Nextwave q405

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Nextwave q405

  1. 1. TM*nextwave Ideas for private equity investors and entrepreneurs in the technology industry Inside Web 2.0: The Internet subset formerly known as the Web Successfully shaping the future: MoneyTree™ FutureCentricSM companies 2005 ISSUE 4: 2005 Q4 and Full-year *connectedthinking
  2. 2. TM*nextwave Special topics 01 Web 2.0: The Internet subset formerly known as the Web ISSUE 4: 2005 07 MoneyTreeTM Report Full-year and Q4 results 23 Successfully shaping the future: MoneyTreeTM FutureCentricSM companies 2005 Quarterly features 20 Regulatory buzz: Issues regarding cheap stock and IPOs for private companies 24 Industry currents: Fast-growth CEOs take brighter outlook, but proceed with caution 26 Voice of the VC
  3. 3. Message to the readerA new year, a new beginning. So once again nextwave™ is looking to thefuture—at the evolution of technology and the companies and entrepreneursdriving that change.Our lead article, “Web 2.0: The Internet subset formerly known as the Web,”explores the next wave of Web-related development driven by the rapidconsumer adoption of broadband and high-speed wireless connectivity. Oursecond article, “Successfully shaping the future: MoneyTree™ FutureCentricSMcompanies 2005,” showcases a few of the entrepreneurial companies whoare building ideas and products that are shaping our future.Also included in this issue are the fourth-quarter and full-year results of thePricewaterhouseCoopers/National Venture Capital Association MoneyTreeTMReport; data provided by Thomson Financial. Venture capitalists matched2004 by investing $21.7 billion in 2,939 deals in 2005. See pages 7 through 18for full details.Finally, look for our regular features throughout the issue—Industry currents,Regulatory buzz, and Voice of the VC—providing brief updates, useful advice,and expert opinions on both the VC and technology industries.You have a vision. PricewaterhouseCoopers helps bring that vision to reality. Wehope you enjoy the Q4 2005 issue of nextwave™ and appreciate your commentsabout our current issue or ideas for what you’d like to see covered in futureissues. Remember to visit us on the Web at www.pwcnextwave.com.Tracy T. LefteroffGlobal Managing PartnerPrivate Equity and Venture Capitaltracy.t.lefteroff@us.pwc.com
  4. 4. Web 2.0:The Internet subset formerlyknown as the WebThere are many reasons to change “We are clearly in a new wave of media types—including text, audio,a name—from technology updates Web-related development that is and video—as well as broad Weband business model breakthroughs being driven by the rapid consumer adoption by both consumers andto participation in the Federal adoption of broadband and high- enterprises.”Witness Protection Program. In speed wireless connectivity,” observesthe case of the Web, the tweak Brad Feld, a managing director at “For us as auditors, Web 2.0 couldto Web 2.0—first suggested Mobius Venture Capital. “Google present lots of exciting opportunitiesby O’Reilly Media Inc. VP Dale did a brilliant job of teaching a huge and, hopefully, I think some of theseDougherty—is meant to suggest number of people that an acceptable companies may have a better chance user interface to the Web was simply of going public than companies inthat enough factors have changed a box on the screen that you typed other technology sectors,” notessince the late ‘90s to warrant text into and hit the search button; Danny Wallace, partner in charge ofanother look at what the Web this resulted in a resurgence of online PricewaterhouseCoopers’ Assurancemeans to commerce, applications/ advertising and ecommerce that is Venture-backed Start-up Practice inservices, and online communities. helping the premises of many pre- San Jose. “However, on the whole,Has the process of how we gain bubble entrepreneurs and investors the VCs we speak with—regardless ofaccess to the Web, interact with finally become realized. As optimism sector—expect far fewer companies toit, and deliver services evolved returns to technology entrepreneurs go public. Let’s say their expectationenough to support more profitable, and investors, we’ve seen an incredible four or five years ago was that threesustainable businesses? new wave of innovation across all or four out of ten companies in their www.pwcnextwave.com 1
