US Venture Capital – Realistic Optimism June 29, 2009

June 29, 2009

S tepOne’s US Office is In Silicon Valley… Sand Hill Road Step One Ventures Stanford University

… A nd we’ve seen the worst of it Sequoia Capital Oct 10, 2008 TheFunded.com Oct 2008

I T Services Have Been Hit as Companies Cut Back Budgets $M IT funding is highly correlated with the economy IT spending is highly scrutinized in a down economy Depressed earnings expectations from comparable companies push down valuations for startups Source: PWC MoneyTree Report US VC Funding in IT Services by Quarter

IT funding is highly correlated with the economy

IT spending is highly scrutinized in a down economy

Depressed earnings expectations from comparable companies push down valuations for startups

E ven Life Sciences Has Had Less Funding Source: PWC MoneyTree Report Bio-tech, as a sector, is more resistant to downturns Less funding = less $$ available in VC Recent large deals between public pharma and biotech companies indicate significant sector potential $M US VC Funding in Biotech and Med Devices by Quarter

Bio-tech, as a sector, is more resistant to downturns

Less funding = less $$ available in VC

Recent large deals between public pharma and biotech companies indicate significant sector potential

C leantech Remains One of the Few Bright Spots Source: Ernst & Young and Dow Jones Venture Source Cleantech is still a high growth industry; although many predicted a bubble in 2008 Latest data indicates a sharp downturn in funding (63% $ decrease YoY in Q1 2009) Solar, alternative fuels, and energy efficiency were the three largest funding categories in 2008; Battery technology led funding in Q1 2009 $M US VC Funding in Cleantech by Year

Cleantech is still a high growth industry; although many predicted a bubble in 2008

Latest data indicates a sharp downturn in funding (63% $ decrease YoY in Q1 2009)

Solar, alternative fuels, and energy efficiency were the three largest funding categories in 2008; Battery technology led funding in Q1 2009

V Cs Will Strive to Fix a Broken Investing Model

S tartups Will Try to Survive

T oday’s views Optimism remains as VCs vow to cautiously “stay the course” The US government is expected to be highly supportive of VC, especially clean-tech Important lessons from the 2001 bubble burst are being applied to today Certain verticals will remain hot (e.g., clean-tech, transaction processing, mobile applications and components)

Optimism remains as VCs vow to cautiously “stay the course”

The US government is expected to be highly supportive of VC, especially clean-tech

Important lessons from the 2001 bubble burst are being applied to today

Certain verticals will remain hot (e.g., clean-tech, transaction processing, mobile applications and components)

V C Investing in Context Remained within historical norms even with market turmoil Likely will see impact in next quarters – Q12009 VC funding was down 60% YoY from Q1 2008

Remained within historical norms even with market turmoil

Likely will see impact in next quarters – Q12009 VC funding was down 60% YoY from Q1 2008

W hy is there any optimism? “ It is reasonable to be optimistic for 2010” -Eric Schmidt, Google CEO Cisco has made 10 acquisitions in the past year Roche, Applied Bio, Schering-Plough indicate that there is still acquisition money available for Life Sciences / good companies 1930s: General Electric grew 1970s: Apple and Microsoft grew 2000s: Google grew Corporate Support History On Our Side

“ It is reasonable to be optimistic for 2010”

-Eric Schmidt, Google CEO

Cisco has made 10 acquisitions in the past year

Roche, Applied Bio, Schering-Plough indicate that there is still acquisition money available for Life Sciences / good companies

1930s: General Electric grew

1970s: Apple and Microsoft grew

2000s: Google grew

S ome investing areas to note Cleantech Energy alone is a $6 trillion market, compared to $100 billion for the Internet Obama calling for creation of 5M green jobs Energy bill likely to be passed in Obama’s first term, initiating a nation-wide cap-and-trade regime Several funds focused only on cleantech Other Attractive Areas Time and Cost reduction, (e.g. BPO, SaaS) Transaction processing / Micropayments iPhone / Mobile Applications Niche businesses

Cleantech

Energy alone is a $6 trillion market, compared to $100 billion for the Internet

Obama calling for creation of 5M green jobs

Energy bill likely to be passed in Obama’s first term, initiating a nation-wide cap-and-trade regime

Several funds focused only on cleantech

Other Attractive Areas

Time and Cost reduction, (e.g. BPO, SaaS)

Transaction processing / Micropayments

iPhone / Mobile Applications

Niche businesses

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