The document discusses the evolution of the internet from "Web 1.0" to "Web 2.0". Key aspects of Web 2.0 include increased broadband connectivity enabling new applications, more participation and sharing through blogging and social media, and an environment that allows for easier assembly of applications by combining different data sources. The transition to Web 2.0 has enabled new profitable business models and more opportunities for startups to be acquired by large internet companies.

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. 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. Message to the reader
A new year, a new beginning. So once again nextwave™ is looking to the
future—at the evolution of technology and the companies and entrepreneurs
driving 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 rapid
consumer adoption of broadband and high-speed wireless connectivity. Our
second article, “Successfully shaping the future: MoneyTree™ FutureCentricSM
companies 2005,” showcases a few of the entrepreneurial companies who
are building ideas and products that are shaping our future.
Also included in this issue are the fourth-quarter and full-year results of the
PricewaterhouseCoopers/National Venture Capital Association MoneyTreeTM
Report; data provided by Thomson Financial. Venture capitalists matched
2004 by investing $21.7 billion in 2,939 deals in 2005. See pages 7 through 18
for 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. We
hope you enjoy the Q4 2005 issue of nextwave™ and appreciate your comments
about our current issue or ideas for what you’d like to see covered in future
issues. Remember to visit us on the Web at www.pwcnextwave.com.
Tracy T. Lefteroff
Global Managing Partner
Private Equity and Venture Capital
tracy.t.lefteroff@us.pwc.com

5. Web 2.0:
The Internet subset formerly
known as the Web
There 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 Web
and business model breakthroughs being driven by the rapid consumer adoption by both consumers and
to participation in the Federal adoption of broadband and high- enterprises.”
Witness Protection Program. In speed wireless connectivity,” observes
the case of the Web, the tweak Brad Feld, a managing director at “For us as auditors, Web 2.0 could
to Web 2.0—first suggested Mobius Venture Capital. “Google present lots of exciting opportunities
by O’Reilly Media Inc. VP Dale did a brilliant job of teaching a huge and, hopefully, I think some of these
Dougherty—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 in
that enough factors have changed
a box on the screen that you typed other technology sectors,” notes
since the late ‘90s to warrant
text into and hit the search button; Danny Wallace, partner in charge of
another look at what the Web this resulted in a resurgence of online PricewaterhouseCoopers’ Assurance
means to commerce, applications/ advertising and ecommerce that is Venture-backed Start-up Practice in
services, 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 of
access to the Web, interact with finally become realized. As optimism sector—expect far fewer companies to
it, and deliver services evolved returns to technology entrepreneurs go public. Let’s say their expectation
enough to support more profitable, and investors, we’ve seen an incredible four or five years ago was that three
sustainable businesses? new wave of innovation across all or four out of ten companies in their
www.pwcnextwave.com 1

6. portfolios might be going public, December 2004 co-founded Odeo— tasking 19-year-old cousin interact
now it might be one. And, they factor a creative way to record and share with the Web. “You can assemble
that 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 to
Such IPO estimates don’t seem to the team chose to take VC and other be able to do and that’s why you see
dampen the spirit of developers, funding, which they describe with things like Google releasing a map API
some of whom look to be acquired by a flair in the OdeoBlog as follows: and soon you have people mapping
Internet companies such as Google “Leading the deal was Charles River friends, mapping packages, mapping
and Yahoo!. Benchmark Capital Ventures, featuring George Zachary. In restaurants, mapping stores… It’s
General Partner Bill Gurley says addition to Charles River’s involvement, relatively quick to snap together
that this seems to be the case with we included another small firm, Amicus different data sources to create
interesting 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 tech
what 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 of
huge incentive to bootstrap or take very Mike Maples, Francesco Caio, Barbara cell phone users as the new CEO
little money,” says Gurley. “Then, you Poggiali, Emanuele Angelidis, James of Wireless Ink. “There are all sorts
own 60-70 percent of something, sell it Hong, and Ed Zschau.” of things we take for granted on the
for $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 we
Principal for New Business have,” says Rafer. “And, because of
Development at Google, Chris Sacca, Hallmarks of the participatory, the way mobile phone carriers have
encourages entrepreneurs to think connected Web 2.0 environment behaved there is no central index for
big: “Don’t assume we have thought include: the rapid rise of blogging— people in my area, or ways to find
about ‘X’ already. One of the most posting to or writing in Web logs— fans of the same bands and similar
entertaining things for me to do is read since 2004 when people discovered information. We’re simply going to
the blogs and see how much credit that blog software wrote the HTML string a bunch of existing mobile chat
folks give us for our alleged next moves software for them; categorizing sites, à system users together with a rational
in a particular area,” wrote Sacca in la del.icio.us and Flickr, collaboratively interface so that anywhere on the
his blog. “They presume we have a using keywords referred to as “tags”; planet you can find people in your
big honking master plan document the mainstreaming of RSS (Really city currently on their phones chatting
somewhere and have the next few Simple Syndication), which started as in this moment about a topic, or in a
years 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, and
launch early and launch often. However, enterprise applications and will be part David Sifry, founder and CEO of
this doesn’t mean we have it all figured of Microsoft’s upcoming new releases; Technorati, a search engine unique for
out. You have a killer idea for us? Are and more engaging client functionality its focus on people and time—instead
we missing the big picture? Can you through the browser using AJAX, of pages—considers one of the key
help us? Fire away. For instance, you which uses existing technology like changes of Web 2.0 over Web 1.0 to
guys who have been thinking about JavaScript and XML. be evidenced by the change in the
VoIP for years and years, what would metaphor for how we think about the
you do if you were Google, and how “Web 2.0 is really a user application- Web, from a library, where a reference
can 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 additional
routes. 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 about
2 Issue 4: 2005