  5. 5. portfolios might be going public, December 2004 co-founded Odeo— tasking 19-year-old cousin interactnow it might be one. And, they factor a creative way to record and share with the Web. “You can assemblethat into their investment strategies.” audio at no cost to the user—with subcomponents to make applications his neighbor, Noah Glass. This time, much more quickly than you used toSuch IPO estimates don’t seem to the team chose to take VC and other be able to do and that’s why you seedampen the spirit of developers, funding, which they describe with things like Google releasing a map APIsome of whom look to be acquired by a flair in the OdeoBlog as follows: and soon you have people mappingInternet companies such as Google “Leading the deal was Charles River friends, mapping packages, mappingand Yahoo!. Benchmark Capital Ventures, featuring George Zachary. In restaurants, mapping stores… It’sGeneral Partner Bill Gurley says addition to Charles River’s involvement, relatively quick to snap togetherthat this seems to be the case with we included another small firm, Amicus different data sources to createinteresting technology/features and Ventures, and a substantial group of composite applications on the Web.”tool-based companies with exits under individuals (both in number and weight)$150 million. “If you’re not sure that in the funding round: Mitch Kapor, Joe Scott Rafer, who grew up in a techwhat you’re building has the essence Kraus, Tim O’Reilly, Ron Conway, Josh products household near Boston,of a full, standalone business, there is a Kopelman, Don Hutchinson, Dave Pell, is aiming at the under-25 crowd ofhuge incentive to bootstrap or take very Mike Maples, Francesco Caio, Barbara cell phone users as the new CEOlittle money,” says Gurley. “Then, you Poggiali, Emanuele Angelidis, James of Wireless Ink. “There are all sortsown 60-70 percent of something, sell it Hong, and Ed Zschau.” of things we take for granted on thefor $20 million, and that’s real cash.” Web in terms of just being able to find Web 2.0 as environment people with the same interests wePrincipal for New Business have,” says Rafer. “And, because ofDevelopment at Google, Chris Sacca, Hallmarks of the participatory, the way mobile phone carriers haveencourages entrepreneurs to think connected Web 2.0 environment behaved there is no central index forbig: “Don’t assume we have thought include: the rapid rise of blogging— people in my area, or ways to findabout ‘X’ already. One of the most posting to or writing in Web logs— fans of the same bands and similarentertaining things for me to do is read since 2004 when people discovered information. We’re simply going tothe blogs and see how much credit that blog software wrote the HTML string a bunch of existing mobile chatfolks give us for our alleged next moves software for them; categorizing sites, à system users together with a rationalin a particular area,” wrote Sacca in la del.icio.us and Flickr, collaboratively interface so that anywhere on thehis blog. “They presume we have a using keywords referred to as “tags”; planet you can find people in yourbig honking master plan document the mainstreaming of RSS (Really city currently on their phones chattingsomewhere and have the next few Simple Syndication), which started as in this moment about a topic, or in ayears set forth step-by-step. Truth is, a way to aggregate news feeds, spread particular forum, or at this concert.”we are constantly learning. We tend to to use in job postings, commerce, andlaunch early and launch often. However, enterprise applications and will be part David Sifry, founder and CEO ofthis doesn’t mean we have it all figured of Microsoft’s upcoming new releases; Technorati, a search engine unique forout. You have a killer idea for us? Are and more engaging client functionality its focus on people and time—insteadwe missing the big picture? Can you through the browser using AJAX, of pages—considers one of the keyhelp us? Fire away. For instance, you which uses existing technology like changes of Web 2.0 over Web 1.0 toguys who have been thinking about JavaScript and XML. be evidenced by the change in theVoIP for years and years, what would metaphor for how we think about theyou do if you were Google, and how “Web 2.0 is really a user application- Web, from a library, where a referencecan you work with us to get that done?” driven revolution,” notes 27-year-old librarian can help you find the sources MBA Charles Hudson, a product you need, to an ongoing conversation.Some “serial entrepreneurs” take both manager at Iron Port Systems, San “Google understood an additionalroutes. For example, Evan Williams Bruno, California, who marvels at the dimension of the data,” explains Sifrey.sold Blogger to Google in 2003 and in difference in the way he and his multi- “They understood it was not just about2 Issue 4: 2005
