1. 1 Prepared for Technology Awareness Forum January 19, 2005 Nanotechnology: A Look Into the Invisible Future

2. 2 Agenda  Venture Capital Industry  Funding Environment for Nanotech Is the VC Industry Interested in Nanotech Venture Firms Investing in the Category  What Venture Capitalists Look for  Capturing the Attention of Venture Investors  Summary

3. 3 Venture Capital Industry

4. 4 Venture Capital Investments ($ in 000s) Source: Thomson Venture Economics $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 19801981198219831984 19851986198719881989199019911992199319941995199619971998 199920002001 200220032004 Est. $20.0 B ~~ $54.5 B $105.9 B

5. 5 Uninvested Venture Capital “Overhang” still Significant Source: SVB Estimates & Venture Economics $53.4 Billion

6. 6 Overhang Analysis Available Cash/Investment Rate Current Overhang / Expected Investment

7. 7 Capital Raised by Venture Funds

8. 8 Early-Stage as a % of All Venture Capital

9. 9 Venture Capital and Nanotechnology

10. 10 Deals / Companies / VC Firms 2001 - 2004

11. 11 Avg. per Deal / Company / VC Firm 2001 -2004

12. 12 Nanotech Investments by VCs 2001 - 2004

13. 13 Good News $200 Million Annually

14. 14 Not So Good News Only 1% of Venture Investments

15. 15 Federal Funding Nano R&D $116M in 1997 to $961M in 2004 An 8x Increase….

16. 16 Leading Nanotech Investors  Draper Fisher (10 deals)  Harris & Harris group (9)  Ardesta/MEMS Tech (4)  NGEN Partners (NextGen Partners) (4)  Sevin Rosen (4)  Zero Stage (4)  Alloy Ventures (3)  Arch Venture Partners (3)  CB Health Ventures (3)  Eastman Ventures (3)  Morgenthaler (3)  New Enterprise Associates (3)  SBV Venture Partners (Sigefi, Burnette & Vallee) (3)

17. 17 Top Ten > 25% of Market

18. 18 Top Ten Venture Investor vs. Industry Average

19. 19 Which Way is the Wind Blowing?  Bulk of the Investments Tools  Distant Second Optics  Close Third Bio/Pharma; Materials; and, Solar/Power

20. 20 What Venture Capitalists Look For

21. 21 1954 Vision for Home Computer

22. 22 Old User Experience

23. 23 New User Experience Top 10 Wired 40  Google  Amazon.com  Apple Computer  Genentech  eBay  Samsung Electronics  Yahoo!  Electronic Arts  Pixar  Cisco Systems

24. 24 Mini Due Diligence Process Is it “Venture Capable”  Management Relevant domain expertise Fundable  Product/Service Explicit customer need Clear and compelling value proposition (ROI)  Market Size (> $100M) and sustainable business drivers Target segment well defined  Validation Customers, customers, customers Maturity of the distribution plan  Deal Reasonable valuation and terms Raising enough money to hit meaningful milestones

25. 25 Management

26. 26 Investing In Talent Factors considered most important by investment professionals (Weighted importance out of 100*) Management Team Market Sector Business Model Proprietary Product/Service 37 24 20 19 Source: Spencer Stuart/NVCA VC-backed Leadership survey

27. 27 “As a founder, think hardest about the team. Are these the people I want to be in trouble with for the next 5, 10, 15 years of my life? Because as you build a new business, one thing’s for sure: you will get into trouble.” John Doerr, Kleiner Perkins Caufield & Byers

28. 28 Product/Service

29. 29 Sustaining vs. Disruptive Technologies  Sustaining Technology Foster improved product performance  Disruptive Technology Bring to the market a very different value proposition The Innovator’s Dilemma – Clayton Christensen

30. 30 Sustaining vs. Disruptive Technologies Sustaining Technology Improves performance along an existing utility curve A B Sustaining Technology Cost Performance

31. 31 Sustaining vs. Disruptive Technologies Disruptive Technology Moves the market to new utility curve A Disruptive Technology B Cost Performance

32. 32 Market

33. 33 Market Characteristics  Worth Winning $250 million  Sustainable Drivers Y2k  Well Defined Subsegment

34. 34 Validation

35. 35 Seeing the Future Beta Users, Customers and Distribution

36. 36 Deal

37. 37 Return Expectations 5-10x your investment or 30%+ IRR

38. 38 Sherpa Pocket Guide to Success Quick Go vs. No Go Decision (4x in 5 Years = 32% IRR)

39. 39 Summary

40. 40 “It is not the strongest of the species that survives, nor the most intelligent; it is the one that is most adaptable to change.” Charles Darwin, British Naturalist

41. 41 Sherpa Partners, LLC Sherpa Partners, LLC 5050 Lincoln Drive - Suite 490 Minneapolis, MN 55436 Rick Brimacomb www.sherpapartners.com Direct: 952-942-1074 Main: 952.942.1070 www.sherpapartners.com