For the exclusive use of T. Wu, 2020.

CASE: E-630
DATE: 04/15/17

PEAR VC
Mar Hershenson, cofounder and managing partner of Pear VC (“Pear”), contemplated what she
would say to Pejman Nozad, Pear’s other cofounder and managing partner. It was the beginning
of 2014, and Hershenson had just finished meeting with Alex Austin, Mada Seghete, and Mike
Molinet, students at Stanford’s Graduate School of Business. The three budding entrepreneurs
were working together in Stanford’s Venture Studio program on a company called Kindred
Prints, and Hershenson was convinced of their entrepreneurial potential. To Hershenson, the trio
checked all of the boxes for a strong start-up founding team: The three had known each other and
worked together for more than a year; they possessed a wide and complementary set of skills;
they had extensive knowledge of the problem they were solving; and they exhibited an
unabashed hunger to succeed. Having just closed Pear’s first venture capital fund, Hershenson
and Nozad were eager to put Pear’s capital to use. And having known Nozad for several years,
Hershenson was confident that Nozad would be equally impressed by Austin, Seghete, and
Molinet.

Yet while Hershenson was excited by the Kindred Prints team, she was not so excited by the
concept they were developing. Austin, Seghete, and Molinet were building a mobile app that
would allow customers to turn digital photographs into high-quality prints. As an angel investor,
Nozad had invested in a company in the photography space that had recently failed, as the
industry was rife with competition. Furthermore, the market for printed photographs was not
nearly as large as Hershenson and Nozad preferred for an early-stage investment. The question
for Hershenson and Nozad was whether the upside of the Kindred Prints team outweighed the
limitations of the photography space. And, if so, how much should Pear invest?

For seed-stage investments, Hershenson and Nozad sought to write initial checks for at least a
few hundred thousand dollars in exchange for equity stakes of 10 to 15 percent. Although this
was not a hard-and-fast rule, the reasons for this target range were twofold. First, Hershenson
and Nozad sought to work closely with all of Pear’s portfolio companies. With a fund size of
$50 million, Pear would have to invest in hundreds of companies if its investments were in the

Ryan Kissick (MBA 2014) and Robert Siegel, Lecturer in Management, prepared this case as the basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

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Pear VC E-630 p. 2

range of just a few percent (including follow-on investments). Hershenson and Nozad
recognized it was not tenable to spread their attention and focus across such a vast network of
portfolio companies.

Second, from an economic standpoint, seed investments of 10 to 15 percent ensured that Pear
could generate impressive financial returns even if a portfolio company’s potential market
capitalization was less than Hershenson and Nozad originally estimated. Hershenson explained,
“We want to maximize our ownership in massive, category-defining companies with market
sizes in the billions of dollars. But if we overestimate the market size for a given company, an
investment of 10 or 15 percent ensures that we can still generate sizable returns for companies
that do great in slightly smaller markets.”1

Against this backdrop, Hershenson wondered how to approach the potential investment in
Kindred Prints. On the one hand, neither Hershenson nor Nozad was enthusiastic about the
market for a photo-printing app, especially given Nozad’s recent experience in the space.
Furthermore, Hershenson was confident that she and Nozad would come across many fantastic
start-ups—the two anticipated that Pear would evaluate more than 2,000 investment
opportunities in a given year, many of which would be tackling much more impressive markets
than Kindred Prints. On the other hand, the Kindred Prints team fulfilled all of the criteria that
Pear sought in its entrepreneurs. Hershenson knew that it was rare to find such a promising
founding team, yet she was not sure whether the economics justified an investment in a photo-
printing app, regardless of the team. As she weighed these considerations, Hershenson knew that
she would somehow have to establish an opinion in spite of the ambiguity, as Nozad would
undoubtedly want to know whether Pear should seriously consider investing in Kindred Prints.

BACKGROUND

Growth in Early-Stage Investing

In the 2000s and 2010s, several trends led to a dramatic rise in early-stage investing around the
world. First, the cost of launching a high-growth start-up dropped significantly.2 Whereas
venture capitalists once had to invest millions of dollars to fund a start-up, they could now
finance companies with investments as small as $10,000.3 In addition to the reduction in capital
needed to launch a venture, technological advancements provided entrepreneurs with immediate
access to global markets, shorter product cycles, and vast amounts of information needed to build
a successful start-up.4 Furthermore, a vast array of scalable digital marketing tools, including
Google, Facebook, and e-mail marketing, allowed companies to reach audiences that they never
could have reached prior to the Internet, as well as immediately measure the effectiveness of
advertising campaigns. Entrepreneurs could grow their start-ups into massive companies more
cost-effectively than ever before, and in a much quicker timeframe. As such, early-stage
1
Interview conducted with Mar Hershenson on February 10, 2017. All quotations are from this interview unless
otherwise noted.
2
David Blumberg, “The Ascent of Early-Stage Venture Capital,” TechCrunch, June 7, 2014,
https://techcrunch.com/2014/06/07/the-ascent-of-early-stage-venture-capital/ (March 13, 2017).
3
“The Global Startup Ecosystem Ranking 2015,” Compass, 2015, https://startup-ecosystem.compass.co/ser2015/
(March 13, 2017).
4
Blumberg, loc. cit.

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Pear VC E-630 p. 3

investors could invest the same amount of capital in far more companies while achieving a
quicker and larger return on their investments.

