1. The State of Venture Capital March 2, 2002 John Gabbert Sr. Director, Worldwide Research VentureOne Corporation

2. Three Key Elements for a Robust Venture Industry  Fundraising  Investment  Liquidity

3. Fundraising

4. Venture Capital Fundraising Healthy in 2001 Commitments to Venture Capital Funds Funds Raised ($B) Source: VentureOne

5. But Momentum is Slowing Commitments to Venture Capital Funds Funds Raised ($B) Source: VentureOne

6. Fundraising Far Outpaces Investment in 2001 Fundraising vs. Amount Invested Amount Invested ($B) Source: VentureOne

7. Fundraising Summary  Commitments to venture capital were flat in 4Q01; however, 2001 fundraising was still well above the norm.  Fundraising is becoming more difficult, especially for newer or unproven funds.  Over half of VC dollars are now in funds greater than $500 M.  Greatest amount of VC money in history available to invest in entrepreneurship.

8. Investment: Overall

9. 2001: A Sharp Contrast to 2000’s Boom Equity into Venture-Backed Companies Amount Invested ($B) Number of Deals Source: VentureOne

10. Investment Levels Off at Year’s End Equity into Venture-Backed Companies Amount Invested ($B) Number of Deals Source: VentureOne

11. Median Round Size Gets a Boost in 4Q’01 Median Amount Invested Per Round Median Amount Invested ($M) Source: VentureOne

12. Positively Affecting Later-Stage Rounds Median Amount Invested by Round Class Median Amount Invested ($M) Source: VentureOne

13. Investment Shifts to Second & Later Rounds Deal Flow by Round Class % of Deals Source: VentureOne

14. IT Dominates, Healthcare Recaptures Investor Interest Equity Investment by Industry Sector % of Investment Source: VentureOne

15. IT Investment Still Falling Equity Investment in Information Technology Companies Amount Invested ($B) Number of Deals Source: VentureOne

16. Communications, Software Are Cornerstones of IT IT Investment by Sector % of Internet Investment Source: VentureOne

17. Investment: Valuations

18. 2001 Valuations Fall Below 1999 Levels Median Premoney Valuation by Year Median Premoney Valuation ($M) Source: VentureOne

19. Valuations Recover Somewhat in 4Q’01 Median Premoney Valuation Median Premoney Valuation ($M) Source: VentureOne

20. Later-Round Valuations Boost Overall Numbers Median Premoney Valuations by Round Class Median Premoney Valuation ($M) Source: VentureOne

21. Healthcare Valuations Up Significantly Median Premoney Valuations by Industry Median Premoney Valuation ($M) Source: VentureOne

22. Investment: Regions

23. Texas Edges Out Boston for #3 Spot 2001 Regional Investment in the US Source: VentureOne

24. Bay Area Investment Stabilizes Investment in Bay Area Venture-Backed Companies Amount Invested ($B) Source: VentureOne

25. Equity Financing Summary  Equity financing into venture-backed companies leveled off in 4Q’01.  Overall equity investment in 2001 was still the third highest amount on record.  Valuations and median round sizes recovered slightly at year’s end.  Early-stage venture financing has fallen more rapidly than later-stage.  The time between financing rounds is expanding.

26. Liquidity

27. M&As Continue to Slip Transactions and Amount Paid in M & As Amount Paid ($B) Source: VentureOne Number of Transactions

28. IPO Liquidity Up Marginally in 4Q01 … Deals and Amount Raised Through IPOs Amount Raised ($B) Venture-Backed IPOs Source: VentureOne

29. Liquidity Summary  The IPO and M&A markets for venture-backed companies continued their dramatic declines from the record levels of 1999 and early 2000.  IPO volume in 2001 was at its lowest in years.  The amount paid in M&A transactions declined throughout 2001, falling to the lowest level since 1995.  IPO companies in 2001 were more mature, but the time from initial funding to M&A is still falling.

30. Conclusions & Implications t The bad news: - Liquidity is extremely difficult - VCs are investing much more slowly and cautiously - Valuations are down across the board - Many VC-funded companies will fail to raise more $ t The good news: - Liquidity windows open and close - VCs do have money to invest - Expectations are much more realistic - Those companies that succeed in raising $ will have more board involvement, better resources, lower costs and less competition - Truly great companies will emerge from this period

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