess
of 2 billion in various security transactions,
including private and public debt and equity. He
has experience in all aspects of start-up
investing, from conceptualization and initial
capitalization, through sale or
re-capitalization. He has particular expertise
in the financial services and healthcare
industries, and has provided advisory services to
a number of start-up enterprises. Prior to
founding Waveland Ventures, LLC he served as
President of Waveland Capital, LLC, a privately
held company that invests in the securities of
small and mid-cap public companies. He has held
senior positions at EF Hutton, Prudential
Securities, and Dean Witter Reynolds. Rick is a
cum laude graduate of Michigan State University
and is a member of the Advisory Board at the Eli
Broad College of Business, School of Management
at Michigan State University. He also serves a
member of the Board of Directors of Legacy
Redevelopment Corporation a not-for-profit CDC.
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New Markets Tax Credits Program Overview

• Community Renewal Tax Relief Act of 2000 included
  New Markets Tax Credit (NMTC).
• Created 5.85 billion in tax credits that will
  spur the investment of 15 billion in private
  investment.
• NMTC earned for investing equity in a qualified
  Community Development Entity (CDE).
• NMTC is claimed over 7 years starting on the date
  an investment is made in a CDE and on each
  subsequent anniversary. Total value of the NMTC
  is 39.
• 5 of the investment in years 1-3.
• 6 of the investment in years 4-7.
• Ability to leverage tax credit to 100 of
  investment.

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New Markets Tax Credits Program Overview
Year New Markets Tax Credit
Investment Created 2002 975 Million 2.5
Billion 2003 585 Million 1.5
Billion 2004 780 Million 2.0
Billion 2005 780 Million 2.0
Billion 2006 1.365 Billion 3.5
Billion 2007 1.365 Billion 3.5
Billion
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New Markets Tax Credits Program Overview

• Qualified Equity Investments in a CDE must be
  made within 5 years of the allocation of tax
  credits.
• CDE must use 85 of the proceeds from its equity
  investments into qualified low-income community
  investments.
• Repayments to a CDE of equity or principal from
  qualified investments within the first 6 years
  must be reinvested within 12 months.
• Qualified low-income community investments
  consist of
• Any capital or equity investment in, or loan to,
  any qualified low-income community business.
• The purchase from another CDE of any loan made by
  such entity that is a qualified low-income
  community investment.
• Financial counseling and other services made
  available to businesses and residents of
  low-income communities.
• Any equity investment in, or loan to, any CDE.
• Low-Income Communities are census tracts with the
  following characteristics
• The poverty rate exceeds 20 or
• The median income is below 80 of the greater of
• Statewide median income, or Metropolitan area
  median income.

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New Markets Tax Credits Program Overview

• Qualified Active Low-Income Community Businesses
  include
• Any entity (including nonprofit) if at least 50
  of total gross income is derived from the active
  conduct of a qualified business within a
  low-income community.
• A substantial portion of the use of tangible
  property of the entity is located within any
  low-income community.
• A substantial portion of the services performed
  for the entity by its employees is performed in
  any low-income community.
• Less than 5 of the average of the aggregate
  unadjusted basis of the property of the entity is
  attributable to certain collectibles, and/or
  non-qualified financial property.
• Commercial real estate (cannot be residential).
• Excluded businesses
• Farming.
• Country clubs, golf courses, massage parlors, hot
  tub and suntan facilities, racetracks or other
  gambling facilities, or liquor stores.
• Businesses that develop or hold intangibles for
  sale or license.

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Legacy Waveland Advisors

• Legacy Waveland Advisors, LLC (LWA) will serve
  as investment advisor to WCDLF.
• Joint Venture with Legacy Bancorp, Inc., a
  Milwaukee, Wisconsin headquartered CDFI bank
  holding company.
• Only bank holding company in the United States to
  be founded by African-American women.
• Applied for 150 million in New Market Tax
  Credits via WCDLF for the 2005 allocation.
• Assisted Native American Bank, NA in its
  application for 150 million in New Market Tax
  Credits for the 2005 allocation.