Coinciding with these trends was a rapid increase in early-stage investments. According to the
Center for Venture Research at the University of New Hampshire, the U.S. angel market grew
from $17.6 billion in 2009 to $24.1 billion in 2014.5 As the angel market grew, new
organizations emerged that specialized in seed and early-stage investing, including micro venture
capital firms, incubators such as Y Combinator, and AngelList, a platform for early-stage start-
ups. Micro venture capital firms were those companies that raised funds of less than $100
million, with more than 80 percent of initial investments going toward seed rounds. According
to CB Insights, the number of micro venture capital firms grew from 42 in 2011 to 236 in 2015.6

Founded in 2005, Y Combinator is an accelerator for early-stage start-ups. During Y

Combinator’s three-month program, entrepreneurs receive funding, mentorship, and connections
to top talent and future investors in exchange for a portion of the start-up’s equity. Starting with
a batch of eight start-ups in Cambridge, Massachusetts,7 Y Combinator has expanded rapidly.
The accelerator funded more than 200 companies in 2015 alone.8

Created in 2010, AngelList began as a blog that provided advice to entrepreneurs, but soon
turned into a platform connecting start-ups with investors, potential hires, and incubators like Y
Combinator. From 2011 to 2016, the number of investors registered on AngelList grew from
2,500 to 30,000.9 Whether it was through AngelList or other forms of networking, entrepreneurs
had access to an increasing array of early-stage investors. As a result, more start-ups received
seed funding than ever before, although the percentage of those start-ups that received a Series A
follow-on investment decreased significantly (see Exhibit 1 for the number of seed deals and
follow-on Series A investments from 2008 to 2016).

Hershenson and Nozad Form Pear VC

In 2004, Mar Hershenson founded Sabio Labs, a software start-up based in Palo Alto. When it
came time to raise seed capital for her venture, Hershenson reached out to an unlikely source—
Pejman Nozad, a prominent rug salesperson and budding angel investor in Silicon Valley.
Shortly after emigrating from his native Iran to the United States in 1992, Nozad began working
at the Medallion Rug Gallery in Palo Alto. As he got to know his customers, Nozad became
enthralled with the companies, technology, and innovation being generated around him, and he
decided to start investing in early-stage entrepreneurs (see Exhibit 2 for Nozad and
Hershenson’s biographies). To meet as many entrepreneurs as possible, he began hosting
meetings, events, and parties at the rug store—including a meeting with Hershenson’s husband
5
Jonathan Ortmans, “The Rise of Angel Investing,” Ewing Marion Kauffman Foundation, March 28, 2016,
http://www.kauffman.org/blogs/policy-dialogue/2016/march/the-rise-of-angel-investing (March 13, 2017).
6
Samir Kaji, “Small Giants: The Past, Present, and Future of Micro VCs,” CB Insights, August 4, 2015,
https://www.cbinsights.com/blog/past-present-future-micro-vc/ (April 4, 2017).
7
Christopher Jackson, “Y Combinator’s First Batch: Where are they now?” The Next Web, August 5, 2012,
https://thenextweb.com/insider/2012/08/05/y-combinators-first-batch-where-are-they-now/#.tnw_6uhAKkyt
(April 4, 2017).
8
Sam Altman, “YC Stats,” Y Combinator, August 26, 2015, https://blog.ycombinator.com/yc-stats/ (April 4, 2017).
9
Data provided by Pear VC.

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Pear VC E-630 p. 4

Matt in 2000. Nozad funded Matt’s venture, Danger, at a time when non web-based technology
companies struggled to raise money. Hershenson recalled:

Danger went up and down Sand Hill Road for nine months and nobody would
give them money. At a time where everything dot-com was getting funded by VC
money, nobody wanted to fund a smart phone. Then, finally one day Matt came
home and said, “We found a guy that will give us money!” “Who?” I asked.
“This guy at a Persian rug shop on University Avenue.” I replied, “You must
return it—it is probably some sort of money-laundering operation.” This is how I
first heard of Pejman. He invests in people no matter what they do.

Four years later, Hershenson pitched Sabio Labs to Nozad. She described the interaction:

I told Pejman that we were making software for analog circuit design, using
convex optimization. He said, “I have no idea what you guys are talking about,
but I like you, so I think I should give you money. I’m going to have you chat
with some people that I know that know about what you do.” He connected us
with a bunch of other angel investors and venture capitalists and put together our
entire round of financing. From that point on, he was our go-to person whenever
we needed any help or any connections. Long before it was fashionable to be nice
to founders, he would ask us, “How are you doing? What’s worrying you? What
can I do to help you?” It was hard not to love him.

Hershenson sold Sabio Labs to Magma Design Automation in 2008, where she stayed on as vice
president of product development. Less than two years later, Nozad asked Hershenson to join
him in creating an early-stage venture fund (see Exhibit 3 for Nozad’s original business plan).
Hershenson politely declined the offer, as she enjoyed working in technology operations.
However, Nozad was persistent, and Hershenson eventually agreed to consider the opportunity.
She recalled, “Pejman really wanted to make this happen—and the way he did it was by sending
founders to meet with me. He’d say, ‘Mar, I really think you can help this founder.’ Before I
knew it, my calendar was filled with meetings that Pejman had set up. So I agreed to give it a
try.”

For nearly six months, the two worked at Coupa Cafe in Palo Alto, discussing their views on
investing and analyzing various start-ups. Near the end of 2013, Hershenson and Nozad decided
to raise a venture capital fund for their newly formed company, Pejman Mar Ventures, which
was later rebranded as Pear VC in August 2016. Neither had raised a venture fund from limited
partners (LPs); as such, they hit some early roadblocks in their efforts to raise money. However,
after refining their pitch, Hershenson and Nozad were ultimately successful in raising a $50
million fund, which they closed in 2014 (see Exhibit 4 for a timeline of Pear’s major
milestones).

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Pear VC E-630 p. 5

INVESTMENT STRATEGY

Pear made initial investments in start-ups spanning three stages of company development: 1) pre-
seed, which Pear termed “soil”; 2) seed; and 3) Series A.10 Founders or teams at the pre-seed
stage did not necessarily have a product or even a specific problem to solve. Pear invested at the
pre-seed stage because Hershenson and Nozad believed strongly in an entrepreneur or team and
had confidence that, with the appropriate resources and mentorship, the founders would
ultimately develop a solid company. Nozad elaborated: “At the pre-seed stage, we’re looking for
teams that don’t yet have a working product. Ideally, they have a prototype, but a prototype isn’t
necessary if we find the right entrepreneurs.”11 Pear invested up to $500,000 per company at the
pre-seed stage.