7. “You cannot go into the same water twice.”
Plato
understanding key words to figure out or another event, instantly. “Instead
relevance, but [they could produce of a 24-hour news cycle, the world is
better search results by] counting measured in megahertz,” says Sifry.
hyperlinks to those pages. Google is
so good because it doesn’t rely on Technorati is so good because you can
algorithms alone to feature what’s search for a topic or name and find out
relevant; it uses people to understand what’s been said about it in as little as
context 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 authority
characteristic of Web 2.0: creating a for the source. The company’s model
product because it satisfies a personal is to generate revenue in three ways:
need for interacting with the Web. Sifry, 1. advertising, 2. fees for sponsored
an avid blogger who had headed up links, and 3. syndication relationships,
three previous start-ups, wanted to such as those with The Washington
know who was talking about him and Post, Newsweek, International Herald
built 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 Managing
a whole lot of other people out there Partner of Software and
who basically felt the same way. It Internet Industry Services at
just turned out to be wildly popular.” PricewaterhouseCoopers, views the
Consider the impact when on-air difference between Web 1.0 and Web
news organizations can view the buzz 2.0 as a before-and-after period in
about the story they’re broadcasting, terms of technology, its adoption, and
www.pwcnextwave.com 3

8. “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 considering
4 Issue 4: 2005

9. venturing into emerging international hard technology. That has changed. By September 2005, Salesforce.com
markets. This is true for large and small Now, every VC firm on Sand Hill had invested $50 million to rebuild its
companies alike. Consider Yahoo! for Road is rushing to hire someone to architecture, hardware, and two data
example and their recent deal with run their Internet consumer practice. centers—and created an on-demand
Alibaba in China, reportedly valued Because if you look over the past five operating system and platform
at $4 billion. At the other end of the years, whether it’s Google or Skype called AppExchange from which
spectrum you have a company like or Shopping.com, all these deals are Salesforce.com subscribers could
Mforma, a venture-backed company Internet deals. They had much bigger choose to test-drive and use business
that provides mobile entertainment exits than other deals. I think the top applications from independent
content 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 Over
development companies in China all back. What does that mean? From a Internet Provider (VoIP) conference
to capitalize on that market’s huge supply/demand perspective it’s horrible calls. The company also created a
potential. Something they could simply for investors. You went from having sandbox application for developers
not have accomplished alone. In China, four or five guys to a multiple order and customers to share and explore
there are 100 million Internet users and of magnitude—now all of a sudden applications.
360 million mobile users, giving them there have been five comparison
the highest mobile phone to Internet shopping deals funded after the first “For the vendors, getting greater
user ratio and twice as many phone three have all been sold—which is a revenues over time offers a more
users as in the US.” bizarre thing. predictable model in terms of
forecasting what those revenues might
Remember the consumer “So, I find it more of a time to be be,” says Petracca. “It also gives
market? cautious rather than opportunistic,” companies a better way to reach the
concludes Gurley. “Not because of the small business marketplace because
Not 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 at
the way Gurley can: “Stocks are doing which the supply side of venture capital “If you go back as far as ’97-’98
well, there have been some Internet has grown.” people started talking about software
IPOs 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’t
Gurley intones. Here’s the other shoe. live up to expectations as much as
The ‘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 the
ran away from consumer Internet business model. Consider bubble- success of Salesforce.com and others
when 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 that
went first—it ended up being that Internet. Back in 2000 nextwave spoke Wall Street loves. The multiples are
telecom 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 with
to it. Dot-com became a euphemism his pure-play sales-force automation independent software vendors, the
for bad business. And so many VCs software company planned “to offer Salesforce platform model incorporates
ran away—I think there were four or a complete customer relationship selected application service vendors
five of us that kept after consumer management environment, including more tightly into its application and
Internet. 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

10. “Reaching customers was the disruptive
force that drove the first Internet boom.”
Tim O’Brien, Microsoft
Microsoft plans to hold a Web for two years now,” says Costolo. and other devices; it’s about how to
developer and designer conference “We are absolutely of the belief that make that information most relevant to
in March called MIX ’06 (www.mix06. publishers have to syndicate their users. We have a clear path forward as
com) to outline the company’s current content, distribute it, and attach Microsoft embraces RSS.”
and future investments in Web platform monetization mechanisms to it that
technologies. 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’s
published the 16-page piece, “What is just the beginning of innovations that In the Web 2.0 environment, you’ll
Web 2.0: Design Patterns and Business will offer publishers and subscribers be hearing a lot about the notion that
Models for the Next Generation of the option of becoming untethered given the rich interactivity and all the
Software,” on his company’s Web site from proprietary systems.” bandwidth out there all you need is a
in September, will have a dialogue with browser and a “thin client,” a server
Bill 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 not
of investments in Web tools and Microsoft’s upcoming IE 7 and Vista an either/or world. Reaching customers
technologies long before Web 2.0 releases do speed up RSS adoption was the disruptive force that drove the
started 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 becomes
Platform Strategy for Microsoft. “We which has been to share their roadmap the unique differentiator. Internet reach
announced 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, and
Conference 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 that
the more recent ones announced in technology do well,” says Holston, who runs on the client. The Google toolbar
November—Windows Live and Office is no stranger to navigating corporate is an application that runs on the
Live—are platform plays.” When networks. Holston started Yahoo! client. Most of what Google and
Internet Explorer 7 and Windows Vista Europe, the joint venture between Yahoo! announced at the Computer
roll-out this year, O’Brien says: “The Yahoo! and Ziff Davis, which he was Electronics Show was all client-side
RSS capabilities in [these products] running in Europe at the time. “If you’re technologies that run on the PC. I think
are going to make what is a Web 2.0 a start-up, the big thing you have to it’s interesting that Salesforce would
technology still in quasi-early stage do when you are potentially competing have a Microsoft Outlook edition of
of adoption available to hundreds of in Microsoft space is to just innovate their product,” he remarks, alluding to
millions of people… If you’re a VC faster than they do… The best position Salesforce.com’s long-time campaign
looking 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 can
ads; and I’ve got this really cool RSS know where they’re going, but you The emphasis on client experience
capability’… If people stop visiting that still have to cycle your products much is apparent as Microsoft expands its
site because they can just subscribe to more quickly than they can. That’s our outreach from independent, high-level
what 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 Expression
Keeping just the right distance ahead and video to users,” he explains. Interactive Designer and Expression
of democratization is how forward- Graphic Designer development
looking 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 in
innovating on ad insertion into feeds feeds over mobile phones, computers, March will address optimizing the
continues on page 19
6 Issue 4: 2005

