9th Annual Early Stage

Venture Investing Conference

“What Do We Do Now?”

October 22, 2008

The Last Twelve Months
Dow Jones Industrial Average, Closing Price

10/31/07
DJ 52-Week
High:
13,930

Week of 10/6/08
Dow Suffers Largest 1-Week
Drop Ever
8,451

2
 Reaction in the Markets
The Reaction in Different Sectors
40.0%

30.0%

20.0%

10.0%

0.0%

(10.0%) (12%)
(19%)
(20.0%) (21%)
(22%)
(30.0%) (24%)

(40.0%)
7/21/08 8/21/08 9/21/08 10/21/08

S&P 500 S&P 500 Homebuilding Idx S&P 500 Retail Index S&P 500 Financials Index S&P 500 IT Index

3
 Time to Liquidity
Median Age of a Company at Time of Exit

4
 The IPO Market
Deals and Amount Raised Through IPOs
250
250

$25
200

Venture-Backed IPOs
200
$19.5
Amount Raised ($B)

$20
$18.9 150
$15

100
$10 68 69
67
56
43
$5 24 $5.0 50
19 23 $3.7 $6.4 7
$2.4
$3.7 $0.6
$1.9 $1.6 $1.5
$0 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 YTD
08

Amount Raised ($B) Venture-Backed IPOs

Source: Dow Jones VentureOne

YTD 2007: 1Q07 – 3Q07
5
 IPO Offering Sizes
Median Amount Raised and Pre-Valuation at IPO
$359
$350 $350
$314 $307
Median Pre-Valuation at IPO ($M)

$300 $300

Median Amount Raised ($M)

$275

$250 $238 $250

$217 $226 $213
$202
$200 $200
$172 $167
$150 $150

$100 $76 $78 $75 $100

$62 $65
$56 $50 $48 $52 $53
$42
$50 $50

$0 $0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08
Median Pre-Valuation at IPO ($M) Median Amount Raised at IPO ($M)

YTD 2007: 1Q07 – 3Q07

6
2008 Venture-Backed IPOs
Filing Pricing Amount Pricing Offering Variation Pricing-to-Date
(1)
Company Date Date Raised Range Price from Midpoint Performance

Technology

4/25/2008 8/8/2008 $158.8 $12 - $16 $12.50 (10.7%) (54.7%)

9/11/2007 2/14/2008 $54.0 $9 - $11 $9.00 (10.0%) (32.6%)

Financial

9/17/2007 1/25/2008 $174.3 $17 - $19 $17.50 (2.8%) (13.3%)

Healthcare

8/17/2007 3/19/2008 $54.0 $18 - $20 $18.00 (5.3%) 29.6%

2/13/2007 2/19/2008 $5.8 $6 - $8 $5.25 (25.0%) (63.8%)

9/19/2007 2/14/2008 $51.0 $10 - $11 $10.00 (4.8%) (31.6%)

8/31/2007 1/25/2008 $52.8 $15 - $17 $16.00 0.0% 35.9%

(1) As of October 20, 2008

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 M&A Remains the
Primary Exit Option
Percentage Breakdown of Venture Backed Liquidity Events: IPO vs. M&A

YTD 08
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998

0% 20% 40% 60% 80% 100%

Source: Dow Jones VentureOne IPOs M&As YTD 2007: 1Q07 – 2Q07
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 M&A Exits
Transactions and Amount Paid in M&As
$98.5
$100 419 410 421 421 450
406
461 381

Number of Transactions
341
$75 307
300
Amount Paid ($B)

253
232 208
$50 $43.3 $46.2

$30.0 $31.8 150

$22.3 $23.6
$25 $20.5
$12.7 $14.8 $10.9 $13.0

$0 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 YTD
08
Amount Paid ($B) Number of Transactions

Source: Dow Jones VentureOne

YTD 2007: 1Q07 – 3Q07
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 M&A Exits
Median Amount Paid in M&As vs. Median Amount Raised Prior to M&A
Median Amount Raised Prior to M&A ($M)

$100
$100 $93 $100

$75 $75

Median Amount Paid ($M)

$63
$55
$52
$50 $47 $50
$39
$31
$27 $25
$25 $19 $22 $21 $22 $25
$20 $20
$15
$11 $10 $19
$7 $17

$0 $0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08
Median Equity Raised Prior to M&A Median Amount Paid ($M)

Source: Dow Jones VentureOne

YTD 2007: 1Q07 – 2Q07
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 Valuations
Median Pre-money Valuation
$30
$26.0
Median Premoney Valuation ($M)

$25

$20.0 $20.5
$20
$17.5 $17.5 $18.1
$16.0 $16.1 $16.0 $15.5
$15.0 $15.2
$15
$12.5

$10

$5

$0
1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08

11
 Valuations

Median Pre-money Valuation by Round Class

$80
Median Premoney Valuation ($M)

$60 $59.0

$46.1
$40

$20 $18.8
$11.5
$7.0

$0 $5.0
1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08
Later Stage Second Round First Round

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 Commitments to
Venture Capital
$83.8
$80

$60 $57.5
$50.7
Funds Raised ($B)

$40
$30.0 $32.2
$26.9 $25.6
$20 $17.5 $17.3 $20.5
$12.5
$10.1

$0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 YTD
08

Source: Dow Jones VentureOne

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 What Do We Do Now?
• How much cash is needed?
– A minimum of 12 months of cash is required

• What does it take to get to CFBE? Is there enough cash to get

there now?

• Four options with less than 12 months of cash

– Reduce operating expenses

– Get a commitment from the existing syndicate

– Take a low valuation from outside money

– Consider a strategic sale in a difficult environment

• All options have downside elements…but goal is to protect each

company’s long-term viability 14
 Where Do You Cut?
• Depends on size
– 5 person company vs 205 person company
• Remember: you can always rehire
• Engineering
– Will the company survive if the next product isn’t ready?
• Marketing
– Can a smaller group do the essentials?
• Overhead
– How much can be reduced?
• Sales
– Transition a more commission-based sales force?
– Recalibrate and understand pipeline and its potential

What Permits Survival?

15
 Where Do You Cut?
• Three options in weighing a sales team strategy in the current
environment
1) Product is not fully ready for market deployment:
– Cut until it is ready…have only a one to two person
renaissance sales team, with the CEO actively engaged
2) Product is working and you have a couple of referable
customers
– Does the company understand the Sales Learning Curve…do
you know what it takes to get an order?
3) The company has revenues and had been ramping sales
– Maintain the best sales persons
– Moderately increase the sales team to gain on competitors

16
Thank You
vincento@woodsidefund.com