  6. 6. “You cannot go into the same water twice.” Platounderstanding key words to figure out or another event, instantly. “Insteadrelevance, but [they could produce of a 24-hour news cycle, the world isbetter search results by] counting measured in megahertz,” says Sifry.hyperlinks to those pages. Google isso good because it doesn’t rely on Technorati is so good because you canalgorithms alone to feature what’s search for a topic or name and find outrelevant; it uses people to understand what’s been said about it in as little ascontext and gray areas as well.” a few seconds ago, by whom, and how many other people link to this site—Sifry’s story seems to be another which can offer a sense of authoritycharacteristic of Web 2.0: creating a for the source. The company’s modelproduct because it satisfies a personal is to generate revenue in three ways:need for interacting with the Web. Sifry, 1. advertising, 2. fees for sponsoredan avid blogger who had headed up links, and 3. syndication relationships,three previous start-ups, wanted to such as those with The Washingtonknow who was talking about him and Post, Newsweek, International Heraldbuilt Technorati over Thanksgiving in Tribune, and other big media.2002. He didn’t intend it as a business,but he explains: “It turns out there are Dean Petracca, Global Managinga whole lot of other people out there Partner of Software andwho basically felt the same way. It Internet Industry Services atjust turned out to be wildly popular.” PricewaterhouseCoopers, views theConsider the impact when on-air difference between Web 1.0 and Webnews organizations can view the buzz 2.0 as a before-and-after period inabout the story they’re broadcasting, terms of technology, its adoption, and www.pwcnextwave.com 3
  7. 7. “Web 2.0 is really a user application-driven revolution.” Charles Hudson, Iron Port Systems how the two affect business practices, product, which provides mass feed particularly when it comes to greater importing, management, and analysis cooperation among companies. to help publishers with multiple feeds better understand and engage “I see increased recognition that its audience. USA Today.com uses not only does Web 2.0 encompass FeedFoundry to manage and measure technology, content, and connectivity, RSS subscription growth for over 100 but also that companies specialize in of its magazine and columnist feeds. delivering value in each of those areas, and in many cases, acknowledgement In any environment, healthy that no one company necessarily has collaborative relationships hinge on a all the talent it needs,” says Petracca. mutually beneficial business model. “For example, valuable content that For example, Revver is a monetization could be delivered over the Web engine for video shorts being backed more often might be provided by one by Skype’s main investors—Draper, company and managed or maintained Bessemer, and DFJ. “Revver’s mission by another.” in life is to help the publishers or owners or creators of video shorts For example, Chicago-based privately make money through advertising,” says held Feedburner enables commercial Andreas Stavropoulous, managing publishers, podcasters (downloadable director, Draper Fisher Jurvetson. “So, audio file makers inspired by the they publish their video on Revver, set iPod), and bloggers to reach millions a tag with it, and no matter where it of subscribers in more than 190 appears as long as someone clicks countries using Rich Site Summary on an ad delivered somewhere when (RSS) technology. it plays you get a big piece [of the revenue]. Figuring out the business “When we started FeedBurner in 2003, model—which is making money based we saw the Web evolving from a tool either on advertising, subscriptions, for simple browsing to more intention- or transactions—in the Web 2.0 based searching to now allowing distributed or syndicated world is consumers to subscribe to any content no small task,” he adds. “It’s much and read, listen to, or watch it wherever harder to do when you’re talking about they want, when they are ready to do a world of syndication, where your so,” says Chicago-based FeedBurner content at point A gets consumed CEO, Dick Costolo. “It was clear to us at point B, which may or may not that every network-aware device would be connected, may be intermittently soon provide a mechanism to consume connected, and measured differently.” all manner of content and that the standard of distribution would be RSS. “There are many companies that We had a simple plan to be the people are taking a longer term view who help publishers navigate the and trying to build a sustainable complexities of measuring subscriber standalone business,” observes reach, maximizing subscription growth, PricewaterhouseCoopers’ Wallace. and making money from content in “It’s hard to do that on your own syndication, and that has remained and often it results in partnering up our goal.” On January 24, Feedburner with another company, particularly a announced its new FeedFoundry local company if you are considering4 Issue 4: 2005
