1. # !@ 0302-0390915-MCL 0 Today’s Venture Capital Environment Ted R. Woolschlager Director, Emerging Growth Markets Mid-Atlantic Area Ernst & Young June 7, 2003 Ted R. Woolschlager Director, Emerging Growth Markets Mid-Atlantic Area Ernst & Young June 7, 2003

2. # !@ 0302-0390915-MCL 1 Tech Investing: The Good News & The Bad News

3. # !@ 0302-0390915-MCL 2 Venture Capital Today: …The bad news: Public markets shut tight Less money being raised Funds being closed … A challenging environment …The bad news: Public markets shut tight Less money being raised Funds being closed … A challenging environment

4. # !@ 0302-0390915-MCL 3 Extremely Difficult Exit Environment Nasdaq Down 39% 2000; 21% 2001, 33% 2002 2002: 19 Venture-Backed IPOs Raising $2.2BN 2001: 41 Venture-Backed IPOs Raising $3.5BN 2000: 261 Venture-Backed IPOs Raising $27.7BN M&A Deal Environment Quiet Nasdaq Down 39% 2000; 21% 2001, 33% 2002 2002: 19 Venture-Backed IPOs Raising $2.2BN 2001: 41 Venture-Backed IPOs Raising $3.5BN 2000: 261 Venture-Backed IPOs Raising $27.7BN M&A Deal Environment Quiet

5. # !@ 0302-0390915-MCL 4 The Hangover Effect: The Math Is Ugly From 1995-2000: 14,463 978 1,529 1,180 10,776 Companies funded Went public Were acquired Went out of business Remaining Source: Venture Economics; Venture Source - - -

6. # !@ 0302-0390915-MCL 5 …The Good News Less money chasing deals Bigger, more mature companies being financed Attractive valuations and terms Exit infrastructure larger since last cycle Hot markets continue to be PNW, MAA, NE and NY … High returns possible at market bottoms Less money chasing deals Bigger, more mature companies being financed Attractive valuations and terms Exit infrastructure larger since last cycle Hot markets continue to be PNW, MAA, NE and NY … High returns possible at market bottoms

7. # !@ 0302-0390915-MCL 6 Funds Raised by Venture Capital Firms Q2:00 to Q2:02 $ mil Source: PricewaterhouseCoopers / Venture Economics / National Venture Capital Association / Money Tree Less competition for new deals

8. # !@ 0302-0390915-MCL 7 Amount Invested ($B) Number of Deals *Note: 9/30/02 Figures Annualized Slower Investing Pace VC Equity Into Venture Backed Companies

9. # !@ 0302-0390915-MCL 8 Amount Invested ($B) Number of Deals “First Sequence” Financings: Q1 1995 – 2002 YTD

10. # !@ 0302-0390915-MCL 9 Median Valuations of Venture Rounds Q1:00 to Q2:02 Median Pre money Valuation ($ mil) Source: VentureOne Valuations down 61.4% in 8 quarters “Venture valuations Go Back to Levels of Mid-1990s” -The Wall St. Journal, August 28, 2002

11. # !@ 0302-0390915-MCL 10 Attractive Valuations Median Valuations of Venture-backed Companies Q1:00 vs. Q2:02 $ in millions Round Seed First Second Later Q1:00 $5.30 $13.00 $39.00 $100.00 Q2:02 $3.00 $7.00 $12.00 $24.00 Change -43% -46% -69% -76%

12. # !@ 0302-0390915-MCL 11 Better Terms for Investors… Better Times for Investors Liquidation Preference Mandatory Redemption Milestones Drag-along rights More mature companies Greater ability to recruit talent Liquidation Preference Mandatory Redemption Milestones Drag-along rights More mature companies Greater ability to recruit talent

13. # !@ 0302-0390915-MCL 12 Venture Capital Has Always Been a Cyclical Business Late 80’s / Early 90’s: # VC Funds 1985:850 # VC Funds 1991:450 # IPOs 1986:377 # IPOs 1989:63 # Co’s Backed 1987:523 # Co’s Backed 1991:237 …AND YET: Cisco:1st VC Funding:1987 IPO:1990 AOL:1st VC Funding:1986 IPO:1992 UUNet:1st VC Funding:1990 IPO:1995 Sale:1996 Late 80’s / Early 90’s: # VC Funds 1985:850 # VC Funds 1991:450 # IPOs 1986:377 # IPOs 1989:63 # Co’s Backed 1987:523 # Co’s Backed 1991:237 …AND YET: Cisco:1st VC Funding:1987 IPO:1990 AOL:1st VC Funding:1986 IPO:1992 UUNet:1st VC Funding:1990 IPO:1995 Sale:1996 Mid 70’s: $ Committed to VC 1974:$ 380 mil $ Committed to VC 1977:$ 62 mil # IPOs 1972:75 # IPOs 1975:2 …AND YET: Apple:1st VC Funding:1977 IPO:1980 MSFT:1st VC Funding:1976 IPO:1986 Symbol:1st VC Funding:1975 IPO:1979