11. 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

12. 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 reliable
sources. 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 PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).
8 Q4 2005 MoneyTreeTM Report

13. 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 reliable
sources. 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 PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).
www.pwcmoneytree.com 9

14. 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 millions
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 reliable
sources. 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 PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).
10 Q4 2005 MoneyTreeTM Report

15. 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 millions
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 reliable
sources. 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 PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).
www.pwcmoneytree.com 11

16. 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 millions
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 reliable
sources. 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 PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).
12 Q4 2005 MoneyTreeTM Report

17. Investments by state
Q4 2004, Q3 2005, Q4 2005
Q4 05
Q3 05
Q4 04
$ in millions
0 100 200 300 400
# of
deals
289 2,337.9
California 316 2,699.3
331 2,619.1
86 660.7
Massachusetts 76 532.7
98 753.2
42 295.5
Texas 37 207.0
41 271.4
31 236.6
Washington 25 179.0
28 162.3
32 190.7
New York 33 141.6
36 134.6
30 154.5
Maryland 23 125.8
24 283.0
17 121.8
Pennsylvania 14 96.9
17 123.9
16 115.3
Colorado 21 175.1
21 93.5
16 109.9
New Jersey 20 191.8
16 110.0
11 91.2
North Carolina 18 175.4
14 111.7
9 66.8
Illinois 13 28.4
13 78.9
7 60.9
New Mexico 3 13.3
3 11.0
17 56.2
Virginia 15 81.9
18 83.1
12 56.0
Georgia 15 100.8
18 166.6
10 55.8
Florida 21 159.7
15 100.7
9 55.0
Minnesota 7 49.5
10 75.0
6 52.6
Wisconsin 3 9.7
4 24.8
5 51.1
Connecticut 8 59.9
8 47.9
5 42.9
Missouri 3 26.4
5 5.4
5 39.7
New Hampshire 9 37.3
7 32.9
8 39.5
Michigan 4 15.2
7 81.8
6 28.1
Oregon 8 39.3
6 19.4
5 26.0
Utah 6 30.1
4 49.6
4 23.5
Tennessee 6 9.4
6 35.5
4 23.2
Arizona 7 51.3
0 0.0
1 14.0
Delaware 2 4.7
0 0.0
2 12.8
Washington, DC 2 1.6
2 38.0
2 12.1
Iowa 1 0.0
2 5.4
6 12.0
Ohio 7 9.4
9 16.0
3 11.0
Nevada 3 87.1
2 22.5
13 30.8
Undisclosed/Other 16 105.3
33 118.7
709 5,084.1
Total 742 5,444.7
798 5,675.7
0 100 200 300 400
$ in millions
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 reliable
sources. 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 PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).
www.pwcmoneytree.com 13

18. Investments by stage of development
For full-year 2005, Later stage funding rose 22% to $9.7 billion in 952 deals compared to $8.0 billion in 2004.
More notably, Later stage accounted for 45% of all venture capital dollars, the highest proportion in the 11-
year history of MoneyTree research. The continuing shift toward Later stage investing over the past five years
reflects venture capitalists ongoing support of existing portfolio companies via additional follow-on rounds.
Funding for Start-Up and Early stage companies slipped only slightly to $4.1 billion in 922 deals compared to
$4.4 billion in 2004, indicating sustained interest in longer term investment horizons.
As activity remained focused on opposite ends of the barbell, investing in Expansion stage companies fell to its
lowest point in nine years: $7.8 billion in 1,065 deals. In 2004, 1,195 Expansion stage deals amounted $9.3 billion.
2004 to 2005
2005
2004
$ in millions
0 1,000 2,000 3,000 4,000 5,000
# of
deals
175 735.9
Startup/Seed
185 406.6
747 3,396.2
Early Stage
853 3,986.7
1,065 7,821.0
Expansion
1,195 9,257.0
952 9,727.0
Later Stage
733 7,985.0
2,939 21,680.0
Grand Total
2,966 21,635.3
0 1,000 2,000 3,000 4,000 5,000
$ in millions
Q4 2004, Q3 2005, Q4 2005
Q4 05
Q3 05
Q4 04
$ in millions
0 500 1,000 1,500
# of
deals
42 75.1
Startup/Seed 49 98.2
47 120.7
174 882.4
Early Stage 178 938.4
221 1,070.6
254 1,837.3
Expansion 252 1,709.8
301 2,177.4
239 2,289.2
Later Stage 263 2,698.3
229 2,307.0
709 5,084.1
Grand Total 742 5,444.7
798 5,675.7
0 500 1,000 1,500
$ in millions
Definitions of the stage of development 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 reliable
sources. 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 PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).
14 Q4 2005 MoneyTreeTM Report

19. Investments by sequence of financing
New investments by venture capitalists hit a four-year high with 901 companies receiving their first round of
institutional venture capital for a total of $5.3 billion in 2005. Last year, 865 companies attracted $4.6 billion.
The increase reflects venture capital firms’ appetite for fresh ideas to balance existing investments.
A total of 236 companies received financing for the first time in Q4 2005, down slightly from 225 companies
during Q3, with the amount invested practically unchanged at $1.2 billion.
2004 to 2005
2005
2004
$ in millions
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
# of
deals
901 5,283.2
First
865 4,608.5
1,021 7,715.0
Second &
Third
1,015 7,897.8
740 6,535.7
Fourth, Fifth,
& Sixth
835 7,565.6
277 2,146.1
Seventh &
Beyond
251 1,563.4
2,939 21,680.0
Total
2,966 21,635.3
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
$ in millions
Q4 2004, Q3 2005, Q4 2005
Q4 05
Q3 05
Q4 04
$ in millions
0 500 1,000 1,500
# of
deals
236 1,193.6
First
225 1,218.8
236 1,207.0
230 1,913.5
Second & 260 1,915.0
Third 254 2,056.9
169 1,418.3
Fourth, Fifth, 186 1,615.0
& Sixth
234 1,967.8
74 558.6
Seventh 71 695.9
& Beyond
74 444.0
709 5,084.1
Total 742 5,444.7
798 5,675.7
0 500 1,000 1,500
$ in millions
Definitions of the sequence of financing 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 reliable
sources. 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 PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).
www.pwcmoneytree.com 15

