1. ©Charlie Federman Investing in Software, Internet & Technology Enabled Services Venture Association of NJ January 15, 2008Crossbar Capital

2. ©Charlie Federman Agenda The dynamic of my business Market leadership lifecycle Investment opportunities Summary investment strategy

3. ©Charlie Federman The Venture Business Raise a blind pool of capital Invest the money over 5 years Diversify risk by creating a portfolio Hope to return capital AND 20+% compounded return (net of fees) over 10 years

4. ©Charlie Federman Market Leadership Lifecycle

5. ©Charlie Federman Opportunity Knocks- IT Market Lifecycles Always start small with vendor denial and few competitors

6. ©Charlie Federman Opportunity Knocks- IT Market Lifecycles Always start small with vendor denial and few competitors Steep growth ramps attract many competitors, VCs and exits

7. ©Charlie Federman Opportunity Knocks- IT Market Lifecycles Always start small with vendor denial and few competitors Steep growth ramps attract many competitors, VCs and exits Aligning performance with investment timing is essential –Capital too early – run out of oxygen –Capital too late – roll-up or sell to gorilla –Just in time – proper execution and market momentum will drive hyper-growth

8. ©Charlie Federman Opportunity Knocks- IT Market Lifecycles Always start small with vendor denial and few competitors Steep growth ramps attract many competitors, VCs and exits Aligning performance with investment timing is essential –Capital too early – run out of oxygen –Capital too late – roll-up or sell to gorilla –Just in time – proper execution and market momentum will drive hyper-growth Returns predicated on leadership attained via –Category creation –Existing category disruption

9. ©Charlie Federman Opportunity Knocks- IT Market Lifecycles Always start small with vendor denial and few competitors Steep growth ramps attract many competitors, VCs and exits Aligning performance with investment timing is essential –Capital too early – run out of oxygen –Capital too late – roll-up or sell to gorilla –Just in time – proper execution and market momentum will drive hyper-growth Returns predicated on leadership attained via –Category creation –Existing category disruption Investors challenge is to have a process that efficiently identifies and then participates in the right ones in a timely manner

10. ©Charlie Federman Traditional IT Lifecycle First Movers

11. ©Charlie Federman Traditional IT Lifecycle Best of Breed First Movers

12. ©Charlie Federman Traditional IT Lifecycle Growth Phase Best of Breed First Movers Growth

13. ©Charlie Federman Traditional IT Lifecycle Integrated Growth Phase Best of Breed First Movers Growth Consolidation

14. ©Charlie Federman Traditional IT Lifecycle Consolidation Growth Phase Best of Breed Integrated First Movers Growth Consolidation Winners

15. ©Charlie Federman Traditional IT Lifecycle Consolidation Growth Phase Best of Breed Integrated Winners MSFT Oracle SAP IBM ? PeopleSoft SAP Siebel Retek Symantc MSFT JD Edward Lawson I2 Informatica Webmethods Navisoft Great Plains Oracle

16. ©Charlie Federman Internet 4Cs Experiencing Similar Dynamics Best of Breed Integrated Growth Phase Consolidation Winners Digg Hotmail Oddpost Skype MySpace Dialpad Kazaa Usendit Pando Flickr del.ici.ous Pyra Labs Picassa Dialpad Yahoo eBay MSFT Google ICQ

17. ©Charlie Federman Explosion of New Affecting Internet Markets Too numerous and fast moving to properly identify, but formally arcane markets include: –Phishing, Clickfraud, Blog, Vlog, p2p, Voip, Rss, Wiki, Soa, Ajax, Open Source, On Demand, Virtualization, Social Networks, Mash-ups

18. ©Charlie Federman Explosion of New Affecting Internet Markets Too numerous and fast moving to properly identify, but formally arcane markets include: –Phishing, Clickfraud, Blog, Vlog, p2p, Voip, Rss, Wiki, Soa, Ajax, Open Source, On Demand, Virtualization, Social Networks, Mash-ups How many $1B market cap realizations from these segments?