14. # !@ 0302-0390915-MCL 13 Huge Growth of Venture-Backed Companies -- Through Every Cycle Significant economic impact: 12.5 mil direct jobs 27 mil direct and indirect jobs $ 1.1 tril in GDP 11% of US GDP $ 157 bil in R&D investment Huge leverage to capital invested Significant economic impact: 12.5 mil direct jobs 27 mil direct and indirect jobs $ 1.1 tril in GDP 11% of US GDP $ 157 bil in R&D investment Huge leverage to capital invested Source: DRI-WEFA Study; NVCA

15. # !@ 0302-0390915-MCL 14 Venture Has Outperformed Other Asset Classes in the Medium and Long Run Returns (%) Fund Type1 Yr3 Yr5 Yr10 Yr20 Yr All Venture(23.8)41.134.925.917.3 All Buyouts(9.6)(0.1)4.910.714.2 Nasdaq(33.8)(22.2)(5.2)8.310.2 Dow(15.9) (8.0)1.29.711.8 S&P(22.2)(12.2)(1.1)7.810.6 Source: NVCA / Venture Economics

16. # !@ 0302-0390915-MCL 15 A Success Story- Blackboard Blackboard Inc. Software- eLearning Raised over $100 million Both VC and strategic investments Survived the “bubble” Revenue of approx. $70 million, cash flow positive Blackboard Inc. Software- eLearning Raised over $100 million Both VC and strategic investments Survived the “bubble” Revenue of approx. $70 million, cash flow positive

17. # !@ 0302-0390915-MCL 16 Focus on Biotechnology 16 # !@

18. # 0302-0390915-MCL 17 Global Biotech at a glance Key metrics Revenue ($m) R&D expense ($m) Net loss ($m) Number of employees $34,874$16,427$(5,933)188,703 Number of companies Public companies Private companies Total 6223,6624,284

19. # !@ 0302-0390915-MCL 18 Biotechnology is a global industry... 85 / 416 Canada 342 / 1,457 U.S. 104 / 1,879 Europe 91 / 532 Asia/Pacific Distribution of public/total biotechnology companies driving the emergence of centers of excellence. 18 # !@

20. # 0302-0390915-MCL 19... and is concentrated in the U.S. and Europe 19 # !@ Countries we covered 79% Countries we covered 79% Others 21% Others 21% Global GDP Share of global biotechnology revenues (Public companies) Share of global biotechnology revenues (Public companies) U.S. 72% U.S. 72% Europe 22% Europe 22% Canada 3% Asia/Pacific 3%

21. # !@ 0302-0390915-MCL 20 Major findings 20 # !@ Europe U.S. Canada Asia/Pacific Record-Level Venture Fundings and Drug Approvals Rapid Growth 2 nd Largest Concentration of Biotech Companies 12 th Consecutive Year Of Revenue Increase Emerging Biotech Player

22. # !@ 0302-0390915-MCL 21 Partnering Across Borders 21 # !@ Canada U.S. Europe Asia/Pacific Mature market Short term earnings boost Pharma seeking new technology Biotech seeking global development and capital Source: Ernst and Young Beyond Borders Report 2002

23. # !@ 0302-0390915-MCL 22 Conclusions Technology Is Not Dead, “It’s Just Resting” – Still the Source of Major Productivity Gains Absolute Returns Will (of course) Be Lower But Deals Must Be Priced to Outperform Longer Exit Horizon Puts Focus on Business Partnership Emphasis on Who Can Help Build Companies Technology Is Not Dead, “It’s Just Resting” – Still the Source of Major Productivity Gains Absolute Returns Will (of course) Be Lower But Deals Must Be Priced to Outperform Longer Exit Horizon Puts Focus on Business Partnership Emphasis on Who Can Help Build Companies

24. # !@ 0302-0390915-MCL 23 Conclusions: 1.Now is a good time to invest -- valuations are low, terms are good (for the buyer) 2.The pace of innovation continues -- growth will return, and historically the most money has been made investing at cyclical bottoms 3.Private equity is institutionalizing – a handful of brands will emerge; standards will be the norm 1.Now is a good time to invest -- valuations are low, terms are good (for the buyer) 2.The pace of innovation continues -- growth will return, and historically the most money has been made investing at cyclical bottoms 3.Private equity is institutionalizing – a handful of brands will emerge; standards will be the norm

25. # !@ 0302-0390915-MCL 24 Thank You