20. Full-year 2005 most active venture investors
The most active venture investors in the US closed 16 or more deals each during 2005. Of the more than
8,600 transactions reported in 2005, the most active firms accounted for 2,762, approximately 32% of
the total. The top 10 firms accounted for about 7% of the deals completed during the year. Draper Fisher
Jurvetson topped the 2005 list with a total of 80 deals made during the year. New Enterprise Associates came
in next with 73 deals. U.S. Venture Partners, Venrock Associates, Polaris Venture Partners and Sequoia Capital
were also at the top of the list, reporting more than 49 deals each in 2005.
# of # of
Investor Location Deals Investor Location Deals
Draper Fisher Jurvetson Menlo Park, CA 80 MD Technology Development Corporation Columbia, MD 24
New Enterprise Associates Baltimore, MD 73 General Catalyst Partners Cambridge, MA 24
U.S. Venture Partners Menlo Park, CA 71 Palomar Ventures Santa Monica, CA 24
Venrock Associates New York, NY 59 Prospect Venture Partners Palo Alto, CA 24
Sequoia Capital Menlo Park, CA 49 Motorola Ventures Schaumburg, IL 24
Polaris Venture Partners Waltham, MA 49 Oxford Bioscience Partners Boston, MA 24
Kleiner Perkins Caufield & Byers Menlo Park, CA 48 Walden International San Francisco, CA 24
Intel Capital Santa Clara, CA 47 Mohr Davidow Ventures Menlo Park, CA 24
Accel Partners Palo Alto, CA 46 Sigma Partners Menlo Park, CA 23
Morgenthaler Ventures Menlo Park, CA 45 EnerTech Capital Wayne, PA 23
TL Ventures Wayne, PA 43 Pequot Capital Management Westport, CT 23
Mayfield Fund Menlo Park, CA 42 Norwest Venture Partners Palo Alto, CA 22
Village Ventures Williamstown, MA 42 SV Life Sciences Advisers Boston, MA 22
Domain Associates Princeton, NJ 42 Ignition Partners Bellevue, WA 22
InterWest Partners Menlo Park, CA 40 Rho Ventures New York, NY 22
North Bridge Venture Partners Waltham, MA 40 Bay Partners Cupertino, CA 21
Menlo Ventures Menlo Park, CA 39 CMEA Ventures San Francisco, CA 21
Canaan Partners Rowayton, CT 38 St. Paul Venture Capital Eden Prairie, MN 21
Sevin Rosen Funds Dallas, TX 38 Alloy Ventures Palo Alto, CA 21
Benchmark Capital Menlo Park, CA 37 VantagePoint Venture Partners San Bruno, CA 21
Redpoint Ventures Menlo Park, CA 37 J.P. Morgan Partners New York, NY 21
Oak Investment Partners Westport, CT 36 Labrador Ventures Palo Alto, CA 21
Austin Ventures, L.P. Austin, TX 35 Blue Chip Venture Company Cincinnati, OH 21
MPM Capital Boston, MA 35 Goldman, Sachs & Co. New York, NY 20
Enterprise Partners Venture Capital La Jolla, CA 35 Solstice Capital Boston, MA 20
Bessemer Venture Partners Larchmont, NY 34 Intersouth Partners Durham, NC 20
ComVentures Palo Alto, CA 34 Sierra Ventures Menlo Park, CA 20
Greylock Waltham, MA 34 Warburg Pincus New York, NY 19
Highland Capital Partners Lexington, MA 34 Lightspeed Venture Partners Menlo Park, CA 19
Frazier Healthcare and Technology Ventures Seattle, WA 32 Globespan Capital Partners Boston, MA 19
Mobius Venture Capital Palo Alto, CA 32 Matrix Partners Waltham, MA 19
Sutter Hill Ventures Palo Alto, CA 31 Columbia Capital Alexandria, VA 19
Three Arch Partners Portola Valley, CA 31 Wasatch Venture Fund Salt Lake City, UT 19
ARCH Venture Partners Chicago, IL 29 Prism Venture Partners Westwood, MA 19
Atlas Venture, Ltd. Waltham, MA 29 The Venture Capital Fund of New England Wellesley, MA 18
3i (US) Waltham, MA 29 El Dorado Ventures Menlo Park, CA 18
MD Dept. of Business & Economic Development Baltimore, MD 29 River Cities Capital Funds Cincinnati, OH 18
Battery Ventures Wellesley, MA 29 Delphi Ventures Menlo Park, CA 17
Advanced Technology Ventures Waltham, MA 27 Kodiak Venture Partners Waltham, MA 17
BA Venture Partners Foster City, CA 27 Storm Ventures Menlo Park, CA 17
Foundation Capital Menlo Park, CA 27 Bain Capital Boston, MA 17
Alta Partners San Francisco, CA 27 Trident Capital Palo Alto, CA 17
Sanderling Ventures San Mateo, CA 27 Noro-Moseley Partners Atlanta, GA 17
Flagship Ventures Cambridge, MA 25 Centennial Ventures Denver, CO 16
Novak Biddle Venture Partners Bethesda, MD 25 De Novo Ventures Menlo Park, CA 16
Versant Ventures Menlo Park, CA 25 Rustic Canyon Partners Santa Monica, CA 16
DCM - Doll Capital Management Menlo Park, CA 25 Band of Angels Menlo Park, CA 16
Charles River Ventures Waltham, MA 24
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 reliable
sources. 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 PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).
16 Q4 2005 MoneyTreeTM Report