Companies at the seed stage had already developed a strong idea and validated their idea with
customer research or early traction. Pear invested $500,000 to $1.5 million per company at the
seed stage to help companies develop a foundation for rapid growth. This included helping
founders hire the right team, refine product/market fit, and acquire customers in a cost-efficient
manner. Pear also made initial investments in companies that had successfully established
product/market fit and were ready to raise Series A financing. Pear’s Series A investments of
$750,000 to $3 million per company assisted companies with scaling an already-proven concept
and business model.

With regard to initial investments, 90 percent of Pear’s capital went to pre-seed and seed-stage
financings, while 10 percent went to Series A financings. However, Pear allocated the majority
of its capital for follow-on investments as opposed to initial financings. Hershenson expounded,
“We reserve about two-thirds of our capital for follow-on investments. In other words, for every
$1.00 that we invest up front, we reserve $2.00 for future investments. This is critical in
maintaining our ownership position in subsequent financings.” Across all of its investments,
Pear targeted a 5x return on the total fund.

Investment Criteria

Unlike some venture capital firms, Pear invested across a wide variety of industries. Nozad
recalled:

If you look at our portfolio companies, we’ve invested in consumer apps, drones,
genomic companies, B2B solutions—it’s all over the map in terms of industries.
And the reason for that is because if you’re a good seed investor, you look at the
signals of the founders. It’s all about working with exceptional entrepreneurs. At
the pre-seed and seed stage, there’s not much data to look at—it’s not like we can
call customers or look at revenue numbers. So a lot of successful investing at this
stage is a matter of pattern recognition about what makes a good entrepreneur and
founding team. It’s kind of like having a good wine—once you have a good
wine, you know it, but it’s hard to explain it or put words around it.

10
“How we Invest,” Pear VC, https://www.pear.vc/how-we-invest/ (March 6, 2017).
11
Interview conducted with Pejman Nozad on February 10, 2017. All quotations are from this interview unless
otherwise noted.

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Pear VC E-630 p. 6

With no specific industry focus and limited data to work with, Pear examined a few key criteria
in potential investments. The first, and most significant, consideration was the caliber of the
founding team. More specifically, Hershenson and Nozad looked at a team’s skills and
knowledge, making reference checks to ensure that a team could develop a scalable product or
service within their selected industry. Hershenson explained:

It’s rare that a single founder has everything you need to start a company. It’s
possible, but it’s rare. So we look for an MVT—a minimum viable team. In
other words, we look for the basic skills needed to launch a company in a given
industry. So let’s say a team is building an e-commerce business. They would
need experience in operations, website development, and branding. If those three
ingredients aren’t in the founding team, there’s something missing. In addition,
we like entrepreneurs who are really close to the problem they’re solving, whether
that’s through their education or work experience. And finally, we typically want
at least one founder to have a technical background.

Beyond specific skills, Hershenson and Nozad evaluated several intangible qualities among
founders. Nozad discussed a few of the things that he and Hershenson considered most
important:

We like teams that have a history together, whether they worked together at
Google, went to the same high school, or go rock climbing every weekend. We
like teams, and especially CEOs, who are willing to walk through walls to make
something happen. We like founders who are paranoid in a healthy way—those
who are confident in where they’re going, but question themselves every day.
This was the case with the Kindred Prints founders, who eventually pivoted away
from their photo idea to a new idea related to in-app communications. Their new
company, Branch, gained rapid traction, and is a great example of the fact that
strong teams find a way to succeed, regardless of their initial ideas.

Another significant consideration, although less important than the quality of the founding team,
was market size. “We look for companies that have the potential to achieve a $1 billion market
cap,” Nozad explained. “In our first fund, there were a few times that we miscalculated the
potential market size for a company and realized that the market was not as big as we originally
thought. So we’ve learned to spend a lot of time getting this right.”

When it came time to make an investment decision, Hershenson and Nozad had to be
unanimously aligned. Nozad explained:

For all of the decisions we’ve made, Mar and I have been in agreement. That
doesn’t mean we agreed throughout the process. There have been plenty of times
where we’ve disagreed on a start-up at first, but ultimately came together. If one
of us has a really strong feeling about a company, we listen to each other’s
judgment. We have so much respect for each other’s opinion, and we’ve never
had an issue where we have really strong opposing viewpoints.

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Pear VC E-630 p. 7

HELPING ENTREPRENEURS BUILD GREAT COMPANIES

Along with financial capital, Pear provided its portfolio companies with the tools, network,
support, and mentorship needed to grow their businesses. Hershenson and Nozad took great
pride in Pear’s high-touch, values-driven approach, which they deemed “partnering” rather than
“investing” (see Exhibit 5 for Pear’s values and operating principles). The two spent significant
time helping start-ups develop into sustainable, category-defining companies, whether that meant
assisting with an operating plan, introducing founders to potential employees, or connecting
teams with experts in a given industry.

Hershenson and Nozad maintained large networks in Silicon Valley, and the two relished the
opportunity to connect founders with the people who could help them achieve their vision,
including more than half a dozen operating partners who exhibited thought leadership and
domain expertise within relevant disciplines (see Exhibit 6 for a visual depiction of Pear’s team
and vision). Beyond their mentorship and entrepreneurial network, Hershenson and Nozad
offered a wide array of informal and formal programs, including speaker series, hackathons,
pitch nights, CEO dinners, workshops, and networking events.

Pear Dorm

In addition to programming for Pear’s portfolio companies, Pear developed four programs that
helped entrepreneurial students pursue their start-ups: Stanford Garage, Pear Launchpad, Pear
GSB, and UC Berkeley Challenge. Hershenson described the genesis of these four programs,
which were part of a broader initiative called Pear Dorm:

Today, we have a specific name for the initiative—Pear Dorm—and the programs
within Pear Dorm. But all of these things started much more naturally and
informally. When we started Pear, Pejman was well-known for his parties at the
rug store, parties that were famous for the incredible food and music. Through his
parties, Pejman was able to connect all sorts of amazing people. Pejman truly
loves people, and he is a genius at bringing people together through great events.
So when we started Pear, Pejman wanted to continue hosting great events. One of
his ideas was to get students and founders to work together in a house. So we
reached out to a few computer science students at Stanford and asked, “Is there
anything we can help you with?” One of them said, “We feel like we can build
anything, but we don’t know what to build. It would be great if you could
connect us with people in different industries that would tell us what to build.
What are the major problems in the world?” So we put together talks featuring all
sorts of people, including people in logistics, media, e-commerce—and that was
how Stanford Garage got started. The other programs came together in a similar
manner, thinking about how we could help students achieve their entrepreneurial
vision.

