MIT Enterprise Forum Paul Ferri, Founding Partner Matrix Partners June 5, 2002

MATRIX CONFIDENTIAL Starting companies so far this decade is easier than it has ever been. Starting companies that will be successful is possibly more difficult than ever. We at Matrix much prefer successful start ups as do our entrepreneurs and investors. If you are starting a company, you will make tremendous sacrifices for at least 3-5 years (or longer) – might as well be rewarded financially for those sacrifices.

MATRIX CONFIDENTIAL Important Technology Companies started by Matrix Partners

MATRIX CONFIDENTIAL Matrix I (1982) & Matrix II (1985) invested about 70% in early stage technology Also pie company, shoe company, office supplies, budget motels, airline, medical devices, restaurant chains, motion picture producer No special expertise in understanding caliber of people or opportunity

MATRIX CONFIDENTIAL Money coming into Industry Grew Dramatically Environment changed from one where having capital to invest was a distinctive advantage to one where capital was plentiful and had to provide added value to out-perform others

MATRIX CONFIDENTIAL Matrix III had to have a reason for Entrepreneurs to come to Matrix first Changed general partners to try to be the best early stage technology in New England and slowly leverage this position into improved California presence Narrowed focus, concentrated on: Technology only Start up only Largest investor only, preferably without prior money in invested companies BOD of all investments Concentrate on New England opportunity Radical revelation: never dreamed that if we were to invest in your company, that we would increase the likelihood of your success – our money is better than others

MATRIX CONFIDENTIAL Decade of the ‘90s: Our business model was highly disciplined and repetitive We backed technologists who had been successful at designing winning products at good companies and wanted to be entrepreneurs We partnered with the founders to build an experienced management team and a successful business We made approximately one new start-up investment per month We wrote biggest checks in the first round and usually participated in subsequent rounds with similar dollar amounts

MATRIX CONFIDENTIAL First major partnership in N.E. to move out of downtown Boston First to have entrepreneurs space First to have entrepreneurs fund Positioned Matrix to be most knowledgeable about products, markets and best at helping entrepreneurs succeed

MATRIX CONFIDENTIAL Entrepreneur View VALUATION everything else

MATRIX CONFIDENTIAL My View WHO CAN BEST HELP YOU BE SUCCESSFUL valuation

MATRIX CONFIDENTIAL Look at Experience of VC firm – Why have they been successful? Not all VCs are the same No correlation between successful operating experience – CEO or otherwise – and success in creating companies Understand VC experience beyond start-up Talk to other entrepreneurs We all need to have fair and equitable experience Long term relationship; valuation important only on day 1

MATRIX CONFIDENTIAL What we are looking for today Four Requirements must all be satisfied Previously successful product developers from companies successful in relevant space Must be first start-up entry in a market space that is just beginning and has potential to be a large market Business model must be capital efficient as terminal values will be less than late ‘90s Significant barriers to entry Execution more important than last 5-10 years; less room for error Excellence in top management is required Investing at slower rate than past decade