21. Q4 2005 most active venture investors
The most active venture investors in the US closed five or more deals each in Q4 2005. Of the more than
2,090 transactions reported in Q4 2005, the most active firms accounted for 639, approximately 31% of
the total. The top 10 firms accounted for 8% of the deals completed in the quarter. Draper Fisher Jurvetson
topped the list with a total of 22 deals, while New Enterprise Associates came in next with 18 deals. Venrock
Associates and Polaris Venture Partners were also at the top of the Q4 2005 list, reporting 15 or more deals
each during the quarter.
# of # of
Investor Location Deals Investor Location Deals
Draper Fisher Jurvetson Menlo Park, CA 22 Accel Partners Palo Alto, CA 7
New Enterprise Associates Baltimore, MD 18 Domain Associates Princeton, NJ 7
Venrock Associates New York, NY 17 Morgenthaler Ventures Menlo Park, CA 7
Polaris Venture Partners Waltham, MA 15 Mohr Davidow Ventures Menlo Park, CA 7
Menlo Ventures Menlo Park, CA 14 Greylock Waltham, MA 7
U.S. Venture Partners Menlo Park, CA 14 Advanced Technology Ventures Waltham, MA 6
Intel Capital Santa Clara, CA 14 Battery Ventures, L.P. Wellesley, MA 6
TL Ventures Wayne, PA 14 Oak Investment Partners Westport, CT 6
Kleiner Perkins Caufield & Byers Menlo Park, CA 12 CMEA Ventures San Francisco, CA 6
Sequoia Capital Menlo Park, CA 12 Intersouth Partners Durham, NC 6
MD Dept. of Business & Economic Development Baltimore, MD 12 MD Technology Development Corporation Columbia, MD 6
InterWest Partners Menlo Park, CA 11 Storm Ventures Menlo Park, CA 6
Mayfield Fund Menlo Park, CA 11 Stonehenge Capital Company Baton Rouge, LA 6
Village Ventures Williamstown, MA 11 Azure Capital Partners San Francisco, CA 6
Redpoint Ventures Menlo Park, CA 11 General Catalyst Partners Cambridge, MA 6
MPM Capital Boston, MA 11 Alloy Ventures Palo Alto, CA 6
Sevin Rosen Funds Dallas, TX 11 Pequot Capital Management Westport, CT 6
Atlas Venture Waltham, MA 10 Prospect Venture Partners Palo Alto, CA 6
3i (US) Waltham, MA 10 Mobius Venture Capital Palo Alto, CA 6
North Bridge Venture Partners Waltham, MA 10 August Capital Management Menlo Park, CA 6
Frazier Healthcare and Technology Ventures Seattle, WA 10 Labrador Ventures Palo Alto, CA 6
Austin Ventures Austin, TX 10 Motorola Ventures Schaumburg, IL 6
BA Venture Partners Foster City, CA 9 Oxford Bioscience Partners Boston, MA 6
Canaan Partners Rowayton, CT 9 Warburg Pincus New York, NY 6
De Novo Ventures Menlo Park, CA 9 Goldman, Sachs & Co. New York, NY 5
Alta Partners San Francisco, CA 9 Rho Ventures New York, NY 5
Three Arch Partners Portola Valley, CA 9 Sierra Ventures Menlo Park, CA 5
Bessemer Venture Partners Larchmont, NY 8 Paladin Capital Management Washington, DC 5
Flagship Ventures Cambridge, MA 8 Ignition Partners Bellevue, WA 5
Tech Coast Angels Laguna Hills, CA 8 Sherbrooke Capital Partners Newton Lower Falls, MA 5
Sutter Hill Ventures Palo Alto, CA 8 ProQuest Investments Princeton, NJ 5
VantagePoint Venture Partners San Bruno, CA 8 IDG Ventures Boston Boston, MA 5
Walden International San Francisco, CA 8 RRE Ventures LLC New York, NY 5
ARCH Venture Partners Chicago, IL 7 Advantage Capital Partners New Orleans, LA 5
ComVentures Palo Alto, CA 7 Foundation Capital Menlo Park, CA 5
Bay Partners Cupertino, CA 7 Trident Capital Palo Alto, CA 5
Palomar Ventures Santa Monica, CA 7 Vanguard Ventures Palo Alto, CA 5
EnerTech Capital Wayne, PA 7 Trinity Ventures Menlo Park, CA 5
River Cities Capital Funds Cincinnati, OH 7 Highland Capital Partners Lexington, MA 5
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 reliable
sources. 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 PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).
www.pwcmoneytree.com 17

22. Funds raised by venture capital firms
Q1 2003 to Q4 2005
A healthy fundraising climate in the fourth quarter of 2005 capped off the most active year for venture capital
commitments since 2001, according to Thomson Venture Economics and the National Venture Capital
Association. In the fourth quarter, 51 venture funds raised $6.7 billion. The entire year saw 183 funds raise
$25.2 billion, the highest yearly total for venture capital firms since 2001 when 309 funds raised $38 billion.
2003 2004 2005
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
8,000
7,304.5
6,449.3 6,710.1
6,400
5,719.7
5,366.5
5,808.7
5,387.9
4,800
$ in millions
3,200 2,724.9
3,352.3
3,094.6
1,600 2,018.6
1,216.7
0
45 46 34 60 55 57 60 66 59 56 57 51
total # of deals
Source: Thomson Financial Venture Economics/National Venture Capital Association
Note: The figures take into account the subtractive effect of downsized funds.
Disclaimer: Data is current as of February 3, 2006. Data is continuously updated and is therefore subject to change.
Copyright 2006 Thomson Financial. All Rights Reserved.
Venture-backed initial public offerings
Q1 2003 to Q4 2005
Seventeen venture-backed companies raised $1.6 billion through Initial Public Offerings (IPOs) in the fourth
quarter of 2005. The fourth quarter IPO activity mirrored full-year 2005 which was characterized by a
significantly weak IPO market. For the full-year 2005, 56 venture-backed IPOs raised a total of $4.5 billion,
representing a 40% decline in volume from 2004.
2003 2004 2005
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
4000
3,225.6
2,990.4
2,721.1
3000
$ in millions
2000
2,077.8 1,458.1
1,568.1
1000
1,048.7
164.0 732.8 720.7 714.1
77.2
0
1 2 9 17 13 29 24 27 10 10 19 17
# of companies that went public
Source: Thomson Financial Venture Economics/National Venture Capital Association
Disclaimer: Data is current as of January 3, 2006. Data is continuously updated and is therefore subject to change.
Copyright 2006 Thomson Financial. All Rights Reserved.
BS-BS-06-0443-A.02/06.LMT
18 Q4 2005 MoneyTreeTM Report