Stanford Garage
Stanford Garage, an annual program that began in October and ended in June, was open to
Stanford University students campus-wide, including undergraduate, graduate, and postdoctoral
students. Students applied to be a part of Stanford Garage, either as an individual or as a team.

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Pear VC E-630 p. 8

Applicants did not need to have a product or even a prototype in mind, but instead could apply
with a simple idea. Once accepted, students gained access to a wide range of benefits, including
office space at Pear’s office in Palo Alto; mentorship and meetings with Pear’s partners; project
stipends up to $1,500 for expenses related to students’ projects; free resources, including credits
from AWS and Google Cloud, discounted legal assistance, and special deals with online tools
such as the website mockup tool Balsamiq; a speaker series with renowned Silicon Valley
entrepreneurs; founder workshops; and social events.

The time commitment for Stanford Garage was at each student’s discretion, and students did not
have any obligation to pursue a project after the program finished. Furthermore, Pear did not
receive any equity from the students in Stanford Garage. As of 2017, Pear admitted 15 to 20
students into Stanford Garage per year, most of whom were recommended by other students,
entrepreneurs, or investors.

Pear Launchpad
Pear Launchpad was a full-time, 10-week program for early-stage start-ups. In order to apply to
Pear Launchpad, at least one founder had to be a current student or a recent graduate from a top-
tier university. Similar to Stanford Garage, individuals could apply as solo founders or as teams
of up to four individuals. Ten to fifteen teams were admitted to Pear Launchpad, which ran from
the middle of June until late August. Those who participated in Pear Launchpad received all of
the same benefits as those who took part in Stanford Garage. In addition, start-ups in Pear
Launchpad received funding to the tune of $7,500 per individual and $5,000 per team plus
additional funding on a case-by-case basis up to a maximum of $40,000 per team, structured as
an uncapped convertible note. Pear also requested the option to invest up to an additional
$250,000 in a start-up’s next round of funding.

Over the course of 10 weeks, teams built a product roadmap, developed a go-to-market strategy,
identified early customers, and enhanced their networks with the goal of scaling their nascent
start-ups. Pear Launchpad culminated in a Demo Day with top venture capitalists and industry
executives. In 2015, eight teams presented at Pear’s Demo Day; four of the companies received
seed funding, and one of the companies was purchased by Google.12 In 2016, 100 investors
attended the event, in which 13 teams pitched their start-ups.13 These teams ended up raising
more than $12 million from top-tier venture capital firms.14

Pear GSB
Pear GSB sought start-ups with at least one founder who was an MBA student at the Stanford
Graduate School of Business (GSB). Solo founders or teams of up to four people could apply to
the program, which accepted three teams. The program began in March and provided the same
benefits as Stanford Garage. In addition, each team in Pear GSB received $5,000 plus $7,500
per team member, with a maximum of $25,000, structured in an uncapped convertible note.
Every Pear GSB team was invited to participate in Pear Launchpad, where they would be eligible

12
Connie Loizos, “At Pear Demo Day, 13 Companies to Watch,” TechCrunch, September 1, 2016,
https://techcrunch.com/2016/09/01/at-pear-demo-day-13-companies-to-watch/ (March 6, 2017).
13
Ibid.
14
“Pear Launchpad 2017,” Pear VC, https://www.pear.vc/launchpad (March 6, 2017).

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Pear VC E-630 p. 9

for additional funding. As of March 2017, Pear-backed GSB start-ups had raised more than
$250 million in venture financing.

UC Berkeley Challenge
In 2015, Pear expanded its programmatic reach across the San Francisco Bay when it launched
the UC Berkeley Challenge, in which one entrepreneurial team would win seed funding and join
the Pear portfolio. To qualify for the challenge, at least one member of a start-up’s founding
team had to be a student or alumnus of a degree-granting program from the University of
California, Berkeley. The winning team received up to $250,000 in seed funding in exchange for
a 5 percent equity stake, with an additional 10 percent ownership stake going to UC Berkeley.15
Pear did not offer the challenge in 2016, but opened the program again in 2017 with the thought
that the challenge would henceforth exist on an annual basis.

Pear Fellows

In addition to Pear Dorm, Hershenson and Nozad developed the concept for Pear Fellows in
2016. Pear Fellows were undergraduate or graduate students across the United States who
promoted the Pear brand, researched areas of interest, and organized events on campus. Nozad
explained, “When it comes to Pear Fellows, our first goal is to find students who are ambitious
and excited about entrepreneurship. From there, we talk about each student’s areas of interest,
whether it’s a specific industry like fin-tech or drones, a certain research topic, or deal flow due
diligence.”

Where to Focus?

To Hershenson and Nozad, there was little doubt that these programs were successful in
promoting the Pear brand while at the same time expanding Pear’s network and introducing the
team to promising new start-ups. However, it was not clear how they could measure the success
of each program, nor how they should prioritize new programs in the future. Nozad elaborated
on the challenge:

Mar and I are consistently thinking about how we allocate our time, including the
time that we spend developing and running Pear’s events and programs. For
example, Stanford Garage and Launchpad have been very successful, so we ask
ourselves, “Should we spend more time growing those programs?” One option
would be to offer Launchpad three times per year instead of just during the
summer. Another option would be to offer programs like Stanford Garage at
different universities across the country. A third option would be to develop new
types of programs within Pear Dorm. Alternatively, Mar and I wonder whether
we should just spend more time investing in companies and focusing on our
portfolio companies.