  8. 8. venturing into emerging international hard technology. That has changed. By September 2005, Salesforce.commarkets. This is true for large and small Now, every VC firm on Sand Hill had invested $50 million to rebuild itscompanies alike. Consider Yahoo! for Road is rushing to hire someone to architecture, hardware, and two dataexample and their recent deal with run their Internet consumer practice. centers—and created an on-demandAlibaba in China, reportedly valued Because if you look over the past five operating system and platformat $4 billion. At the other end of the years, whether it’s Google or Skype called AppExchange from whichspectrum you have a company like or Shopping.com, all these deals are Salesforce.com subscribers couldMforma, a venture-backed company Internet deals. They had much bigger choose to test-drive and use businessthat provides mobile entertainment exits than other deals. I think the top applications from independentcontent to leading wireless five exits of the past seven years are vendors, including Adobe PDF,operators globally. They invested all consumer Internet: Google, eBay, Business Objects’ Crystal Reports,in and partnered with two content Yahoo!, Expedia, Amazon. Now they’re and Skype for free Voice Overdevelopment companies in China all back. What does that mean? From a Internet Provider (VoIP) conferenceto capitalize on that market’s huge supply/demand perspective it’s horrible calls. The company also created apotential. Something they could simply for investors. You went from having sandbox application for developersnot have accomplished alone. In China, four or five guys to a multiple order and customers to share and explorethere are 100 million Internet users and of magnitude—now all of a sudden applications.360 million mobile users, giving them there have been five comparisonthe highest mobile phone to Internet shopping deals funded after the first “For the vendors, getting greateruser ratio and twice as many phone three have all been sold—which is a revenues over time offers a moreusers as in the US.” bizarre thing. predictable model in terms of forecasting what those revenues mightRemember the consumer “So, I find it more of a time to be be,” says Petracca. “It also givesmarket? cautious rather than opportunistic,” companies a better way to reach the concludes Gurley. “Not because of the small business marketplace becauseNot everyone will tell you how they opportunity side, which is improving, of the user’s lower entry cost.”really feel about Internet investing quite but it’s not improving at the rate atthe way Gurley can: “Stocks are doing which the supply side of venture capital “If you go back as far as ’97-’98well, there have been some Internet has grown.” people started talking about softwareIPOs and M&A exits and companies as a service and for various reasons,are making profits—nice profits,” Beyond the browser including the bust, that theory didn’tGurley intones. Here’s the other shoe. live up to expectations as much asThe ‘I told you so’: Online platforms are very Web 2.0 it should have,” says Bill Gurley, and at the heart of supporting the general partner, Benchmark Capital.“I think the venture industry broadly application service provider (ASP) “Fast forward to today and look at theran away from consumer Internet business model. Consider bubble- success of Salesforce.com and otherswhen the bubble burst, because when survivor Salesforce.com, which was like Websense and Websidestory—the bubble burst consumer Internet designed from scratch to run over the that clearly is a business model thatwent first—it ended up being that Internet. Back in 2000 nextwave spoke Wall Street loves. The multiples aretelecom equipment was three times with Salesforce.com’s co-founder, incredibly high.”the whole consumer Internet—but chairman, and CEO, Marc Benioff,consumer