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Are we in a tech bubble?<br />And if so, does it matter?<br />August, 2011<br />Jeff Burkland<br />© 2011 Burkland Associates. Proprietary and Confidential<br />

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Today We Want To Address Four Key Questions<br />What Are Today’s Key Drivers of Funding? Is This a Bubble?<br />What Must Companies Do to Succeed Once Funded?<br />What Is The Best Way to Get Started?<br />How Are You Taking Advantage of Plentiful Funding?<br />

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Given the amount of equity funding available, are we heading into bubble territory?<br />Or are we just coming off low lows?<br /><ul><li>$7.7 Billion Invested in 768 deals in Q2, 2011

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Tech in California leading the charge; YoY deals up 27% and dollars up 19%

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Seed funding at 5 quarter high of 12% of all deals

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Much of the investment driven by the heady valuations being oft-discussed in the media

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Facebook valued at $100 Billion, Zynga valued at $20 Billion, LinkedIn at $10 Billion, Twitter $8 Billion and Groupon at $30 Billion</li></li></ul><li>Is This Déjà Vu All Over Again?<br />Typical “Hype Cycle”; Where Are We Today?<br />Technology Trigger<br />Peak of Inflated Expectations<br />Trough of Disillusion-ment<br />Slope of Acceptance of Reality<br />Plateau of Productivity<br />Degree of Hype<br />Reality of Functionality<br />Facebook<br />the trigger?<br />Time<br />In 2000 when the hype created unfulfilled expectations disconnected with real growth in functionality, $3.6 trillion in market capitalization was wiped out by the Nasdaq<br />< 4 ><br />Adapted from Gartner Research, The Consumer e-Billing Hype Cycle, December 2000<br />

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Maybe We Are in a Bubble. Maybe We Aren’t.<br />Two Sides of the Argument<br />The Pro Argument:<br />Valuations become disconnected from the fundamentals<br />Companies’ valuations are doubling on first day of trading post-IPO<br />Companies are being funded without a product even: Color’s Nguyen said about raising $40M “we plan to wheel in wheelbarrows full of cash at the front door”<br />Me-too offerings and concepts are being funded<br />The Con Argument:<br /><ul><li>We are not at the point where the general public (non smart money, non institutional money) is piling in

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Given the functionality that is being improved upon from incumbents, perhaps they are actually undervalued:

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Netflix $13B vs Comcast $66B

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Salesforce $18B vs Oracle $153B

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The rest of the economy has not jumped on the “tech bandwagon”

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What we are seeing in the Bay in tech is disconnected from the broader economy</li></ul>< 5 ><br />

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Does it Matter?<br />© 2011 Burkland Associates. Proprietary and Confidential<br />

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< 7 ><br />What Are The Possible Paths of Tech Relative to the Economy?<br />

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In Summary<br />Up big; Down big; Likely no middle scenario <br />Not dependent on whether we are in a bubble.<br />< 8 ><br />

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What Should You Do?<br />Principles of Financing Strategy*<br /><ul><li>More cash is preferred to less cash

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Cash sooner is preferred to cash later

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Less risky cash is preferred to more risky cash

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Don’t run out of cash</li></ul>* William Sahlman, Harvard Business School, January 2007<br />< 9 ><br />

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< 10 ><br />A Real World Example: Which Option Would You Choose?<br />Managing to near term valuation is not always the right answer; raising more money sooner bought more runway which led to overall higher valuation<br />

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Today We Want To Address Four Key Questions<br />What Are Today’s Key Drivers of Funding? Is This a Bubble?<br />What Must Companies Do to Succeed Once Funded?<br />What Is The Best Way to Get Started?<br />How Are You Taking Advantage of Plentiful Funding?<br /><ul><li>Banks still aren’t lending

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Economy not showing robust signs of recovery

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Plentiful of Equity Capital is available

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Plenty of Deals Creating Own Momentum

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Earlier funding than your competitors

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More funding than your competitors

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Out-resourcing and out-spending your competitors

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Create differentiated customer value

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Streamline the organization

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Invest selectively for growth

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Don’t be a “me-too” company just playing the speed game

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Understand Full Range of Financing Options

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Pursue Highest Impact Options First

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Pay Attention to Customers, Economics, and Technologies

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Execute Flawlessly Against Milestones

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Apply Learnings</li></ul>< 11 ><br />

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< 12 ><br />Thank you for your participation today<br />Please direct questions and feedback to:<br />Jeff Burkland<br />Founder and Principal<br />Burkland Associates<br />100 E. Strawberry Drive<br />Mill Valley, 94941<br />(415) 944.8215 <br />jburkland@burklandassociates.com<br />