Figuring out the appropriate mix of events and initiatives was one of Hershenson and Nozad’s
primary strategic challenges for 2017. Striking the right balance would be critical in ensuring

15
“UC Berkeley Challenge,” Pear VC, https://www.pear.vc/berkeley-challenge/ (March 6, 2017).

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Pear VC E-630 p. 10

that Pear continued to play a prominent role in the development of some of the world’s most
talented entrepreneurs and start-ups.

COMPARING TWO FUNDS

Hershenson and Nozad closed Pear’s first fund in 2014. The fund totaled $50 million and
included 40 investments. Some of the most prominent investments from Pear’s first fund were
Branch, DoorDash, One Concern, Memebox, and Guardant Health. Pear’s second fund closed in
the summer of 2016 and totaled $75 million. Upon closing the fund, Hershenson and Nozad also
announced the rebranding of the firm from Pejman Mar Ventures to Pear VC, as well as the
addition of new partner Ajay Kamat, founder and former CEO of Wedding Party, a Pear
portfolio company.16 Several founders and investors had become familiar with Pejman Mar
Ventures and resisted the name change. Yet Hershenson and Nozad believed that the firm
needed a new name that reflected their ambition to grow the company into a leading seed fund—
a fund that was bigger than its two cofounders and would exist long after Hershenson and Nozad
ultimately retired. After much thought, they agreed upon the name Pear VC because it evoked
many important aspects of entrepreneurship—just as pears need water, soil, and the right weather
to thrive, founders need support and the right conditions to succeed. Hershenson and Nozad
strove to create that ideal environment and community, where they not only shared knowledge,
resources, and networks, but also worked together to navigate obstacles.17

Similar to their original fund, Hershenson and Nozad targeted a 5X return on Pear’s new fund.
However, the duo’s approach to the second fund differed slightly based on what they had learned
with Pear’s first fund. Hershenson explained, “One of the most obvious differences between our
first fund and second fund was the source of our deal flow. In 2014, almost all of our deal flow
came through Pejman’s personal network. But now, nearly 50 percent of our deals come through
initiatives like Pear Launchpad. We think that this is a much more scalable approach to finding
the best entrepreneurs on a consistent basis.”

Hershenson and Nozad also learned that at its current size, Pear had the resources to effectively
support approximately 30 portfolio companies. As such, Hershenson and Nozad increased the
percentage of Pear’s investments that resulted in an equity stake of at least 10 percent, while
reducing the number of investments that resulted in 2 to 5 percent ownership. However, the two
agreed that they did not want to turn these guidelines into a rule. Nozad elaborated:

Every so often, it’s impossible to get a 10 percent stake. For example, when we
met DoorDash, there wasn’t much room to invest. But we believed this could be
a multibillion-dollar company, so we agreed to a smaller equity stake. When the
right team walks in the door, it’s important to take what you can get, regardless of
the guidelines you put in place.

In addition to seeking fewer portfolio companies, Hershenson and Nozad sought fewer limited
partners for Pear’s second fund. Hershenson explained, “In our first fund, we had far more

16
Pear VC, “Let’s Pear Up,” Medium, August 16, 2016, https://medium.com/@pearvc/lets-pear-up-1d49579d2d23
(April 12, 2017).
17
Ibid.

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 For the exclusive use of T. Wu, 2020.
Pear VC E-630 p. 11

individuals as LPs. The problem is that each LP takes time to manage. For our second fund,
Pejman and I knew that we had to get more efficient, which meant cutting back on the total
number of LPs.”

By investing in 40 deals in Pear’s first fund, Hershenson and Nozad also developed keen insight
into the most critical components of a pre-seed and seed-stage term sheet (see Exhibit 7 for a list
of Pear’s investments from its first fund). Clearly, a company’s valuation was critical in
determining Pear’s financial returns. However, Hershenson and Nozad believed that there were
additional terms of equal importance, including Pear’s pro-rata investment rights, information
rights, and board seats. These components of a term sheet were essential if Pear wanted to
maintain its ownership percentage in subsequent financings (see Exhibit 8 for a sample Pear
term sheet).

Finally, Hershenson and Nozad became even more adept at identifying top entrepreneurs.
Hershenson explained:

By 2017, we had invested in more than 50 companies. This was on top of the
dozens of early-stage projects we worked with at Stanford, not to mention the
150-plus companies that Pejman had invested in prior to starting Pear. Working
with this many entrepreneurs allowed us to improve our skill in the thing that
matters most in early-stage investing—determining the quality of founders.

LOOKING FORWARD

Near the beginning of 2017, Hershenson and Nozad discussed the major challenges confronting
Pear, as well as their vision for the future. They wholeheartedly agreed that they wanted Pear to
continue its growth—and continue to help an increasing number of entrepreneurs fulfill their
dreams. Yet in order to do this, Hershenson and Nozad would have to continue building out the
infrastructure required to scale Pear’s impact.

The two had already taken several steps towards scaling Pear, including hiring additional
employees to manage Pear’s numerous initiatives and investing in systems to make Pear’s
operations more efficient. Yet these investments in Pear’s infrastructure posed an interesting
dilemma for the Pear business model. Hershenson explained:

If we want to grow, we need to hire more people and make investments in our
internal systems. But in order to make these types of significant investments, we
have to raise a larger fund. A larger fund would require us to invest more money,
which would mean focusing on later-stage investments. And then, we’re no
longer a seed-stage VC firm. So how do we grow while maintaining our focus on
early-stage founders and start-ups? That’s the challenge we need to navigate in
order to support as many entrepreneurs as possible.

Nozad elaborated on Pear’s potential for growth and lasting impact, “I know that some people
don’t care whether their companies survive after they retire. But that’s not how I feel about Pear.
The way I see it, 100 years down the road, when someone writes a book about Silicon Valley, we
want to have a chapter in it.

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Number of Seed Deals and Follow-on Series A Investments (greater than $4 million):
p. 12

2008 to 2016
Exhibit 1

Source: Pear VC company materials.