Internet always had a taint and included his announcement that Like Microsoft and IBM have done withto it. Dot-com became a euphemism his pure-play sales-force automation independent software vendors, thefor bad business. And so many VCs software company planned “to offer Salesforce platform model incorporatesran away—I think there were four or a complete customer relationship selected application service vendorsfive of us that kept after consumer management environment, including more tightly into its application andInternet. They were going back to sales-force automation, customer infrastructure ecosystem in an on-our core, which was what they call support, and marketing services.” demand (or SaaS) framework. www.pwcnextwave.com 5
  9. 9. “Reaching customers was the disruptive force that drove the first Internet boom.” Tim O’Brien, MicrosoftMicrosoft plans to hold a Web for two years now,” says Costolo. and other devices; it’s about how todeveloper and designer conference “We are absolutely of the belief that make that information most relevant toin March called MIX ’06 (www.mix06. publishers have to syndicate their users. We have a clear path forward ascom) to outline the company’s current content, distribute it, and attach Microsoft embraces RSS.”and future investments in Web platform monetization mechanisms to it thattechnologies. O’Reilly Media Inc. assume it will be consumed far away Can you be too thin or too rich?President and CEO, Tim O’Reilly, who from the originating site or source. It’spublished the 16-page piece, “What is just the beginning of innovations that In the Web 2.0 environment, you’llWeb 2.0: Design Patterns and Business will offer publishers and subscribers be hearing a lot about the notion thatModels for the Next Generation of the option of becoming untethered given the rich interactivity and all theSoftware,” on his company’s Web site from proprietary systems.” bandwidth out there all you need is ain September, will have a dialogue with browser and a “thin client,” a serverBill Gates at MIX ’06. J.B. Holston, CEO of Newsgator.com, without any real software on it. an early RSS technology adopter and“Microsoft had made a number rapid innovator, says he really hopes “That’s not true,” says O’Brien. “It’s notof investments in Web tools and Microsoft’s upcoming IE 7 and Vista an either/or world. Reaching customerstechnologies long before Web 2.0 releases do speed up RSS adoption was the disruptive force that drove thestarted making these headlines,” exponentially. “MS has been a great first Internet boom,” he explains. “Now,says Tim O’Brien, group manager of ‘partner’ to us, in a ton of ways; one of user experience on the client becomesPlatform Strategy for Microsoft. “We which has been to share their roadmap the unique differentiator. Internet reachannounced enhanced tools for Web openly. We build everything we do on has become a commodity,” he asserts,development and tools for graphic Microsoft technologies and, as a result, noting the proliferation of desk bars,design at our Professional Developers’ they’ve been very open with us as we tool bars, task bars, sidebars, andConference this past September. Our build our company because it’s good other client-side pieces of technology.investments on the services side, even for them to have companies using their “Skype is a Win32 application thatthe more recent ones announced in technology do well,” says Holston, who runs on the client. The Google toolbarNovember—Windows Live and Office is no stranger to navigating corporate is an application that runs on theLive—are platform plays.” When networks. Holston started Yahoo! client. Most of what Google andInternet Explorer 7 and Windows Vista Europe, the joint venture between Yahoo! announced at the Computerroll-out this year, O’Brien says: “The Yahoo! and Ziff Davis, which he was Electronics Show was all client-sideRSS capabilities in [these products] running in Europe at the time. “If you’re technologies that run on the PC. I thinkare going to make what is a Web 2.0 a start-up, the big thing you have to it’s interesting that Salesforce wouldtechnology still in quasi-early stage do when you are potentially competing have a Microsoft Outlook edition ofof adoption available to hundreds of in Microsoft space is to just innovate their product,” he remarks, alluding tomillions of people… If you’re a VC faster than they do… The best position Salesforce.com’s long-time campaignlooking at an early-stage company who you can be in is if you’ve got a close for The End