19. ©Charlie Federman Explosion of New Affecting Internet Markets Too numerous and fast moving to properly identify, but formally arcane markets include: –Phishing, Clickfraud, Blog, Vlog, p2p, Voip, Rss, Wiki, Soa, Ajax, Open Source, On Demand, Virtualization, Social Networks, Mash- ups How many $1B market cap realizations from these segments? Not every investment requires a $ billion exit

20. ©Charlie Federman Market Opportunities

21. ©Charlie Federman The Enterprise is Ripe for Business Model Disruption Sales and Marketing S&M inefficiency issues are being addressed…by learning from the consumer –Acceptance of downloads –Thriving industry, geographic, and market blogs –Remote support (to lower cost regions) or automated support

22. ©Charlie Federman The Enterprise is Ripe for Business Model Disruption Sales and Marketing S&M inefficiency issue are being addressed…by learning from the consumer –Acceptance of downloads –Thriving industry, geographic, and market blogs –Remote support (to lower cost regions) or automated S&M has the potential to move down from 50-60% of vendor spending to 30-40%

23. ©Charlie Federman The Enterprise is Ripe for Business Model Disruption Sales and Marketing S&M inefficiency issue are being addressed…by learning from the consumer –Acceptance of downloads –Thriving industry, geographic, and market blogs –Remote support (to lower cost regions) or automated S&M has the potential to move down from 50-60% of vendor spending to 30-40% Broadband enables small(er) vendors to efficiently reach global customers

24. ©Charlie Federman The Enterprise is Ripe for Business Model Disruption Sales and Marketing S&M inefficiency issue are being addressed…by learning from the consumer –Acceptance of downloads –Thriving industry, geographic, and market blogs –Remote support (to lower cost regions) or automated S&M has the potential to move down from 50-60% of vendor spending to 30-40% Broadband enables small(er) vendors to efficiently reach global customers Challenge is weighing lower ASPs and deferred maintenance/support revenue with capital requirement to support market share scale

25. ©Charlie Federman Across all Segments, Disruptive Factors Decrease Initial Capital Thirst Early stage software/internet investing becoming LESS capital intensive –S&M leveraging the Internet communication paradigm –R&D leveraging open source tools

26. ©Charlie Federman Disruptive Factors Decrease Initial Capital Thirst Early stage software/internet investing becoming LESS capital intensive –S&M leveraging the Internet communication paradigm –R&D leveraging open source tools Ready supply of 2 nd time entrepreneurs –Experienced the boom/bust –Know how to prioritize resources –Dont need the initial cadre of VPs

27. ©Charlie Federman Disruptive Factors Decrease Initial Capital Thirst Early stage software/internet investing becoming LESS capital intensive –S&M leveraging the Internet communication paradigm –R&D leveraging open source tools Ready supply of 2 nd time entrepreneurs –Experienced the boom/bust –Know how to prioritize resources –Dont initially need the cadre of VPs Users acclimated to remote or computer generated support

28. ©Charlie Federman What this Means for Investors and Entrepreneurs Opportunity to invest within the explosion of niches that are rapidly growing into viable exit markets (e.g. Vocus IPO)

29. ©Charlie Federman What this Means for Investors and Entrepreneurs Opportunity within the explosion of niches that are rapidly growing into markets (e.g. Vocus IPO) Be wary of timing; two profitable entrance points are –at the top of the triangle or –consolidate at the midpoint

30. ©Charlie Federman What this Means for Investors and Entrepreneurs Opportunity within the explosion of niches that are rapidly growing into markets (e.g. Vocus IPO) Be wary of timing; two profitable entrance points are –at the top of the triangle or –consolidate at the midpoint Align capital consumption with leadership/exit –Lead, or exit, to the leader or contender –Know the ecosystem

31. ©Charlie Federman Investment Strategy

32. ©Charlie Federman Summary Core Investing Principles Invest only where the potential exists to be a market leader IP Driven- Market creation through fundamental technology shifts Business Driven- Market disruption through business model shifts Marketing Driven- Niches which will emerge into markets

33. ©Charlie Federman Summary Core Investing Principles Invest only where the potential exists to be a market leader IP Driven- Market creation through fundamental technology shifts Business Driven- Market disruption through business model shifts Marketing Driven- Niches which will emerge into markets Primary investment strategy is the identification of new markets expected to experience tornado Initial value creation driven by market growth Exit timing determined by ability to seize/maintain leadership position (execution) Exit alignment with founder(s) is essential Technology and competitive environment moving so rapidly that real-time involvement is critical (for leadership execution and exit)

34. ©Charlie Federman Summary Core Investing Principles Own enough of the winners –Capital efficiency and rapid time to market minimizes large capital early stage risks –Build a portfolio of early stage/high ownership situations. Blend of IPO disrupters, Market and IP disrupters –Disciplined process to determine which are entitled to deeper support Exit Early from market share laggards