1 Global Software II, 31January - 5 February 2002

2 Jarkko Virtanen, Investment Director 3i Finland Oy Global Software II, February tel Venture capital market after the bubble

3 Global Software II, 31January - 5 February i key facts and value add 2 Marketplace - General - US VC market - European VC market - Finnish VC market 3 The IT Opportunity - End-user buying dynamics - What do VC’s expect from potential investee companies? 4 Summary Content - discussion points

4 Introduction to 3i

5 Global Software II, 31January - 5 February i key facts  The leading international venture capital company  Experience & reputation  Over 50 years experience  investing €23,6 billion in more than 13,800 businesses  Member of the FTSE 100, Eurotop 300 and MSCI Europe indices  Strategy  the best network  deliver value for 3i and its portfolio  a balanced business 36 offices in 16 countries A portfolio of over 2,700 companies Introduction to 3i

6 Global Software II, 31January - 5 February i Technology  850 technology investments in the portfolio  Substantial resource dedicated to technology  Market conditions  3i’s continuing commitment to technology 9% 42% 17% 23% Life sciences and healthcare Communications and networking Electronics and other technologies E-business Software and computer services Total number 850 Introduction to 3i

7 Global Software II, 31January - 5 February i delivers globally networked venture capital  Sector knowledge in all focus areas  Industry group specialists  Software, communications, electronics, healthcare sector groups  Over 300 portfolio companies in traditional software sectors in 3 continents  Independent directors’ programme  Over 80 wireless software companies in portfolio  Global network with local knowledge  1000 employees in 36 offices 3i is committed to technology and helps entrepreneurs build successful international businesses Introduction to 3i

8 Global Software II, 31January - 5 February i in Finland  One of the oldest and most experienced venture capital companies in Finland  established in 1991  Previously SFK Finance, was acquired by 3i in June 2000  Based in Helsinki  employs 15 professionals, 10 of which investment executives Introduction to 3i Finland

9 Marketplace

10 Global Software II, 31January - 5 February 2002 Tough economic and market conditions Private equity (buy-outs)  Reduced deal volumes  Pricing now changing  Growth capital  Increasing demand Venture (technology)  Fewer risk takers, syndications  Some new funds in difficulties  Focus on portfolio  Corporate VC closures  Fund raising difficult  Valuations back to level  Exits tough, values low VC marketplace - general

11 Global Software II, 31January - 5 February 2002 YTD Investment Pace at ’99 Levels in US VC marketplace - US Source: VentureOne/PwC Amount Invested ($B) Equity into venture-backed companies

12 Global Software II, 31January - 5 February 2002 Valuations have diminished across all financing stages in US VC marketplace -US Median Premoney Valuations by Round Class Median Premoney Valuation ($M) Source: VentureOne/PwC

13 Global Software II, 31January - 5 February 2002 US IPO is the worst in many years VC marketplace-US $2.9 $4.9 $8.7 $4.6 $3.7 $19.4 $18.8 $ $0 $5 $10 $15 $20 $ YTD' Amount Raised ($B) Venture-Backed IPOs Deals and Amount Raised Through IPOs Number of Deals Amount Invested ($B) Source: VentureOne/PwC

14 Global Software II, 31January - 5 February 2002 Europe’s Technology Market % by number Early stage 38 % 29 % Expansion 48 %65 % Start-up 8 % 4 % Seed 6 % 2 % Cumulative Early Stage & Expansion technology deals in Europe Year to November 2001 Total market value (Euros bn) (to 11/01) 177 Software and Internet investments down 50 % Source: Initiative Europe

15 Global Software II, 31January - 5 February 2002  Investments 344 M€ => (397 M€/2000, -13%)  432 investments => ( 418/2000, +3%)  208 initial  224 follow-on  New funds raised 412 M€ => (563M€/2000, -27%)  Total capital under management M€*=> (2202M€/2000, +20%)  Share of the investments  Private independent funds 84 %  government related 16 %  3i Finland investments up 70% from year 2000 Venture capital industry in Finland Venture Capital in Finland year 2001 has not been effected as strongly as Europe and US Source: FVCA preliminary statistics from 2001

16 There is always an opportunity

17 Global Software II, 31January - 5 February 2002 The software and services market is in constant transformation. Now the speed is faster than ever Emerging vendors need to constantly review their go-to-market tactics Budgets are increasingly in the hands of the business rather than technology management Source: Meta Group Consulting End-user buying dynamics Emphasis through 2002/3 will be on risk reduction and value generation from existing assets Reducing complexity will continue as a major theme Vendors must partner proactively and effectively to help users increase performance whilst reducing risk Vendors that are able to measure and demonstrate value generation to their customers will be strongly positioned

18 Global Software II, 31January - 5 February 2002 Satisfaction Value High Low 200 IT Suppliers Rated by 500 IT Buyers Anticipating “value” movement is critical during transformations Source: Meta Group Consulting

19 Global Software II, 31January - 5 February 2002 Impact on Customer Relationship (brand, loyalty, retention) Perceived Value (Importance to the Customer) Primary Secondary Strategic Supplier Status (Critical Provider) Commodity (Tactical and Tangible Benefit) Resource Mgmt and Asset Extension #1 Customer Intimate Link to Business Requirements #2 Credible Mass #3 Relationship Economics #4 Technical Proficiency #5 Source: Meta Group Consulting Buyers’ key value drivers

20 Global Software II, 31January - 5 February 2002 What VC’s expect from investee companies?  Management, management…..  Market opportunity  Business orientation, Execution  Market leadership plans, clear USPs At the present market situation, all evidence of the capability to execute and proof of concept is appreciated Value creation potential

21 Global Software II, 31January - 5 February 2002 Summary  VC’s and their financers are having tough times especially in Technology  Finnish VC-market not hit as badly as general (yet?)  Software and services are growing part of IT  Buzzwords; J2EE,.net, peer to peer, mission critical wireless, e-business...  Global IT spending will return to year 2000 growth levels +11% year 2004  Transformation in software generates opportunities  Partnerships, networks are even more important than before There is an opportunity and timing is everything

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23 Global Software II, 31January - 5 February 2002