23. user experience using both the refreshed and repainted like the clunky nextwave feature contributor, Janice K. Mandel,
browser and the rich client software. old Web mail products,” says Ciesinski. is an independent writer specializing in
fast-growth businesses and the people who
DFJ’s Stavropoulous, who notes “In this environment, the whole page make them run. She can be reached at
that Google is “clearly going after metaphor is irrelevant. There’s no back mandel.schneider@erols.com.
the desktop” isn’t convinced about button. Everything is drop and drag. It’s
Microsoft’s mixed approach for a full application and it happens to live Directory
optimizing the user experience. “There on the Web.” STEVE CIESINSKI
steve@ciesinski.com
are solutions that are blurring the line DICK COSTOLO
between what’s the desktop, what’s Pandora, a recently launched Web 2.0 dickc@feedburner.com
the ‘Net and what’s in-between,” he company, which owns a proprietary BRAD FELD
says. “As networks become faster database of music categorized brad@feld.com
and technologies develop that are by professional musicians, used BILL GURLEY
bgurley@benchmark.com
able to push things on the edge OpenLaszlo to quickly build its zero- J.B. HOLSTON
even with intermittent or nonexistent install music discovery service. jbh@newsgator.com
connections, it makes the rich client/ Pandora CTO, Tom Conrad, tips his hat CHARLES HUDSON
thin client debate irrelevant.” to OpenLaszlo saying: “We considered charles@charleshudson.net
everything you can imagine: plain old TIM O’BRIEN
tim.obrien@microsoft.com
Open source and Web 2.0 HTML, AJAX, Flex… In the end, Laszlo DEAN PETRACCA
was the clear winner on all fronts— dean.petracca@us.pwc.com
No discussion of Web 2.0’s community- mature, reliable, and the perfect tool SCOTT RAFER
oriented character should end without for the job. The outcome was only rafer@rafer.net
touching on open source innovations. remarkable in that the decision was CHRIS SACCA
csacca@gmail.com
made by some of the most capable DAVID SIFRY
In 2000 Laszlo Systems started up AJAX developers on the planet.” dsifry@technorati.com
as a pioneer of next-generation Web ANDREAS STAVROPOULOUS
application user interface technology, “Overall,” concludes Petracca, “I think andreas@dfj.com
sold as proprietary server software. we’re seeing a more stable, positive DANNY WALLACE
danny.wallace@us.pwc.com
“In 2004, as the next generation business environment in which young
of the Web approached rapidly, it companies have more latitude to
became clear that the best way for us develop the fundamentals without the
to maintain our market leadership in same degree of pressure to create
competition with much larger entrants incredible shareholder value overnight.”
was to go open source, harnessing
the talent and enthusiasm of a global “Everything’s cyclical, right?” Gurley
community of developers,” says laughs. “The time to do killer Internet
CEO Steve Ciesinski, who joined the investing was when no one wanted to.”
company in March of that year. Since
the company went open source with
OpenLaszlo in October 2004, it has
had over 120,000 downloads of its
Web 2.0 building blocks technology.
Laszlo has adopted its own platform
to build Laszlo mail, a rich Web mail
and contact application, the latter a
centerpiece of the vision the company
has around an integrated “digital life”
communications suite. “Every time
you click you won’t get a new page,
www.pwcnextwave.com 19

24. Issues regarding cheap
Q4 2005
Regulatory buzz
stock and IPOs for
private companies
Nonpublic companies are continually challenged to requirements of FAS 123(R). The offering price at
determine the fair value of their enterprises. Some the time of the IPO is $10 higher than the option’s
nonpublic companies have the benefit of arm’s exercise price on the grant date. If in the six-month
length cash transactions with third parties, which period preceding the IPO there was no discrete
provide evidence of fair value. Many nonpublic event that increased the fair value of the underlying
companies, however, have not consummated such stock, the SEC will presume that the option was a
transactions and thus do not have such evidence cheap-stock grant. This means that, in effect, the
of fair value. This becomes particularly important company issued an in-the-money stock option,
when a nonpublic company plans to go public. Many with the underlying stock’s fair value exceeding the
issues may surface when a company fails to correctly option’s exercise price on the grant date. In this case,
determine the fair value of its equity securities that the company would have to rerun its option-pricing
can lead to SEC staff inquiries about the company’s model and record a “cheap stock” charge to reflect
issuance of “cheap stock” during the IPO process. the fact that the option was issued in-the-money and
Cheap stock refers to common stock issued at a therefore has a larger fair value than the same option
price below the IPO price and equity awards (e.g., granted at-the-money.
stock options) issued with an exercise price below
the IPO price, both within one year prior to the filing Although the AICPA’s practice aid has no
of the initial registration statement. authoritative status, the SEC staff expects companies
in the IPO process to make the disclosures that the
In June 2004, the AICPA issued a practice aid practice aid recommends for periods preceding the
entitled Valuation of Privately-Held-Company Equity IPO. The practice aid also specifies enterprise- and
Securities Issued as Compensation. The practice aid industry-specific attributes that should be factored
provides financial-statement preparers, valuation into a determination of fair value (e.g., the fair value of
specialists, and auditors (internal and external) with stock-based-compensation awards that a company
best practice guidance for valuing privately-held- grants to employees), and describes important
company equity securities, including stock-based- steps that a company should take when obtaining or
compensation awards that are within the scope of performing a valuation.
FAS 123(R).
Under FAS 123(R) the issuance of cheap stock may
cause greater changes in compensation cost than
under APB 25. For example, a nonpublic company
may grant a typical-fixed, at-the-money stock option
six months before its IPO under the accounting
20 Issue 4: 2005