of Software.is saying, ‘I pull traffic into my site; I sell relationship with them so you canads; and I’ve got this really cool RSS know where they’re going, but you The emphasis on client experiencecapability’… If people stop visiting that still have to cycle your products much is apparent as Microsoft expands itssite because they can just subscribe to more quickly than they can. That’s our outreach from independent, high-levelwhat they need, they’ve got a business competitive advantage. We’re always software developers to include front-model issue to think through.” going to be a higher end, richer way to end graphics designers and illustrators present the most relevant text, audio, while fine-tuning its new ExpressionKeeping just the right distance ahead and video to users,” he explains. Interactive Designer and Expressionof democratization is how forward- Graphic Designer developmentlooking companies, like FeedBurner, “It’s not just a question of how to tools for Web and Windows design.must think. “FeedBurner has been aggregate, serve up, and synchronize Microsoft’s Mix ’06 conference ininnovating on ad insertion into feeds feeds over mobile phones, computers, March will address optimizing the continues on page 196 Issue 4: 2005
  10. 10. This special report, covering 2004 to 2005, provides detailed results of Q4 2005, summary findings for full-year 2005, and an additional year of trends. More detailed results, including an electronic version of this report, can be found on the MoneyTree™ Web site at www.pwcmoneytree.com. Directory Tracy T. Lefteroff Kirk Walden tracy.t.lefteroff@us.pwc.com kirk.walden@us.pwc.com Total equity investments into venture-backed companies Investments in the fourth quarter of 2005 totaled $5.1 marked the first increase in venture capital investing billion in 709 deals, down slightly from $5.4 billion in Q3 after three years of consecutive declines. Funding for 2005, but well within the range of investment levels seen later stage companies rose markedly in 2005 to $9.7 over the past 14 quarters. billion, while the number of companies getting venture capital for the first time increased to 901, continuing In 2005, venture capitalists matched 2004 by investing a steady year-over-year rise. Both measures were $21.7 billion in 2,939 deals. Full-year 2004’s $21.6 billion four-year highs. 2000 2001 2002 2003 2004 2005 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 30 29 28.078 28 27 26.312 26 27.910 25 24 23 22 22.400 21 20 19 $ in billions 18 17 16 15 14 13 11.313 12 12.970 11 10 9 8.056 8 7 8.365 5.999 6.148 6.164 4.932 5.543 5.676 5.084 6 6.699 4.435 5 4 5.105 4.988 5.445 4.565 4.342 4.768 4.706 3 2 1 0 2,085 2,083 1,912 1,729 1,274 1,218 997 967 819 840 685 713 684 723 699 759 680 826 662 798 704 784 742 709 total # of deals*connectedthinking
  11. 11. Investments by industry 2004 to 2005 The Life Sciences sector (Biotechnology and Medical Devices industries, together) inched up to a five-year high in 2005 with $6.0 billion in 608 deals compared to $5.8 billion in 589 deals in 2004. Software investments slipped 10% in 2005 to $4.7 billion in 840 deals, yet easily held its position as the largest single industry category for the year, capturing 22% of total dollars and 29% of all deals. The Networking industry continued its slide, ending at $1.4 billion in 2005, an eight-year low point. The Telecommunications industry’s Wireless subcategory has become a hot spot. For full-year 2005, 152 wireless-related companies received $1.3 billion, a 24% increase over 2004’s $1.1 billion. This increase pushed the Telecommunications category to a three- year high of $2.1 billion in 2005. 2005 2004 $ in millions 0 500 1,000 1,500 2,000 2,500 # of deals 840 4,703.6 Software 886 5,246.3 357 3,861.6 Biotechnology 340 4,147.0 247 2,129.2 Telecommunications 236 1,946.8 251 2,114.1 Medical Devices and Equipment 249 1,705.5 210 1,778.2 Semiconductors 239 2,077.8 157 1,402.1 Networking and Equipment 183 1,554.3 149 945.1 Media and Entertainment 116 900.2 130 921.1 IT Services 131 612.6 123 740.5 Industrial/Energy 131 646.6 56 643.6 Financial Services 70 435.2 89 515.4 Business Products and Services 80 461.0 59 467.5 Computers and Peripherals 69 592.7 67 436.8 Healthcare Services 68 420.6 83 387.4 Electronics/Instrumentation 65 383.0 73 362.0 Consumer Products and Services 60 297.2 43 270.5 Retailing/Distribution 40 207.4 5 1.5 Undisclosed/Other 3 1.1 2,939 21,680.0 Grand Total 2,966 21,635.3 0 500 1,000 1,500 2,000 2,500 $ in millions Definitions of the industry categories can be found on the MoneyTree™ Web site at www.pwcmoneytree.com.Data is current as of January 24, 2006. PricewaterhouseCoopers and the National Venture Capital Association have taken responsible steps to ensure that the information contained in the MoneyTree Report has been obtained from reliablesources. However, neither of the parties nor Thomson Financial can warrant the ultimate validity of the data obtained in this manner. Results are updated periodically. Therefore, all data is subject to change at any time.