1. MENLO VENTURES 1 Menlo Ventures Overview  Organized and managed nine venture funds since 1976  Raised Menlo Ventures IX, a $1.5 billion fund, in 2000  Primary focus on communications, software, and Internet related investments  Three of seven partners hold MIT degrees  Representative investments include UUNET, Ascend, Infoseek, Xros, Cyras, HoTMaiL and Clarify

2. MENLO VENTURES 2 1st round through ßeta 2nd roundBreakeven 3rd round4 Quarters of increasing profits 4th round“To infinity… and beyond” Company Building Milestones Slide show Launch party Because you can “Go acquire a real business” Mid-80’s Late-90’s

3. MENLO VENTURES 3 Early Stage Valuations – Mid-’80s  “ Scientific” valuation method:  Create pro-forma income statement  Determine IPO date  Value company at 20x trailing or 15x forward earnings  Discount IPO value to present using 50-60% IRR  Typical valuations were $2-3 million pre-money

4. MENLO VENTURES 4 Early Stage Valuations – Today  More of an art than a science  Company exit values vary widely  IRR calculations generally not appropriate  Factors considered include people, market, product, competitive position, recent acquisition and IPOs, and recent deals funded  Lead VCs look for a 15-25% ownership position

5. MENLO VENTURES 5 Seed Stage Valuations (Post-Money) Source: Horsley Bridge Partners

6. MENLO VENTURES 6 Early Stage Valuations (Post-Money) Source: Horsley Bridge Partners

7. MENLO VENTURES 7 Seed Stage Ownership Percentage Source: Horsley Bridge Partners

8. MENLO VENTURES 8 Early Stage Ownership Percentage Source: Horsley Bridge Partners

9. MENLO VENTURES 9 Lessons Learned  Menlo Ventures tracks all of its good and bad investment decisions  Leading category for bad decisions: Valuation!  40% of deals turned down because of high valuations become winners  “You can never pay too much for a great company.” (former Cisco Senior VP)