25. How PricewaterhouseCoopers can help
PwC is helping numerous assumptions under those tax implications, or any of Resource Centre at our
companies assess the models, and deal with a host the complex issues related to VisionToReality site at
impact of FAS 123(R). This of other implementation this topic, or if you would like www.pwcV2R.com
experience places us at the decisions. PwC can also help in assessing the impact and click on “Find A
forefront of understanding help companies consider that the accounting rule has Professional.”
the complex issues that are potential changes in their on your company, contact
involved in implementing compensation programs. your PwC engagement
this accounting standard, partner. If your company
making us better prepared If you have questions on currently does not receive
to help companies choose accounting for stock-based- services from us, please
among the various compensation programs, call our Technology Industry
valuation models that valuation techniques, FASB Hotline at 1.877.PwC.TICE
are now available, select developments, plan design, or visit our Entrepreneur
This information was excerpted from PwC’s monograph, FAS 123(R), “Share-Based Payment”—A multidisciplinary
approach, 2nd Edition. To obtain an electronic copy of the full version of this publication, please visit our CFO
Direct Web site (www.cfodirect.com) and click on the “DataLine 2006:02” link on the homepage.
www.pwcnextwave.com 21

27. Successfully shaping the future:
MoneyTree™ FutureCentricSM
companies 2005
“Innovation, disruption, improving which is a representative sample of talking, and moving as if they were
the way we live—those are the entrepreneurial companies building actually in the hospital room. RP-7 is
qualities that make a product ideas that are shaping the future. deployed in over 40 hospitals around
interesting to a venture capitalist,” the US and Europe and has been
says Tracy T. Lefteroff, Global Some of the macro trends driving featured on the hit television show “ER”.
Managing Partner of Private Equity VC investing during 2005 were the
& Venture Capital Industry Services continued intersection of IT and life Alexander “Sandy” Spiro, Jr., senior
at PricewaterhouseCoopers. “Add sciences, consumer adoption of managing director at VC firm Beringea,
to that a strong management team technology, and the focus on national was intrigued by the InTouch product
and personal security solutions. due to its remote presence capabilities.
with the ability to execute and
“The RP-7 robot has tremendous
you’ve got the ‘perfect storm’ for
The intersection of technology and life application, particularly in acute care.
investment dollars.” sciences continues to offer great strides The product brings the critical expert
in healthcare. One innovation affecting knowledge to bear when and where
Today’s VCs are investing in
healthcare delivery is InTouch Health’s that expert knowledge is needed. The
breakthrough ideas and products
“Robot Doctors”. The robot—called doctor is not physically there—but is
that will change the way we work,
RP-7 (for Remote Presence 7)—uses actually there.”
play, and even stay healthy. That
telecommunications and mobile robotic
philosophy is reflected in the 2005
technology to allow physicians to In the IT world, Motion Computing’s
MoneyTree™ FutureCentricSM list
remotely visit patients—hearing, seeing, Tablet PCs are already changing the
of venture-backed companies,
www.pwcnextwave.com 23

28. Fast-growth CEOs take
Q4 2005
Industry currents
brighter outlook, but
proceed with caution
According to PricewaterhouseCoopers’ Trendsetter somewhat diminished concern about market demand,
Barometer, CEOs of the nation’s fastest-growing energy prices, interest rates, and profitability. But
private companies are rebounding from effects of despite their more upbeat perspective, they are
the third quarter’s disastrous hurricanes, business proceeding with caution. Going forward, they have
interruptions, and shocking energy prices. They are shaved their revenue growth target and have scaled
now taking a more optimistic view of the business back their investment and hiring plans.
climate for the next 12 months, coupled with
Quick
Comparison
3Q 05 4Q 05
Optimistic about US economy 62% 71%
Optimistic about world economy 54% 68%
Expected US economy growth 3.1% 3.3%
Expected industry sector growth 7.6% 8.1%
Company revenue growth target 23.6% 22.2%
Potential barriers
Weak market demand 57% 50%
Energy prices 41% 33%
Higher interest rates 32% 27%
Decreasing profitability 30% 24%
Planning major new investments 49% 46%
Rate of new investments 13.9% 12.6%
Expecting new hiring 79% 80%
Rate of new hiring 11.2% 9.0%
Source: PricewaterhouseCoopers’ Trendsetter Barometer
interviewed CEOs of 339 privately-held product and service
companies identified in the media as the fastest growing US
businesses over the last five years. Surveyed companies range
from approximately $5-150 million in revenues. Interviewing for
4Q 05 was completed January 24, 2006. For more information
on this report, visit www.barometersurveys.com.
24 Issue 4: 2005

29. way professionals such as healthcare or be called from the unit, effectively
workers, real estate agents, and providing parental controls for cell
insurance adjusters work. These go- phone use.
anywhere computers, designed to
replace clipboards, allow users to enter Security products continue to receive
information via handwriting or speech- serious investment dollars—from
recognition software. For example, companies focused on national
HealthSouth has deployed the Tablet security to companies focused on
PCs to physical therapists in its personal password security. An
rehabilitation facilities and, as a result, example: Reveal Imaging provides
has seen a significant improvement in very small bomb screening devices in
patient and clinician satisfaction as well airports that improve work flow and
as productivity. passenger experience—and make air
travel safer.
For the “regular guy” or
“tween”—adopting technology On a more personal level, by year-
end 2006, it is likely that all financial
The FutureCentric list also features institutions will be required to provide
products that top everyone’s wish second level authentication—meaning
list—such as a product which delivers something else besides the password
the “digital home of the future” and a when signing into financial accounts.
must-have cell phone for “tweens.” BioPassword has developed a
patented technology that provides
Dedicated Device’s digital home personal password security through
product is a networking and media second-level Internet authentication.
server, delivering networked access
to videos and digital entertainment, According to Gerard H. Langeler, of
photos and music throughout the OVP Venture Partners, “Essentially
home. Today’s tech-savvy homeowner almost every other mechanism for
is embracing the idea of a fully second-level authentication requires
wired—or wireless—home where all additional hardware. BioPassword is a
digital media and entertainment can be great, proven technology that provides
shared throughout the house. second-level authentication based on
your keystroke patterns. And, there’s
Jeff Moeser, co-founder and executive really no way to duplicate someone’s
vice president of Dedicated Devices, keystroke patterns—they’re too subtle.”
sees the product as extending the
use of digital media in people’s lives. Breakthrough ideas and killer
“Homebuyers today have grown up management teams
with computers, iPods, and digital
cameras and they want to make the These are just a few examples of the
most of their digital investments. With new technologies and products on
our product, customers have access the horizon—all made possible by
to all their pictures, music, and video— venture capital dollars. The common
anywhere in their house.” element among these companies is
breakthrough ideas that bring change
Not only are today’s homeowners a and widespread impact to industries
focus, the VC community didn’t ignore and consumer experiences. Setting
those consumers of tomorrow—the aside the great ideas, what else about
“tween” segment. Kids between the these companies gets the attention
ages of eight and twelve, begging their of VCs and makes them attractive
parents for their own cell phone, can investments? Overwhelmingly, the
now have one especially designed answer is killer management teams.
for them by Firefly Mobile. Parents
program these brightly colored phones According to VCs and some of the
so that only certain numbers can call companies on the FutureCentric list,
www.pwcnextwave.com 25