©2006 PricewaterhouseCoopers, LLP. All rights reserved. “PricewaterhouseCoopers” refers to the PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopersInternational Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).8 Q4 2005 MoneyTreeTM Report
  12. 12. Investments by industry Q4 2004, Q3 2005, Q4 2005 The Life Sciences sector (Biotechnology and Medical Devices industries, together) continued its dominance in Q4 2005. Investments in the sector totaled $1.7 billion or one-third of all venture capital invested during the quarter. This represents the largest portion of overall investing the sector has attracted in a single quarter. Half of the top ten industries experienced an increase in financing from the prior quarter. The Industrial/Energy, Business Products/Services, and IT Services industries experienced the largest gains in the fourth quarter, up modestly from Q3 2005. Q4 05 Q3 05 Q4 04 $ in millions 0 100 200 300 400 500 600 # of deals 95 1,068.8 Biotechnology 94 1,024.2 101 1,266.1 192 1,036.6 Software 201 1,133.7 238 1,407.5 65 613.0 Medical Devices and Equipment 69 604.0 65 445.5 62 517.1 Telecommunications 68 586.9 55 413.4 46 425.1 Semiconductors 56 531.7 71 576.1 27 210.3 IT Services 34 195.5 42 168.7 37 194.8 Media and Entertainment 37 197.5 31 294.1 29 188.8 Networking and Equipment 33 354.0 41 283.9 35 186.0 Industrial/Energy 33 154.5 37 168.7 27 133.5 Business Products and Services 24 122.0 13 31.3 14 126.7 Computers and Peripherals 12 66.1 17 93.5 20 105.2 Electronics/Instrumentation 19 96.1 15 95.4 17 102.5 Healthcare Services 16 67.5 16 97.2 18 80.2 Consumer Products and Services 18 97.6 18 97.2 12 51.3 Financial Services 13 81.7 25 164.7 11 42.7 Retailing/Distribution 14 131.8 11 72.0 2 1.5 Undisclosed/Other 1 0.0 2 0.6 709 5,084.1 Grand Total 742 5,444.7 798 5,675.7 0 100 200 300 400 500 600 $ in millions Definitions of the industry categories can be found on the MoneyTree™ Web site at www.pwcmoneytree.com.Data is current as of January 24, 2006. PricewaterhouseCoopers and the National Venture Capital Association have taken responsible steps to ensure that the information contained in the MoneyTree Report has been obtained from reliablesources. However, neither of the parties nor Thomson Financial can warrant the ultimate validity of the data obtained in this manner. Results are updated periodically. Therefore, all data is subject to change at any time.©2006 PricewaterhouseCoopers, LLP. All rights reserved. “PricewaterhouseCoopers” refers to the PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopersInternational Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US). www.pwcmoneytree.com 9
  13. 13. Investments by region 2004 to 2005 Of the ten regions garnering the largest amounts of venture capital in 2005, three experienced double-digit increases in investing over the prior year. LA/Orange County chalked up a 58% increase in investment levels from 2004, while the Midwest and NY Metro regions both attracted 17% and 12% more dollars, respectively, than in the prior year. During 2005, Silicon Valley dominated the attention of investors as 35% of all US venture capital was invested in the region. Taken together, the top three regions—Silicon Valley, New England, and NY Metro—accounted for 55% of the dollars invested and 49% of the deals reported in 2005. 2005 2004 $ in millions 0 500 1,000 1,500 2,000 # of deals 895 7,622.8 Silicon Valley 913 7,808.0 385 2,618.4 New England 395 3,074.4 164 1,690.4 NY Metro 204 1,504.7 176 1,484.0 LA/Orange County 138 937.9 202 1,215.3 Southeast 221 1,259.5 158 1,068.9 Texas 157 1,099.0 122 1,032.8 San Diego 122 1,212.3 150 913.8 Northwest 146 977.8 184 885.2 DC/Metroplex 165 961.6 144 773.5 Midwest 151 660.0 91 687.8 Philadelphia Metro 95 689.2 75 611.7 Colorado 68 413.3 79 590.3 Southwest 52 331.1 60 314.0 North Central 68 425.0 15 79.9 Sacramento/N.Cal 8 47.9 30 58.9 Upstate NY 29 106.3 5 17.0 AK/HI/PR 5 15.1 4 15.1 South Central 24 110.5 0 0.0 Other US 5 1.5 2,939 21,680.0 Grand Total 2,966 21,635.3 0 500 1,000 1,500 2,000 $ in millionsData is current as of January 24, 2006. PricewaterhouseCoopers and the National Venture Capital Association have taken responsible steps to ensure that the information contained in the MoneyTree Report has been obtained from reliablesources. However, neither of the parties nor Thomson Financial can warrant the ultimate validity of the data obtained in this manner. Results are updated periodically. Therefore, all data is subject to change at any time.