VC industry status - Leading VC presentation

1. R.I.P.
GOOD
TIMES

2. NOW WHAT?
1

4. WALL STREET
HOW DID WE GET HERE?
ERIC UPIN
3

5. MULTIPLE PROBLEMS
HOUSING LED RECESSION
OVER LEVERAGED FINANCIALS
FALLING ASSET PRICES
FROZEN CREDIT MARKETS
WEAK HOUSEHOLD BALANCE SHEET
GLOBALLY SYNCHRONIZED SLOWING EXACERBATING ALL OF ABOVE
FORCES OF INFLATION VERSUS FORCES OF DEFLATION

6. MARKET CYCLES ARE LONG
Dow Jones Industrials (solid line) Inflation (dotted line)
15,000 15%
Bear Market Bull Market
1966-1982 1983-2000
10,000 10
5,000 5
0
1970 1980 1990 2000 2008
Source: Bureau of Labor Statistics, Dow Jones

7. DRIVEN BY PRODUCTIVITY AND CENTRAL BANK
Indexed global productivity Fed funds rate
Size of global workforce
4B 150 10%
8
3
6
2 125
4
1
2
0 100 0
1980 1996 2002 2006 1990 1995
1990 2000 2008 2000 2005 Sep 2008
Source: Federal Reserve, International Labour Organization

8. RESULTING IN FALLING INFLATION AND COST
OF DEBT
U.S. inflation (annual year/year CPI change) Yield on 10-year U.S. treasuries
25% 16%
12
15
8
Average
5
Average
4
-5 0
1950 1960 1970 1980 1990 2000 2007 1960 1970 1980 1990 2000 June 2008
Source: Bureau of Labor Statistics, Federal Reserve

9. FUELING A NATION OF CONSUMERS
U.S. current account / GDP
2%
0
-2
-4
-6
-8
1985 1990 1995 2000 2005
Source: Bureau of economic analysis

10. FOREIGN $s RECYCLED INTO TREASURIES
DEMAND
U.S.
KEEPS
BUYS
LONGER-
FOREIGN
TERM
GOODS
RATES
LOW
FOREIGN COUNTRIES USE
PROCEEDS TO BUY
TREASURIES

11. AS A RESULT, DEBT BALLOONED
Source: Bridgewater

12. DEPENDENT ON THE KINDNESS OF STRANGERS
Source: Bridgewater

13. LIQUIDITY AND EASING SPREAD TO HOUSING
Distribution of U.S. dollar mortgage originations
Single family housing starts
100%
2M Government
Prime-
Jumbo
80
Prime-
60 Conforming
Average
1
40
Alt-A
20
Subprime
0
0
2002 2006
1980 1985 1990 1995 2000 2005 2008E
Source: Bridgewater, National Association of Home Builders

14. HOME PRICES GREW SUBSTANTIALLY ABOVE
MEAN
U.S. real home price index
250
1998-2006
8.0% annualized
200 1930 - 1997
0.7% annualized
1900-1929
150
-1.2% annualized
100
50
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2007
Source: Robert Shiller

15. STRUCTURED PRODUCTS AND REGULATORY
CHANGES COMPOUND THESE ISSUES
GROWTH IN SECURITIZATIONS
LEVERAGE ON THOSE STRUCTURES
INCREASED LEVERAGE ON BANK’S BALANCE SHEETS
OFTEN MIS-RATED BY AGENCIES
REPEAL OF GLASS-STEAGALL
REGULATORY CHANGES ENCOURAGING HOME OWNERSHIP

16. HUGE GROWTH IN DERIVATIVES
Outstanding amount of open positions in OTC derivatives markets
$525T
350
35x
U.S.
GDP
175
U.S. GDP
0
1995 1998 2001 2004 2007
Note: Outstanding amount is not a pure measure of risk as some positions are netted and have collateral; U.S. GDP was $13.8T in 2007
Source: Bank for International Settlements