Pear VC E-630

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Pear VC E-630 p. 13

Exhibit 2
Biographies of Mar Hershenson and Pejman Nozad

Mar Hershenson
Born in Barcelona, Spain, Mar Hershenson attended the Universidad Pontificia de Comillas in
Madrid, where she graduated with honors with a B.S. in electrical engineering. After graduating,
Hershenson moved to the United States to continue her studies in electrical engineering at
Stanford University. While at Stanford, Hershenson developed a ground-breaking technique for
optimizing the design of analog semiconductors, and in 1999 she received her PhD. Hershenson
was able to commercialize her graduate research through the start-up Barcelona Design, where
she served as co-founder and chief technology officer. Several years later, Hershenson founded
Sabio Labs, which was acquired by Magma Design Automation in 2008. In 2011, Hershenson
co-founded Revel Touch, a mobile e-commerce platform company that was acquired by Yahoo
in 2012. In addition to co-founding three start-ups, Hershenson served as a consulting professor
at Stanford University from 2002 until 2012.

Hershenson has been recognized by MIT Technology Review as a Top Innovator Under 35,
named a Champion of Innovation by Fast Company, included by EE Times in its listing of the
Top 10 Women in Microelectronics, awarded the Digital Automation Conference’s Marie R.
Pistilli Achievement Award, and recognized in the Midas Brink List of Top Tech Investors in
2015.

Pejman Nozad
Born in Tehran, Iran, Pejman Nozad immigrated to the United States in 1992 with $700. While
in Iran, Nozad was a prominent sports journalist, hosting the most popular radio show in the
country. Despite his success in Iran, Nozad arrived in California’s Silicon Valley without a job
and unable to speak English. However, shortly after his move, Nozad had learned English and
began working at a yoghurt shop in Redwood City. Without a permanent home, Nozad
convinced the shop’s owner to allow Nozad to sleep in the attic above the shop. While living
above the yoghurt shop, Nozad saw an advertisement for a sales job at the Medallion Rug
Gallery in Palo Alto. Although he had never worked in sales, Nozad was hired for the role, and
subsequently was able to move out of the attic.

Over the next few years, Nozad became an incredible salesperson, selling up to $8 million of
rugs in a single year. During this time, he developed close relationships with dozens of
customers, many of whom were technology entrepreneurs or investors. Nozad became
fascinated by the growth and excitement of Silicon Valley companies, so he decided to start
investing in early-stage start-ups. Along with Amir Amidi, Nozad’s boss at Medallion Rug
Gallery, Nozad began meeting as many entrepreneurs as possible—oftentimes hosting meetings,
events, and parties at the rug store. Slowly, Nozad amassed a wide and powerful network within
Silicon Valley and became a one of the most prominent angel investors in the world. Some of
Nozad’s most successful investments included Dropbox, Lending Club, Danger, and Zoosk. In
2012, Forbes named Nozad one of the most successful angel investors. In 2013, Nozad and Mar
Hershenson co-founded Pejman Mar Ventures, which would later become Pear VC.

Source: Interviews with Mar Hershenson and Pejman Nozad.

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Pear VC E-630 p. 14

Exhibit 3
Pejman Nozad Original Business Plan for Pear VC (originally called “Smart House”)

Prepared for: Mar Hershenson

Prepared by: Pejman Nozad

December 19, 2009

Executive Summary
Objective
Creating a high-tech incubator that serves world-class entrepreneurs and supports their efforts with know-
how, network, and capital.

Goals
Helping entrepreneurs build successful and profitable companies.

Solution
Smart House selects early-stage companies/projects and provides offices, constant guidance, and capital.
In addition, we assign each project to a world-class team of advisors who help entrepreneurs at the very
early stages in areas like product design, marketing, partnership, strategy, etc.

Investment
We invest in Smart House portfolio companies. In addition, we will invest in companies outside Smart
House.

Smart House Environment

Entrepreneurs work in a fun and energetic environment that encourages them to share ideas and
collaborate with other entrepreneurs. We will have regular weekly visits by a member of our network,
brainstorm sessions, and fun events.

We also encourage entrepreneurs to follow a healthy life style. “Smart House” will have its own bicycle
team and maybe some Kite surfers!

Focus
Consumer Internet, e-commerce, mobile, video, media

Deal Flow
Through our network, business plan competitions, and events

Team
Pejman Nozad (Amidzad)
Mar Hershenson (Stanford, Sabio Labs, Magma)

Expansion
We will explore possibilities of creating similar centers in Latin America, Eastern Europe, and South Asia
in the future.

Source: Pear VC.

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Pear VC E-630 p. 15

Exhibit 4
Pear VC Timeline

Date Event
January 2000 Nozad and Hershenson meet after Nozad invests in Danger, founded by
Hershenson’s husband Matt.
January 2004 Nozad syndicates the seed round for Hershenson’s second company,
Sabio Labs.
July 2010 Nozad and Hershenson invest in their first company together as angel
investors (Qwiki).
September 2010 Nozad proposes to Hershenson the initial idea for Pear VC, with the
initial name “Smart House” (see Exhibit 3).
March 2013 Nozad and Hershenson begin angel investing as a team.
September 2013 Nozad and Hershenson close preliminary funding for their first
institutional fund, Pejman Mar Ventures (later named Pear VC), and
begin investing; the company’s first investment is DoorDash.
October 2013 Pejman Mar Ventures (later named Pear VC) hosts the first Pear
Garage class.
November 2013 Pear invests in Branch, the first investment from Pear Dorm.
Spring 2014 Pear closes Fund I.
Summer 2014 Pear hosts its first Summer Launchpad.
August 2015 TechCrunch names Pear Launchpad its favorite new demo day in
Silicon Valley.
October 2015 Pear launches the first Berkeley Challenge.
August 2016 Pear closes Fund II and officially rebrands to Pear VC.
January 2017 Pear announces the first Pear GSB program.

Source: Pear VC.

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Pear VC E-630 p. 16

Exhibit 5
Pear VC “Why Us?”

Source: Pear VC, “Why Us,” https://www.pear.vc/why-us (April 11, 2017).

