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9th Annual Early Stage Venture Investing Conference “What Do We Do Now?”

October 22, 2008

The Last Twelve Months Dow Jones Industrial Average, Closing Price 10/31/07 DJ 52-Week High: 13,930

Week of 10/6/08 Dow Suffers Largest 1-Week Drop Ever 8,451

2

Reaction in the Markets The Reaction in Different Sectors 40.0% 30.0% 20.0% 10.0% 0.0% (10.0%)

(12%) (19%) (21%) (22%) (24%)

(20.0%) (30.0%) (40.0%) 7/21/08 S&P 500

8/21/08 S&P 500 Homebuilding Idx

9/21/08 S&P 500 Retail Index

S&P 500 Financials Index

10/21/08 S&P 500 IT Index

3

Time to Liquidity Median Age of a Company at Time of Exit

4

The IPO Market Deals and Amount Raised Through IPOs 250

250 200

200

$19.5

$20

$18.9

150

$15 $10

68

67 24

$5 $3.7

$1.9

$0 1998 1999

2000 2001

19

23

$1.6

$1.5

43 $2.4

56 $3.7

$6.4

7

50

$0.6 0

2002 2003 2004

Amount Raised ($B) Source: Dow Jones VentureOne

$5.0

100

69

Venture-Backed IPOs

Amount Raised ($B)

$25

2005 2006

2007

YTD 08

Venture-Backed IPOs YTD 2007: 1Q07 – 3Q07

5

IPO Offering Sizes Median Amount Raised and Pre-Valuation at IPO $359 $350 $314

$307

$300 $250 $200

$300

$275 $238

$217 $226 $213 $172

$202

$200

$167

$150

$150

$100 $50

$250

$62 $42

$76

$56

$78

$65

$75 $50

$48

$52

$100 $53

$0

$50 $0

Median Amount Raised ($M)

Median Pre-Valuation at IPO ($M)

$350

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08 Median Pre-Valuation at IPO ($M)

Median Amount Raised at IPO ($M) YTD 2007: 1Q07 – 3Q07

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2008 Venture-Backed IPOs Company

Filing

Pricing

Amount

Pricing

Offering

Variation

Date

Date

Raised

Range

Price

from Midpoint

Pricing-to-Date (1) Performance

Technology

4/25/2008

8/8/2008

$158.8

$12 - $16

$12.50

(10.7%)

(54.7%)

9/11/2007 2/14/2008

$54.0

$9 - $11

$9.00

(10.0%)

(32.6%)

$17.50

(2.8%)

(13.3%)

Financial

9/17/2007 1/25/2008

$174.3

$17 - $19

Healthcare

(1) As of October 20, 2008

8/17/2007 3/19/2008

$54.0

$18 - $20

$18.00

(5.3%)

29.6%

2/13/2007 2/19/2008

$5.8

$6 - $8

$5.25

(25.0%)

(63.8%)

9/19/2007 2/14/2008

$51.0

$10 - $11

$10.00

(4.8%)

(31.6%)

8/31/2007 1/25/2008

$52.8

$15 - $17

$16.00

0.0%

35.9%

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M&A Remains the Primary Exit Option Percentage Breakdown of Venture Backed Liquidity Events: IPO vs. M&A YTD 08 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 0% Source: Dow Jones VentureOne

20% IPOs

40%

60% M&As

80%

100%

YTD 2007: 1Q07 – 2Q07

8

M&A Exits Transactions and Amount Paid in M&As $98.5

$100

Amount Paid ($B)

$75

$50

419 381

410

421

450

421

341

307 232

300

253 $46.2

$43.3

208

$30.0 $31.8 $25

$23.6

$22.3 $12.7 $14.8

150 $20.5

$10.9 $13.0

Number of Transactions

461

406

0

$0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 YTD 08 Amount Paid ($B)

Source: Dow Jones VentureOne

Number of Transactions

YTD 2007: 1Q07 – 3Q07

9

M&A Exits $100

$100

$100

$93

$75

$63 $55 $47

$50

$52 $50

$39 $31

$27

$25 $11

$7

$10

$15

$25 $19 $17

$20

$20

$75

$22

$21

$22

$25

$19 $0

$0 1998

1999

2000

2001

2002

2003

Median Equity Raised Prior to M&A

Source: Dow Jones VentureOne

2004

2005

2006

Median Amount Paid ($M)

Median Amount Raised Prior to M&A ($M)

Median Amount Paid in M&As vs. Median Amount Raised Prior to M&A

2007 1H08

Median Amount Paid ($M) YTD 2007: 1Q07 – 2Q07

10

Valuations Median Pre-money Valuation Median Premoney Valuation ($M)

$30 $26.0 $25 $20 $15

$20.5

$20.0 $16.0

$15.0 $15.2

$17.5 $17.5 $18.1

$16.1 $16.0 $15.5

$12.5

$10 $5 $0 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08

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Valuations

Median Premoney Valuation ($M)

Median Pre-money Valuation by Round Class $80

$59.0

$60

$40

$46.1

$20

$18.8

$0

$5.0

$11.5 $7.0

1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Later Stage

Second Round

First Round 12

Commitments to Venture Capital $83.8 $80

$57.5

Funds Raised ($B)

$60

$50.7 $40 $26.9 $20

$17.5

$25.6 $12.5

$30.0 $32.2

$17.3

$20.5

$10.1

$0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

YTD 08

Source: Dow Jones VentureOne 13

What Do We Do Now? • How much cash is needed? – A minimum of 12 months of cash is required

• What does it take to get to CFBE? Is there enough cash to get there now? • Four options with less than 12 months of cash – Reduce operating expenses – Get a commitment from the existing syndicate – Take a low valuation from outside money – Consider a strategic sale in a difficult environment

• All options have downside elements…but goal is to protect each company’s long-term viability

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Where Do You Cut? • Depends on size – 5 person company vs 205 person company

• Remember: you can always rehire • Engineering – Will the company survive if the next product isn’t ready?

• Marketing – Can a smaller group do the essentials?

• Overhead – How much can be reduced?

• Sales – Transition a more commission-based sales force? – Recalibrate and understand pipeline and its potential

What Permits Survival? 15

Where Do You Cut? •

Three options in weighing a sales team strategy in the current environment 1) Product is not fully ready for market deployment: –

Cut until it is ready…have only a one to two person renaissance sales team, with the CEO actively engaged

2) Product is working and you have a couple of referable customers –

Does the company understand the Sales Learning Curve…do you know what it takes to get an order?

3) The company has revenues and had been ramping sales –

Maintain the best sales persons

–

Moderately increase the sales team to gain on competitors

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Thank You [email protected]