17. SIGNIFICANT EXCESS CAPACITY
Source: Bridgewater

18. VERY TIGHT CREDIT
High yield spreads (basis points) Investment grade spreads (basis points)
1,250 500
1,000 400
750 300
500 200
250 100
0 0
1998 2000 2002 2004 2006 2008 1998 2000 2002 2004 2006 2008
Source: Merrill Lynch

19. JAPAN MAY BE INSTRUCTIVE
Annual real GDP growth
Nikkei Index 1988 - present Japanese discount rate
6%
40,000 8%
3
30,000 6
Average
0
20,000 4
-3
10,000 2
-6
0 0
1990 1995 2000 2005
1990 1995 2000 2005 Oct 2008 1990 1995 2000 2005 Jul-08
Source: Bank of Japan, Yahoo Finance

20. KEY THEMES
GLOBAL
SECULAR
NOT “NORMAL CRISIS”, WILL TAKE TIME
CREDIT NOT EQUITY DRIVEN
SIGNIFICANT RISK TO GDP GROWTH
POTENTIAL FOR GREATER REGULATORY REFORMS / SCRUTINY

21. OUR TAKE
MANAGE WHAT YOU CAN CONTROL
SPENDING
GROWTH ASSUMPTIONS
EARNINGS ASSUMPTIONS
FOCUS ON QUALITY
LOWER RISK
REDUCE DEBT

22. MAIN STREET
WHERE ARE WE NOW?
MICHAEL BECKWITH
21

23. THE U.S.: A NATION OF CONSUMERS
THE CHANGING FACE OF THE ECONOMY
$ TRILLIONS 1987 1997 2007
TOTAL U.S. GDP 4.7 8.3 13.8
CONSUMER SPENDING 3.1 5.8 10.1
CONSUMER AS % OF TOTAL GDP 66% 70% 73%
DISPOSABLE PERSONAL INCOME 3.5 6.0 10.2
Source: Bureau of Economic Analysis.

24. EXPLOSION IN HOME OWNERSHIP
HOME OWNERSHIP %
LONG-TERM AVERAGE
Source: Current Population Survey/Housing Vacancy Survey, Series H-111 Reports, Bureau of the Census, Washington, DC 20233.

25. WAGE GROWTH & PERSONAL SAVINGS
FALLING REAL WAGES ERODING PCE
PERSONAL SAVINGS RATE
PERSONAL SAVINGS RATE EVAPORATED
REAL WAGE GROWTH FELL
Source: Bureau of Economic Analysis, Federal Reserve, Haver, Bureau of Labor Statistics, Census Bureau, Factset, Morgan Stanley Research.

26. CONSUMERS BUCKLING UNDER DEBT
HOUSEHOLD DEBT SERVICE RATIO HOUSEHOLD FINANCIAL OBLIGATION RATIO
DSR = DEBT PAYMENTS ON OUTSTANDING MORTGAGES AND CONSUMER
DEBT/DISPOSABLE PERSONAL INCOME
FOR = ADDS AUTOMOBILE LEASE PAYMENTS, RENTAL PAYMENTS, H/O’S INSURANCE
AND PROPERTY TAX PAYMENTS TO THE DSR
Source: Bureau of Economic Analysis.

27. MEWs BECAME THE NEW PIGGY BANK
MEW CONTINUES TO FADE…
Source: Haver, BEA, NAHB, Conference Board, EIA, Morgan Stanley Research.

28. FROM VIRTUOUS TO VISCIOUS CYCLE
UNEMPLOYMENT SPIKES HIGHER
MORTGAGE RESET
DELINQUENCIES/FORECLOSURES
PRICES FALL
MEWS DECREASE
CONSUMER SPEND FALLS
JOB MARKET ERODES
RECESSION
Source: Federal Reserve, Haver, Bureau of Labor Statistics, Census Bureau, Factset, Morgan
Stanley Research, Case-Shiller & DB Global Market Research.

29. ON THE BRINK OF A RECESSION
CONSUMER CONFIDENCE AT MULTI-DECADE LOWS
GDP IS POISED TO TURN NEGATIVE
ISM IS FALLING FAST
Source: Haver, NAHB, Conference Board, NFIB, Morgan Stanley Research, DoL & DB Global Markets Research.

