1. Venture Capital in the US: “A machine for business building” Mikko Suonenlahti, Partner, 3i March 22, 2004 mikko_suonenlahti@3i.com

2. Predominantly a US Phenomenon Non U.S. (28%) Massachusetts (16%) California (40%) U.S. (72%) Investments by State 100% = $21.2B Source: PWC MoneyTree Survey Global Venture Capital Market – 2002 100% = $29.4B A machine for business building Other (44%) NB. Corporate R&D in G7 countries was $442B in 1999

3. The European Perspective of Venture Capital Q3 - 2003 A machine for business building UK Germany France Sweden Other 100 % Source: Venture Source

4. U.S. venture capital activity: Total equity investments into venture-backed companies Source: PWC MoneyTree Survey, 3i A machine for business building Free market mantra: Telecom Financial Technology Advances: Internet Y2K

5. Financial Returns* A machine for business building 1 YR 5 YR20 YR S&P 500-2%-3%12% All Private Equity-7%6%14% -- Buyouts3%6%12% -- Early Stage Venture Capital-26%48%20% *As of June 30, 2003 Source: NVCA

6. The US Venture Industry A machine for business building #VC Firms Capital Under Management $’s Billion Average Capital Per Firm 1970281$35 1980873$34 199038632$82 2002892253$283 200X est.500150$300 Source: NVCA

7. Venture Capital in the US Venture funded firms account for:  12.5 million employees, 11% of US payroll  1.1 trillion in annual revenues, 11% of US GDP  More Federal taxes per $1,000 in assets than their peers – paid $58.8 billion of Federal taxes and $7.8 billion in state and local taxes  More sales per $1,000 in assets than their peers  $13.8 billion of net income, $21.7 billion of exports and invested $157.3 billion in R&D A machine for business building Source: NVCA

8. Venture Capital in Massachusetts A machine for business building 9 major Universities: MIT, Harvard, Boston University World’s highest patents per capita ratio Route 128: America’s Technology Highway 1970’s and 1980’s >30,000 hi-tech firms 41 early stage VC backed spin-offs from DEC alone 688,000 jobs in VC backed companies – 23% of Massachusetts workforce VC backed businesses generated $47B of revenues in 2002 Many serial entrepreneurs have been backed by VC’s since the 1960’s Q1 2003 investments in 77 VC deals at $655MM Winter Street, Waltham, is the world’s second largest concentration of venture capital with >$1B of investments per year Receives 60% of Defense R&D $’s Today 113 VC backed public companies with market cap > $100MM Several multibillion dollar market cap VC backed public companies – includes 3i US legacy investments Technology Hot Bed Seasoned Management Teams Availability of Financing Liquidity

9. A machine for business building Venture backed IT businesses in New England 1970 – 2000 PrimeFirst 32-bit computers. Funded by Greylock in 1974. IPO in 1974. ApolloFunded by Greylock in 1980. First computer to use integrated circuits developed at MIT. IPO in 1983 Acquired by HP in 1989 for $476MM. Data GeneralFunded by Greylock in 1980. IPO in 1983. Acquired by EMC for $1.1B in 1999. LotusAcquired by IBM in 1995 for $3.5B. DECAcquired by Compaq for $9.6B in 1998.

10. 3i US Venture Capital investments which have gone public* - a selection of 29 IPO’s:  Idec - cancer drugs, $5.6B  LSI Logic – custom semiconductors, systems on a single chip, $3.0B  Amylin Pharma – diabetes drugs, $2.1B  Dura Pharma – asthma drugs. Elan acquires for $1.7B  Medisense – diabetes monitoring systems. Abbott acquires for $0.8B  RSA Security – identity management solutions, $0.6B  Biopure – oxygen therapeutics, $0.2B  Transwitch – VLSI solutions for global communications equipment supplies, $0.1B A machine for business building *Market caps July, 2003, for 3i US legacy business investments

11. A machine for business building Venture backed IT businesses which are publicly quoted in New England in 2003* AkamaiFirst financing round of $8.2MM in 1998. Investors Battery and Polaris. IPO value $2.4B. Market cap $653MM, peaked at $18B. Analog DevicesMarket cap $12.8B. Parametric Technologies First financing round of $3.7MM in 1987. IPO value $90MM, market cap $944MM. SonusFirst financing round 1997. Investors Castile, Charles River, Matrix, Northbridge. IPO value $1.5B, market cap $1.1B. SycamoreFirst financing round of $5.5MM in 1998. Investors Matrix, Northbridge. IPO value $3.2B, market cap $1.1B. *Market caps June, 2003

12. A machine for business building

13. A Model for investing $30 - 50 Million in VC Funding 2 - 4 Financing Rounds Target $120 - 150 Million liquidity event* A machine for business building *Sweet spot of M&A market is $20-100MM in July, 2003

14. US Venture Capital - Q1 2003 A machine for business building Source: Money Tree, 3i Analysis # Deals $’s Invested Average Round Size California239$1.6 B$6.7 MM New England77$655 M$8.7 MM Other326$1.7 B$5.3 MM 642$4.0 B

15. Venture Capital in 2002* A machine for business building *Technology Only Source: NVCA, EVCA, CVCA, FVCA, 3i analysis

16. Venture Capital in 2002* A machine for business building *Technology Only Source: NVCA, EVCA, CVCA, FVCA, 3i analysis

17. Venture Capital in 2002* A machine for business building *Technology Only Source: NVCA, EVCA, CVCA, FVCA, 3i analysis

18. A machine for business building Christopher Columbus was the first to explore uncharted seas to the West – backed by venture capital – and options. A crew of 87 experienced seamen accompanied Christopher on the Nina, Pinta, and Santa Maria

19. Attitude towards risk – 14,000 venture backed companies A machine for business building 20% find a safe harbour 10% shipwrecks

20. NVCA Long Term Public Policy Agenda 1.Access to Capital and Liquidity  Tax policy favoring capital formation  Open, fair and vibrant capital markets  Increased basic R&D Funding 2.Enhanced Human Resources  Open immigration policies  Aggressive adult and youth education policies  Broad use of options for all employees A machine for business building

21. NVCA Public Policy Agenda 2003  Capital gains reduced from 20% to 15%  Oppose mandatory expensing of options, encourage transparency  Prevent payroll taxes on options  Ensure corporate governance roles (Sarbanes-Oxley), continue to allow for full VC participation in private and public companies  Work with SEC to reform IPO process  Broadband deployment  Etc. A machine for business building

22. NVCA in the 1970’s  Persuaded Congress to reduce capital gains taxes.  Removed barriers to pension fund investing in venture capital as an asset class. A machine for business building