1. 2004 New Era of Optimism in Software Heidi Roizen, Managing Director Mobius Venture Capital hroizen@mobiusvc.com hroizen@mobiusvc.com Ann Winblad, Partner Hummer Winblad Venture Partners awinblad@humwin.com awinblad@humwin.com

2. Hummer Winblad Venture Partners First Fund Exclusively for Software Investing –Founded September 1989 $1B Under Management –9 investment professionals –Fund V: $425M (raised 2001) All Stages, focus on early stage including seed –Usually Part of First Round of Venture Funding –Usually Lead or Co-Lead 90+ Investments to Date: 16 IPOs, 29 Acquisitions

3. Mobius Venture Capital Founded in 1996 in conjunction with Softbank $2B Under Management –13 investment professionals: 5 managing directors –Fund VI: $1.25B (raised 2000) All Stages, focus on early stage including seed –Usually Part of First Round of Venture Funding –Usually Lead or Co-Lead 100+ Investments to Date

4. Entrepreneurs, then VCs

5. Software Big Leader in Early Stage Software is the Big Leader in Early Stage –27% of Early Stage Financings (Q1-Q3) 2003 –22% of Early Stage Dollars (Q1-Q3) 2003 Capital Efficient Profile Matches Era –Early Stage Software Average (2002) Round is $4.0M –Average of other sectors is $6.2M Round Software Still the Largest Investment Area –20% of Overall Investment Dollars (Q1-Q3), all stages But 28% Decline from 2002

6. Drivers for Software Innovation and Investment Opportunity Outsourcing –Leveraging high caliber 24X7 resources Specifically India Open Source –Driving innovation for early stage developers –Competitive ‘turmoil’ among the larger players Moore’s Law and Metcalf’s Law –Broadband reaches critical mass deployment –Storage costs dramatically lower, affordable in personal devices On demand solutions –New platforms, new pricing M&A at the top reopening market segments –Documentum, Rational, JD Edwards….

7. Fast Pace of Technical Innovation Creates New Leaders and New Laggards

8. Consumer: Customer Demands Driving Innovation Digital Lifestyle demands: –Communication and collaboration Interactivity across devices –Immediacy –Omnipresence Always on, anywhere –Customizable My content, my creativity –Fair prices

9. Broadband, Coupled with Cheap Storage Driving Digital Lifestyle

10. Enterprise: Customer Demands Driving Innovation Real Time Connected Enterprise –Communication and collaboration Interactivity and security across enterprise and industry partners –Shift of business value to communications platform –Immediacy Real time business performance management –Confidence, Security, Privacy Sarbanes Oxley effect, GLB, HIPPA –Open architecture –Solutions and pricing Undeniable short term ROI Software as a service/utility

11. Internet Era Creates New IT Infrastructure End to end integration of transactions Existing applications and data leveraged Applications acting as processes Workload optimized to any server Massive amounts of information: stored and ‘flowing’

12. New Set of Software Challenges: Expanding the Software Stack

13. 2004: Start of Era of Optimism Most CIOs are budgeting for new projects –Cost Reduction and Integration (2001-2003) –Integration and New Project Expansion (2004 - ) Will lead new phase of venture capital investing Demand improving: –Enterprise –Consumer –Small and medium business Early Stage Venture Capital at stable bottom –Best time to start a company –Best time to invest, especially at seed –Best time to be an optimist

14. Fewer Investors, Better Companies? Corporate/Strategic investors have abandoned the sector –$211M in 2003 versus $6B in 2000 Individual investors have abandoned the sector –$84M in 2003 versus $2.4B in 2000 VCs syndicating most deals –Multiple VCs in most rounds

15. Recent Hummer Winblad Investments Focused on Enterprise Infrastructure Security, Reliability –Voltage –Cenzic Data and Disaster Recovery –Abhai Management –Scalent –Jareva (early); (acquired by Veritas) Application Integration –Knowmadic Provisioning and Identity Management –Bridgestream

16. Recent Mobius Venture Capital Investments Planitax: enterprise tax software MessageCast: Broadcast IM management CastBridge: user-driven data sharing Auctiondrop: “you drop it off, we sell it on eBay” Perpetual Entertainment: MMOG Reactrix: visual display meets motion sensor

17. Closing Advice The opportunity window is open now in software Make lots of friends with engineers Meet customers early –Customers know what they want and are smart technologists Focus, Focus, Focus –Otherwise tough to be “Best” at anything The intellectual capital in your company and coaching your company is more important than money –Most companies die of self inflicted wounds

18. Q&A Heidi Roizen hroizen@mobiusvc.com Ann Winblad awinblad@humwin.com