30. EARNINGS BEGINNING TO ROLL
EARNINGS DOWN 18% ON ESTIMATES MADE 12 MONTHS AGO
Source: Datastream, Robert Shiller, Factset and Morgan Stanley Research.

31. V-SHAPED RECOVERY UNLIKELY
S&P 500
IT
MEDIA
TELECOM SVCS
Y/Y
Current S&P 500 Consensus Actual and Expected Operating Earnings Growth (Weighted-Avg. % / Y/Y)
CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08E CY09E
Financials 5% -10% 18% 25% 11% 5% 23% -37% -46% 109%
Consumer Discretionary 0% -24% 33% 11% 28% 2% 9% -10% -16% 41%
Media -1% -6% 34% 12% 33% 28% 27% 15% 11% 11%
Information Technology 28% -63% 0% 46% 43% 20% 12% 21% 10% 17%
Telecom Services 6% -24% -8% 0% -8% 14% 17% 5% -1% 10%
S&P 500 17% -17% 5% 18% 20% 15% 16% -4% 1% 23%

32. ADVERTISING MARKETS ARE CRACKING
Y/Y
Source: TNS U.S. Advertising Expenditure Estimates

33. RETAIL/ECOMMERCE DETERIORATING
Y/Y
Source: US Census Bureau.

34. MOBILE IS NOT IMMUNE
Y/Y
Source: TNS U.S. Advertising Expenditure Estimates

35. TECH SPENDING DEPENDS ON ECONOMY
Y-Y Change in S&P 500 Earnings, Technology Spending (1996-2008E)
30%
20%
10%
0%
-10%
-20%
-30%
Jun 08E
Jun-95
Jun-96
Jun-97
Jun-98
Jun-99
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
S&P 500 EPS Growth Tech Spending Growth
Source: Bernstein Strategy Group; First Call
Drop in earnings in Dec 07 was partly due to financial services industry write offs

36. ENTERPRISE INDICATORS
“IT spending is being more scrutinized
now than at any point in the 2003
through 2007 timeframe … customers
are showing more caution.”
- EMC, JUL 2008
PC UNITS SOLD (Y/Y)
“It's now clear that this economic
softness is continuing into September.”
- INGRAM MICRO, SEP 2008
“Market developments of the past
several weeks have been dramatic and
worrying to many businesses. These
concerns triggered a very sudden and
unexpected drop in business activity.”
- SAP, OCT 2008
Source: Gartner Personal Computer Quarterly Statistics Worldwide Database, 5/08. JPMorgan estimates for 2008-2009

37. AMAZON.COM & BUY.COM
Amazon.com Financial Performance '99‐'05 Buy.com Financial Performance '99‐'05
$9,000 $900
80% 40%
30%
$8,000 $800
60%
20%
$7,000 $700
10%
$6,000 $600
40%
0%
$5,000 $500
$ Mil
$ Mil
20% ‐10%
$4,000 $400
‐20%
$3,000 0% $300
‐30%
$2,000 $200
‐40%
‐20%
$1,000 $100 ‐50%
$0 ‐40% $0 ‐60%
1999 2000 2001 2002 2003 2004 2005 1999 2000 2001 2002 2003 2004 2005
Revenue Opex Revenue Growth EBIT Margin Revenue Opex Revenue Growth EBIT Margin
•Strong business model •Profitable growth
•Focus on core value proposition •Trim fat during lean times

38. SALESFORCE.COM & SIEBEL
Salesforce.com Financial Performance '00‐'05 Siebel Financial Performance '00‐'05
350% $2,500 25%
$350
300% 20%
$300
250% $2,000 15%
$250 200% 10%
150% $1,500 5%
$200
$ Mil
$ Mil
100% 0%
$150
50% $1,000 ‐5%
0% ‐10%
$100
‐50% $500 ‐15%
$50
‐100% ‐20%
$0 ‐150% $0 ‐25%
2000 2001 2002 2003 2004 2005
2000 2001 2002 2003 2004 2005
Revenue Opex Revenue Growth EBIT Margin Revenue Opex Revenue Growth EBIT Margin
•Tailor sales message to environment •Understand your true customers
•Take advantage of competitors’ weakness •Value of quick ROI and low cost