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Pear VC E-630 p. 17

Exhibit 6
Pear VC “Who We Are”

We understand what it means to build something from nothing. That journey defines each of our
life stories. We are immigrants, having come to America penniless, but with big ideas.

We've been entrepreneurs, determined to build great companies. We know now that success
emerges only for those who have endured setbacks and overcome hurdles. We’ve learned from
our failures, and we know what it takes to succeed. There are no shortcuts when it comes to
building something extraordinary. All of this finds expression in our work.

Source: Pear VC, “Who We Are,” https://www.pear.vc/who-we-are (March 13, 2017).

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Pear VC E-630 p. 18

Exhibit 7
Pear VC Investments from its First Fund

Company Date Stage Description

DoorDash Sep-13 Seed Food delivery
Sensor Tower Sep-13 Seed Mobile apps analytics platform
Solvvy Sep-13 Pre-seed Customer support SaaS using deep learning
True&Co. Sep-13 Seed Online lingerie brand
BetterWorks Oct-13 Seed SaaS platform for enterprise feedback and goals
Heap Analytics Oct-13 Seed Marketing analytics platform
Wevorce Oct-13 Seed Online divorce platform
Branch Metrics Nov-13 Pre-seed Deep linking platform
Wedding Party Dec-13 Series A Mobile app for sharing wedding photos
Fieldbook Apr-14 Pre-seed Spreadsheets for relational databases
Guardant Health Apr-14 Series B First liquid biopsy
Memebox May-14 Seed Fast-beauty e-commerce
Lumoid Jun-14 Seed Electronics rental e-commerce platform
Thinknum Jul-14 Seed Financial data modeling platform
Aurora Solar Aug-14 Pre-seed Cloud-based platform that enables sophisticated
solar PV engineering
Mattermark Aug-14 Seed Lead qualification SaaS platform
Nitrio Oct-14 Pre-seed AI for sales processes optimization
PRENAV Oct-14 Pre-seed Autonomous drones for industrial inspections
Polarr Nov-14 Seed AI for photo editing
Affinity Dec-14 Pre-seed Next generation CRM
Elevate App Dec-14 Series A Brain training mobile app
Endor Dec-14 Series A Business predictive intelligence
Bluesmart Mar-15 Seed Connected travel devices
JetSplash Jun-15 Pre-seed Largest virtual airline
Revfluence Jul-15 Seed SaaS platform for managing and optimizing
influencer marketing
Seed Platform Jul-15 Seed Mobile small business banking solutions
Gusto Aug-15 Series B SaaS HR solutions
One Concern Aug-15 Pre-seed Emergency response preparedness and
management solutions
Paid API Aug-15 Seed Accounts receivable solutions
BioAge Labs Sep-15 Seed Anti-aging drug discovery
Call 9 Nov-15 Seed On-demand nursing services
Rooster Nov-15 Seed Local community mobile app
Aaptiv Dec-15 Pre-seed On-demand exercise classes
Acusense Dec-15 Pre-seed Deep learning for multi-media search
DotDashPay Dec-15 Pre-seed Hardware payment platform
Doxel Dec-15 Pre-seed Autonomous drones for construction
Emburse Dec-15 Pre-seed Reinventing corporate expense cards
Honestbee Dec-15 Seed On-demand delivery services in East Asia
Infinite Uptime Dec-15 Pre-seed Industrial connected sensors
Mindori Dec-15 Pre-seed E-commerce search via voice commands
Ripple Dec-15 Seed Local news consumer application

Source: Pear VC company materials.

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Pear VC E-630 p. 19

Exhibit 8
Pear VC Seed-Level Term Sheet (Anonymous)

SUMMARY OF TERMS
OF
SERIES SEED PREFERRED STOCK FINANCING
OF
_____[COMPANY NAME]__, INC.

[DATE]

The purpose of this document is to memorialize certain key terms of the proposed private placement of
shares of Series Seed Preferred Stock by [Company Name], a Delaware corporation (the “Company”) to
one or more investors (the “Investors”) including Pear Ventures, L.P. (“Pear Ventures”). This document
is not intended to be a binding agreement between the Company and any Investor except for the
paragraphs captioned “Confidentiality,” “Expenses,” “Exclusive Dealing” and “Governing Law”. A
binding agreement will not occur unless and until all necessary Investor and Company approvals have
been obtained and the parties have negotiated, approved, executed and delivered the appropriate definitive
agreements. Until execution and delivery of such definitive agreements, all parties shall have the absolute
right to terminate all negotiations for any reason without liability.
Pre-Money Valuation [$XX] pre-money valuation on a fully-diluted basis, including an
unallocated stock option plan reserve representing a [X%] post-money
ownership interest.
Amount of Financing: Up to [$XX] of new capital in multiple closings:
Pear Ventures [$X: Amount invested by Pear in dollars]

Other investors reasonably

acceptable to the Company
and Pear Ventures [$Y: Amount invested by others in dollars]

Initial Closing: The initial closing, involving the issuance and sale of not less than
[$X] worth of Series Seed Preferred, shall be as soon as practicable.
One of more subsequent closings involving the issuance and sale of up
to [$Y] worth of Series Seed Preferred may be held not later than sixty
(60) days following the initial closing.

Securities to be Issued: Series Seed Preferred Stock (“Series Seed Preferred”) at a purchase
price per share (the “Purchase Price”) resulting in the post-money
capitalization set forth below.

Capitalization: The post-money capitalization of the Company, assuming the issuance

and sale of [Amount raised in dollars] worth of Series Seed Preferred,
will be as follows:
outstanding common stock and options [XX.XX%]
unallocated option plan reserve [XX.XX%]
Pear Ventures [XX.XX%]
other investors [XX.XX%]
TOTAL 100.00%

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Pear VC E-630 p. 20

Exhibit 8 (Continued)
Dividends: Non-cumulative, paid pro rata among holders of the Series Seed
Preferred and Common Stock.

