1. Venture World 2005 Michael Danaher Wilson Sonsini Goodrich & Rosati October 2005

2. 2 Venture World – 2000 IT’S A MAD MAD MAD MAD WORLD

3. 3 Venture World – 2002 WATERWORLD Budget = $175,000,000 Box Office = $88,246,220

4. 4 Venture World – 2005 MASTER AND COMMANDER: THE FAR SIDE OF THE WORLD

5. 5 1. The Nasdaq Force Field Continues 2. Valuation Trends 3. Deal Terms 4. Exit Strategies 5. Tilting Towards Asia

6. 6 1. The Nasdaq Force Field Continues

7. 7 The Nasdaq Force Field ContinuesFUND INFLOWS Source: Bloomberg, Nasdaq 1994-2005 * Annual projectionSource: “Venture Capital Industry Overview,” VentureSource, October 2005 Funds Raised ($B) $18.8*

8. 8 2005 Fund Formation  Roman Numeral Funds Dominate Accidental result of year 2000 venture market

9. 9 2005 Fund Formation  Increased Focus on China and India More geographic funds More talk about Asian strategies

10. 10 So Goes Nasdaq... FUND OUTFLOWS Source: Bloomberg, Nasdaq 1992-2005 * YTD05 = 1Q05-3Q05 ** Annual projection Source: “Venture Capital Industry Overview,” VentureSource, October 2005 $21.6** Amount Invested ($B) Number of Deals 1605

11. 11 So Goes Nasdaq... LIQUIDITY EVENTS Source: Bloomberg, Nasdaq 1992-2005 Source: “Venture Capital Industry Overview,” VentureOne, October 2005 Amont Paid ($B) Number of Transactions $30.0** * YTD05 = 1Q05-3Q05 ** Annual projection 284

12. 12 For Venture Funds, It’s Still a “Hits” Business THE BLAIR WITCH PROJECT Budget = $60,000 Box Office = over $150 million

13. 13 2. Valuation Trends

14. 14 Median Pre-money Valuations by Round Source: “Venture Capital Industry Overview,” VentureOne, October 2005 $29 $25 $14 $13 $5 $6 $3 $0 $10 $20 $30 $40 2Q023Q024Q021Q032Q033Q034Q031Q042Q043Q044Q041Q052Q05 Later StageSecond RoundFirst RoundSeed Round

15. 15 WS Investments Percentage of Series A Deals Increased—But Valuations Did Not 20012002200320041H2005 15%36%31.3%34.2%46.3% Series A Deals as a Percent of Total Source: WS Investment Data, October 2005

16. 16 WS Investments Quarter Average Pre-Money Value of Top 10 Deals ($m) Average Pre-Money Value of Top 3 Deals ($m) Q104$63$96 Q204$46$71 Q304$44$73 Q404$76$101 Q105$85$179 Q205$50$85 Q305$82$145 Source: WS Investment Data, October 2005

17. 17 WSGR Venture Financing Up Rounds Are Up Source: WSGR Transaction Data, October 2005 Price ChangeQ1 04Q2 04Q3 04Q4 04 Q1-Q4 2004Q1 05Q2 05Q3 05 Q1-Q3 2005 Up 59%64%54%61%59%70%69%63%68% Flat 11%12%15%14%13%11%8%19%12% Down 30%24%31%25%27%19%23%19%20%

18. 18 3. Deal Terms

19. 19 Deal Terms Plain Vanilla Is In

20. 20 Deal Terms Liquidation Preference  Senior to last round56%  Participating preferred w/ cap 69% 35%  More than 1x11% Source: WSGR Transaction Data, October 2005

21. 21 Deal Terms Source: WSGR Transaction Data, October 2005 Anti-Dilution Rights  Weighted average93%  Ratchet4%  None2%  Pay-to-Play15% Cumulative Dividends9% Redemption Rights30% (9% in 2004) (13% in 2004)

22. 22 Deal Terms  New Trend? Partial Founder cash-outs in later stage deals

23. 23 4. Exit Strategies

24. 24 IPOs still Down 0%20%40%60%80%100% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 YTD05* IPOsM&As Source: “Venture Capital Industry Overview,” VentureOne, October 2005 * YTD05 = Q105 – Q305

25. 25 Who’s Killing the IPOs?  Multiple Theories The SEC and the accountants? Higher perceived liability risk? Higher certainty of M&A exits? Investor impatience? Reduced market receptivity to young companies? Reduced supply of candidates? The butler?

26. 26 Reckless Prediction #1  IPO Rates to Double in 1-2 years Capital markets will want high-growth companies Lots of good companies being built Regulatory and accounting costs will be reined in

27. 27 Reckless Prediction #2  The “Build to Sell” Business Model Will Become More Common e.g. –Spin-in’s –“Bio wells”

28. 28 Is Cisco Marxist? John Chambers Karl Marx

29. 29 5. Tilting Towards Asia

30. 30 Venture Investment in Asia  Intel 600 venture deals 300 in China  WSGR Approaching nearly 2 financings per week in China Approaching nearly 1 financing per week in India  India 5 years behind China Venture financings: $884 million in 2003, $1.3 billion in 2004