39. YOUR STREET
WHERE DO WE GO FROM HERE?
DOUG LEONE
38

40. UPS AND DOWNS ALWAYS OCCUR

41. IT IS DIFFERENT THIS TIME

42. RECOVERY WILL BE LONG
$
TIME

43. CHANGES IN FINANCING ENVIRONMENT
Venture firms brace for cash crunch
Big investors turn away from VCs as the financial crisis takes its toll.
By Michael V. Copeland
“If you are a venture capitalist looking for a new limited partner, don't stop in here.
Don't try and sell me on a new fund, and good luck trying with everyone else.quot;
“If you’re a second or third-tier venture firm trying to raise another fund, forget about it.”
“It will start first in private equity funds where there will be a substantial miss on capital
calls. Then we'll see it next in venture capital.quot;
quot;If you are start-up that is not cash-flow positive you are in a tough spot right now. If you
haven't figured out your business model yet you are in trouble.”
“It's going to be hard to get another round. You aren't going to get a second life this time.quot;

44. NEW REALITIES
$15M RAISE @ $100M POST IS GONE
SERIES B/C WILL BE SMALLER RAISES
CUSTOMER UPTAKE WILL BE SLOWER
CUTS ARE A MUST
NEED TO BECOME CASH FLOW POSITIVE

45. INCREASED CHALLENGES
M&As WILL DECREASE
PRICES WILL DECREASE
ACQUIRING ENTITIES WILL FAVOR PROFITABLE COMPANIES
IPOs WILL CONTINUE TO DECREASE AND WILL TAKE LONGER

46. SURVIVAL
PRESERVE GRAB
CAPITAL SHARE
✔ MUST-HAVE PRODUCT
✔ ESTABLISHED REVENUE MODEL
✔ UNDERSTANDING OF MARKET UPTAKE
✔ CUSTOMERS’ ABILITIES TO PAY
✔ ASSESSMENT VS. COMPETITORS
✔ CASH IS KING
✔ NEED FOR PROFITABILITY

47. OPS REVIEW
✔ ENGINEERING DECREASE HEADCOUNT FOR NEXT VERSION?
✔ PRODUCT WHAT FEATURES ARE ABSOLUTELY ESSENTIAL?
✔ MARKETING MEASURING & CUTTING WHAT’S NOT WORKING?
✔ SALES & BUS DEV GETTING RETURN ON EXPENSE INCREASE?
✔ PIPELINE REAL PROBABILITIES OF CLOSING DEALS?
✔ FINANCE
CASHBURN WHERE CAN PAYMENTS BE DEFERRED?
G&A WHAT DEPARTMENTS ARE ESSENTIAL?

48. DEATH SPIRAL

49. SURVIVAL OF THE QUICKEST
DEATH SPIRAL
EXPENSES
COMPANY A
COMPANY B
10/08
TIME

50. NO ONE MOVES FAST ENOUGH
OP EX % Y/Y CY01 CY02 CY03 CY04
CSCO -3% -10% -1% 9%
EMC 9% -22% -4% 31%
ADBE -2% -1% 12% 18%
YHOO -3% 14% 33% 57%
AMZN -15% -4% 10% 24%
Average -3% -5% 10% 28%

51. CHOICES
WHAT DECISIONS DO WHAT DECISIONS DO YOU
vs.
WISH YOU HAD MADE?
YOU PLAN TO MAKE?

53. THE SOLUTION
PERFORM SITUATION ANALYSIS
ADAPT QUICKLY
USE A ZERO-BASED BUDGETING APPROACH
MAKE CUTS
REVIEW SALARIES
EMPLOY A HEAVILY COMMISSIONED SALES STRUCTURE
BOLSTER BALANCE SHEETS
BECOME CASH FLOW POSITIVE AS SOON AS POSSIBLE
SPEND EVERY DOLLAR AS IF IT WERE YOUR LAST

54. GET REAL GO HOME
OR

55. Q&A
54