Confidential: Read and Return Venture Capital A 27 Year Perspective Gary Kalbach September 2005

Confidential: Read and Return 2 Gary Kalbach >27 years as a venture capitalist >$45 million invested – over $600 million value >Founded two venture capital firms with $550 million >Seed investor in Sun Microsystems, Novellus Systems, Integrated Device Technology… >83 companies funded, 40 board seats, 50% worked >Created the angel/institutional fund model >BS, The Business School, University of California, Berkeley; MBA, San Jose State University

Confidential: Read and Return 3 Backyard

Confidential: Read and Return 4 Granddaughter In Garden

Confidential: Read and Return 5 Senior Associate Scott Irwin West Coast Venture Capital El Dorado Ventures >Investing since 1978 >Seed/early stage – West Coast >Information technology industry focus Enterprise software and services Communications >40+ Entrepreneurs – Technology Partners

Confidential: Read and Return 6 Seed Investor In… >Sun Microsystems >Integrated Device Technology >Novellus Systems >Access Health (acquired by McKesson/HBOC) >Earthlink Networks >Amati (acquired by Texas Instruments) >Datasage (acquired by Vignette) >NuSpeed Internet Systems (acquired by CISCO) >Cyras Systems (acquired by CIENA) >Efficient Networks (acquired by Siemens)

Confidential: Read and Return 7 The Process? >Write business plan >Raise venture capital >Sell product >Go public or sell company >Retire

Confidential: Read and Return 8 Keys To Success My Perspective >Management team >Products and markets Markets that are not there – yet! >Financing Ownership >Opportunistic exits

Confidential: Read and Return 9 INTEGRITY CREATIVITY DRIVE FOCUS PASSION LEADERSHIP TEAM WORK VISION EXPERIENCE Management Teams Make Or Break A Company

Confidential: Read and Return 10 Vision >Thinking out of the box Example: Sky Dayton, EarthLink Networks At age 22, Imaging design firm, coffee house operator Vision of the need for connection to exploding Internet $1 billion company

Confidential: Read and Return 11 Drive >Often multiple motivating forces Example: Bob Graham, Novellus Intel founder, built Applied Materials not recognized Driven to prove he could build a company Built a $1 billion company

Confidential: Read and Return 12 Leadership >The team is usually right about the CEO – Listen! Example: Sun Microsystems Brought in professional manager Team revolted Scott McNealy promoted to President $18 billion company

Confidential: Read and Return 13 Problems Along The Way >Suddenly out of money >Key non-performing member of team >Management team member leaves >Product/Technology doesnt work >Market/Competitive landscape changes >Investor group falls apart on vision/execution

Confidential: Read and Return 14 Management Teams >Finance them >Build them or >Change them

Confidential: Read and Return 15 Markets In The Late 1990s >Idealab! Paid $50M over 10 years to license the.tv extension from the Pacific Island country of Tuvalu >eCompanies paid $7.4M for the domain name business.com

Confidential: Read and Return – A New Paradigm >Brand: first >Product: later >Profitability: never

Confidential: Read and Return 17 Over-Funded Sectors >Pet Assure >Pet Food Giant >Pet Food WareHouse >Pets Choice >Pets.com >PETsMART Good ads or good business models?

Confidential: Read and Return 18 Flawed Business Models >You cannot fix slim margins with high- cost advertising >WebVan did not have a viable business model

Confidential: Read and Return 19 What Went Wrong >Too many inexperienced VCs >Venture capital has traditionally financed B2B >Most dot-coms were consumer oriented

Confidential: Read and Return 20 Whats Happening Now >Back to basics >Customer-oriented/market-oriented Build the brand by building the business.

Confidential: Read and Return 21 How Do VCs Find Opportunities >Successful entrepreneurs >Other networks

Confidential: Read and Return 22 El Dorado Technology Partners Competitive Advantage >Created 27 years ago >Successful entrepreneurs >Recognized experts in targeted industries >Must be involved to co-invest >Frequent interaction Venture capital is a team sport. No cowboys!

Confidential: Read and Return Deals 1,000 Deals 6 -7 Deals Selected

Confidential: Read and Return 24 How To Get Through The Funnel >Business model that satisfies market >Understanding of what it takes to build team, product lines and business >Well thought out business plan >Experience helps – crusty sales person vs. 5 PhDs

Confidential: Read and Return 25 Non-starter Quotes >Founder will run to $100 million >All you need is 1% of billion dollar market >Year 5 sales of $1,457,987,238 with 50% profit >Product will sell itself >There is no competition

Confidential: Read and Return 26 In Conclusion >Venture capital is an apprenticeship business >Careers are built brick-by-brick >Craftsmanship comes with experience In 1986, it cost $10 million to train a venture capitalist. What does it cost now?

Confidential: Read and Return Thank You.