30. Voice of the VC
Q4 2005
“Our companies are our babies… they’re beautiful; they’re smart.”
“The exit is harder than the investment decision.”
“A lot of our best investments involve small amounts of money.”
“I like the times between board meetings. That’s when the real work gets done.”
“The thing we’re bad at being able to predict is human performance.”
“A board that has different viewpoints is a stronger board.”
“The whole purpose of early-stage investing is to help create category-defining companies.”
“I don’t see a lot of white-space opportunities.”
Robbie Gimblett
Assurance and Business Advisory Services Partner
26 Issue 4: 2005 photographer: John Crawford

31. killer management teams can be According to Moeser, what excited
comprised of executives with technical investors about Dedicated Devices
credibility in their field of expertise was not only their ideas and the market
or can be serial entrepreneurs. Is potential but also the “killer team with
seasoned business experience more a track record of ideation, setting
critical in a team than entrepreneurial standards, winning awards, and getting
experience? The consensus was that products to market very efficiently.”
while both are important, the most
critical factor is the ability to execute Advancing the way we live, work,
on an idea. and play, this year’s FutureCentric
list is comprised of companies with
In the case of InTouch Health, the killer teams and breakthrough ideas.
executive team was instrumental in As Lefteroff observed, “The entire
developing one of the first surgical process of venture capital funding
robots to do micro-surgery; a ensures new ideas and technologies
technique that is being very widely get to market and meaningfully
used around the world today. Clearly change people’s lives.”
the team had the expertise in bringing
a robotic solution to the healthcare To view the entire list of FutureCentric
field. According to Spiro, “The companies, visit the MoneyTree Web
individuals on the management team site at www.pwcmoneytree.com.
have been together for a long period
of time, have been very successful in
other ventures, and are still together. nextwave feature contributor Julie Pusey is
They’re good, solid producers with an independent writer who focuses on the
technology, telecommunications, and life
good direction and focus.” sciences sectors. She can be reached at
j_pusey@msn.com.
The technological competence of
the BioPassword team was what Directory
intrigued Gerald Langeler at OVP. “The JEFFREY BUSSGANG
jbussgang@idgventures.com
BioPassword team brought a lot of GERARD H. LANGELER
technical credibility to the table. They langeler@ovp.com
didn’t have the start-up experience that TRACY T. LEFTEROFF
some of our companies have, but they tracy.t.lefteroff@us.pwc.com
do have a lot of technical credibility JEFFREY K. MOESER
jeff@dedicateddev.com
and experience producing products ALEXANDER “SANDY” SPIRO, JR.
like this.” sspiro@beringea.com
Jeff Bussgang, of IDG Ventures,
concurs with the idea that technical
credibility is a requirement for a
great management team. “The
Reveal Imaging team was a group of
executives from the two leading bomb
detection companies. Only a handful
of people in the world know how to
build these devices and this team had
previously built four of the six devices
that had been approved by the TSA. We
knew this was the absolute dream team
for bomb detection.”
Jeff Moeser and his team at
Dedicated Devices possessed
technical credibility and had a track
record of entrepreneurial success.
www.pwcnextwave.com 27

32. Business Advisors VISIONTO R EALITY
Private Equity Group
PricewaterhouseCoopers’
Whether your company is an emerging business
A Programme Serving Companies with Extraordinary Potential
seeking venture capital, or an established company PricewaterhouseCoopers helps
seeking to expand through a merger, acquisition, growth companies unlock
joint venture, or strategic alliance, you can rely on extraordinary potential
PricewaterhouseCoopers for a full range of support by turning vision into reality.
services. PricewaterhouseCoopers’ global presence,
extensive knowledge of capital markets, and
network of financing relationships provides access
and introductions to many sources of funds—both
domestic and international.
Since PricewaterhouseCoopers is the first choice About PricewaterhouseCoopers
for accounting services among the nation’s top The member firms of the PricewaterhouseCoopers
100 technology-based venture capital firms, we are network (www.pwc.com) provide industry-focused
knowledgeable about the issues that arise between assurance, tax, and advisory services to build public
entrepreneurs and venture capitalists. We excel at: trust and enhance value for its clients and their
– Assisting you in identifying financing sources stakeholders. More than 130,000 people in 148
– Serving as your advisor as you prepare for an countries across our network work collaboratively
IPO or position yourself to be acquired using Connected Thinking to develop fresh
– Providing due diligence and valuation services perspectives and practical advice.
for acquisitions
“PricewaterhouseCoopers” refers to the network
If you’d like to contact the nearest of member firms of PricewaterhouseCoopers
PricewaterhouseCoopers’ venture capital expert, International Limited, each of which is a separate
please call our Technology Industry Hotline at 1.877. and independent legal entity.
PwC.TICE or visit our Entrepreneur Resource Centre
at our VisionToReality site at www.pwcV2R.com and ©2006 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to
the network of member firms of PricewaterhouseCoopers International Limited, each of
click on “Find A Professional.” which is a separate and independent legal entity. *connectedthinking is a trademark of
PricewaterhouseCoopers LLP (US). BS.BS.06-0443.02/06.LMT
www.pwc.com/technology
www.pwcnextwave.com
WHPHTMON0306
If you’d like to contact the
nearest PricewaterhouseCoopers’
venture capital expert, please
call our Technology Industry
Hotline at 1.877.PwC.TICE or visit
our Entrepreneur Resource Centre
at our VisionToReality site:
www.pwcV2R.com and click
on “Consult A Professional.”