Liquidation Preference: In the event of any Liquidation Event, the holders of the Series Seed
Preferred shall be entitled to receive, prior and in preference to any
distribution to the holders of the Common Stock, an amount (the
“Preference Amount”) equal to one (1) times the Purchase Price plus
all accrued but unpaid dividends thereon. After the full Preference
Amount on all outstanding shares of Series Seed Preferred has been
paid, any remaining funds and assets of the Company legally available
for distribution to shareholders shall be distributed among the holders
of the Common Stock. A merger, acquisition or change of control of
the Company shall be deemed a “Liquidation Event.”

Conversion: Convertible into Common Stock at a 1-to-1 rate, subject to adjustment

to reflect stock dividends, stock splits and similar events and as
provided in Antidilution Provisions below. Automatic conversion at
IPO with gross proceeds of at least $20 million (the “Qualified Public
Offering”) or upon majority Series Seed Preferred vote.

Antidilution Provisions: The conversion price of the Series Seed Preferred shall be subject to
adjustment on a broad-based weighted average basis for issuances at a
purchase price less than the then-effective conversion price with
customary carve-outs.

Voting Rights: The Series Seed Preferred shall vote together with the Common Stock
on an as-converted basis and not as a separate series, except as
provided by law or as provided in “Protective Provisions” and “Board
Composition” below.

Protective Provisions: Consent of holders of a majority of the outstanding shares of Series

Seed Preferred required for: (i) any change to the rights of Series Seed
Preferred; (ii) any change the authorized number of shares of any class
or series; (iii) creation of any senior or pari passu class or series of
shares; (iv) redeem or repurchase any shares (other than pursuant to
the Company’s right of repurchase at original cost); (v) declare or pay
any dividend, (vi) any Liquidation Event, or (vii) any increase or
decrease in the size of the Board of Directors.

Board Composition: Holders of Series Seed Preferred shall have the right to elect one (1)
member of the Board of Directors voting as a separate series, who
shall be a designee of Pear Ventures.
Stock Purchase Agreement: Customary and standard in form, including customary representations
and warranties of the Company and the purchasers of Series Seed
Preferred (the “Investors”). No opinion of counsel to the Company
shall be required.

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Pear VC E-630 p. 21

Exhibit 8 (Continued)
Investors’ Rights Agreement:
Future Rights: The Company shall agree to grant to the Investors the same rights
(including registration rights) as the next series of Preferred Stock,
with appropriate adjustments for economic terms.

Information Rights: Customary unaudited financial information and inspection rights to

purchasers of at least [$XX] worth of Series Seed Preferred (each a
“Major Holder”).

Rights of First Offer: Each Major Holder shall have a right of first offer to purchase up to its
pro rata share (based on its percentage of the Company’s outstanding
shares of Common Stock, calculated on a fully-diluted, as-converted
basis) of any equity securities offered by the Company in the next
equity financing, subject to customary exceptions. The Company shall
agree that the definitive agreements for the next equity financing shall
ensure each Major Holder’s continued pro rata pre-emptive rights so
long as such Major Holder continues to hold at least [$XX] worth of
Series Seed Preferred. To the extent not exercised by the Company,
the Company shall assign its right of first refusal to purchase shares of
Common Stock to the Major Holders on a pro rata basis.

Founder Matters: All founder Common Stock shall be subject to vesting as follows:
25% of the shares shall be vested nine months on the date after the
initial closing, and the remaining 75% of the shares shall vest
monthly over the next 3 years. All founders shall have signed
proprietary information and invention assignments agreements.

Documentation: Counsel to the Investors shall prepare the definitive investment

agreements for the financing described herein:

[Legal Counsel Contact Information]

Confidentiality: The terms and conditions described in this document as well as its
existence shall be confidential information and shall not be disclosed
by the Company to any third party without the consent of Pear
Ventures. If the Company determines that it is required by law to
disclose the contents or existence of this document, it shall first
consult with Pear Ventures before making any such disclosure and
seek confidential treatment for such portions of the disclosure as
may be requested by Pear Ventures. Pear Ventures has agreed to
permit the Company to disclose the proposed financing to its prior
investors.

Expenses: Each party shall bear its own expenses in connection with the
preparation and negotiation of definitive transaction documentation
and due diligence. If the financing is consummated, at the initial
Closing, the Company shall pay or reimburse (which reimbursement
may be effected by way of offset against its investment amount) up
to [$XX] in legal fees of Pear Ventures.

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Pear VC E-630 p. 22

Exhibit 8 (Continued)

Exclusive Dealing: For a period of 30 days following execution and delivery of this
document by the Company and Pear Ventures, the Company, its
officers, directors and stockholders agree that none of them shall,
without the prior consent of Pear Ventures, (i) enter into any direct
or indirect discussions, negotiations or solicit offers for the sale of
any equity securities or securities convertible into equity securities of
the Company; or (ii) provide any information concerning the
Company to any third party in respect of or in contemplation of any
of the foregoing potential transactions. During such period of
exclusivity, the Company will provide Pear Ventures notice of and a
copy of any correspondence received or provided by the Company in
respect of the foregoing.

Governing Law: This document is to be construed in accordance with and governed

by the internal laws of the State of California without giving effect to
any choice of law rule that would cause the application of the laws of
any jurisdiction other than the internal laws of the State of California
to the rights and duties of the parties. All disputes and controversies
arising out of or in connection with this document shall be resolved
exclusively by the state or federal courts located in Santa Clara
County in the State of California, and each party hereto agrees to
submit to the jurisdiction of said courts and agrees that venue shall
lie exclusively with such courts.

Acceptance of Terms: In order for the Investors to instruct counsel to prepare definitive
agreements reflecting the terms hereof, this non-binding proposal for
financing must be accepted in writing below prior to 5:00 pm Pacific
Time [Expiration Date], or else it shall be deemed withdrawn.

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Pear VC E-630 p. 23

Exhibit 8 (Continued)

TERMS PROPOSED BY: TERMS ACCEPTED BY:

PEAR VENTURES, L.P. COMPANY NAME

By: Pear Ventures GP, LLC By:

[CEO Name], President
By: ________________________________
[General Partner Name], Managing Director

Source: Pear VC company materials.

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