©2006 PricewaterhouseCoopers, LLP. All rights reserved. “PricewaterhouseCoopers” refers to the PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopersInternational Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).10 Q4 2005 MoneyTreeTM Report
  14. 14. Investments by region Q4 2004, Q3 2005, Q4 2005 Seven of the ten largest regions in Q4 2005 recorded an increase in investing over the prior quarter. Investment levels in Texas—capturing $296 million—increased by 43% while San Diego attracted 22% more than Q3 2005. Taken together, the top three regions in Q4 2005—Silicon Valley, New England, and Texas— accounted for 55% of the dollars invested and 50% of the deals reported. Q4 05 Q3 05 Q4 04 $ in millions 0 100 200 300 400 500 # of deals 222 1,779.0 Silicon Valley 230 2,110.5 248 1,951.8 93 702.6 New England 93 622.3 109 806.1 42 295.5 Texas 37 207.0 41 271.4 37 286.5 NY Metro 43 283.2 49 265.2 34 278.2 LA/Orange County 47 360.4 40 299.4 39 270.7 Northwest 35 241.3 34 181.7 31 266.7 San Diego 36 219.2 40 351.8 40 235.3 Southeast 62 448.8 61 433.3 51 225.0 DC/Metroplex 40 209.3 46 409.3 23 178.0 Philadelphia Metro 17 164.0 20 124.7 33 176.1 Midwest 36 130.7 39 225.9 19 121.0 Southwest 19 181.8 9 83.1 17 119.7 North Central 11 59.2 17 105.3 16 115.3 Colorado 21 175.1 21 93.5 2 14.0 Sacramento/N.Cal 3 9.2 3 16.1 1 10.2 AK/HI/PR 1 3.8 2 5.6 8 8.6 Upstate NY 10 17.9 6 7.9 1 1.5 South Central 1 1.0 10 43.1 0 0.0 Other US 0 0.0 3 0.4 709 5,084.1 Grand Total 742 5,444.7 798 5,675.7 0 100 200 300 400 500 $ in millionsData is current as of January 24, 2006. PricewaterhouseCoopers and the National Venture Capital Association have taken responsible steps to ensure that the information contained in the MoneyTree Report has been obtained from reliablesources. However, neither of the parties nor Thomson Financial can warrant the ultimate validity of the data obtained in this manner. Results are updated periodically. Therefore, all data is subject to change at any time.©2006 PricewaterhouseCoopers, LLP. All rights reserved. “PricewaterhouseCoopers” refers to the PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopersInternational Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US). www.pwcmoneytree.com 11
  15. 15. Investments by state 2004 to 2005 2005 2004 $ in millions 0 250 500 750 1,000 # of deals 1,208 10,219.5 California 1,181 10,006.2 331 2,352.1 Massachusetts 348 2,811.9 158 1,068.9 Texas 157 1,099.0 124 1,042.2 New York 147 726.5 77 823.1 New Jersey 86 959.3 114 736.3 Washington 114 825.2 75 611.7 Colorado 68 413.3 56 507.5 North Carolina 315.5 53 74 469.5 Pennsylvania 560.9 91 97 442.6 Maryland 580.8 84 74 401.7 Virginia 300.1 71 55 361.2 Florida 318.1 58 60 261.7 Georgia 524.4 76 30 249.1 Utah 197.9 28 51 241.1 Illinois 223.5 52 44 227.9 Minnesota 353.5 50 29 194.0 Connecticut 180.4 32 26 148.0 Arizona 69.7 10 28 138.1 Oregon 148.7 29 31 119.3 Ohio 57.0 31 12 117.4 Missouri 31.0 11 26 112.6 New Hampshire 154.8 26 7 104.9 Nevada 39.5 6 10 95.6 Indiana 67.3 9 21 89.0 Michigan 131.8 19 16 88.4 New Mexico 24.0 8 13 77.1 Rhode Island 45.4 7 12 67.9 Wisconsin 57.1 10 23 65.6 Tennessee 80.5 23 5 35.2 Vermont 5.1 4 52 211.0 Undisclosed/Other 327.1 77 2,939 21,680.0 Grand Total 21,635.3 2,966 0 250 500 750 1,000 $ in millionsData is current as of January 24, 2006. PricewaterhouseCoopers and the National Venture Capital Association have taken responsible steps to ensure that the information contained in the MoneyTree Report has been obtained from reliablesources. However, neither of the parties nor Thomson Financial can warrant the ultimate validity of the data obtained in this manner. Results are updated periodically. Therefore, all data is subject to change at any time.©2006 PricewaterhouseCoopers, LLP. All rights reserved. “PricewaterhouseCoopers” refers to the PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopersInternational Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).12 Q4 2005 MoneyTreeTM Report

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