This document discusses trends in the tech IPO market and strategies for private companies. It notes that while IPOs averaged over 200 per year in the mid-1990s, the average from 2001-2010 was only 30 per year. Mergers and acquisitions have become more common exits for venture-backed companies. The document provides advice for emerging companies, such as pursuing profitability quickly and targeting strategic investors for later funding rounds. It also notes characteristics bankers should look for in potential clients and that companies should look for in bankers, such as commitment to supporting companies post-IPO.

1. Discussion Materials October 20, 2010

2. Coulda been huge…
2

3. Tech IPO Market Barometer
Mid-90s Today
# of IPOs 200+ / Year 20+ / Year
Size $40mm - $70mm $80mm - $100mm
3
Revenue run
rate
$40+mm $80mm - $90mm
Profitability No Yes
Gestation
Period
5 – 8 Years 8 – 10+ Years

4. Historical IPO Trends
Tech IPOs Since 1990
Average # of IPOs per Year from 1990 to 2010 73
Average # of IPOs per Year from 2001 to 2010 30
153
170
232
163
150
200
250
4
26
48
64
94
82
115
87
17 18
23
54
41 41
61
6
21 21
0
50
100
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

5. Historical Venture-Backed Exits: Number of Exits
Average # of IPOs per Year from 2001 to 2010
393
36
Venture - Backed Exits Since 1999: Number of Exits
Average # of M&A Transactions per Year from 2001 to 2010
458
404
383
340
420
482 486 487
393
357
400
500
600
5
1) 2010 represents YTD as of 2Q 2010
- IPO - M&A
250
202
22 20 22
67
44
56
79
7 8
32
304
340
182
0
100
200
300
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

6. Historical Venture Backed Exits: Amount Raised
($US in Billions)
Venture - Backed Exits Since 1999: Amount Realized
$24.6 B
$2.6 B
$75.7 M
$60.2 M
Average M&A Deal Size from
2001 to 2010
Average IPO size from 2001 to
2010
Annual Average Total Amount
of M&A from 2001 to 2010
Annual Average Amount Raised
via IPO from 2001 to 2010
$43.1
$30.2
$34.7
$30
$40
$50
$98.1 $57.5
6
- IPO - M&A
$19.5 $19.2
$1.8 $1.6 $1.4
$5.0
$2.3
$3.7
$7.5
$0.6 $0.9
$1.6
$22.0
$10.9
$13.1
$23.9
$25.7
$17.8
$10.3
$0
$10
$20
$30
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

7. Why Aren’t There More IPOs?
Most IPOs have not worked out
Mutual funds have gotten much bigger – small IPOs less
relevant
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Market has changed – program trading, hedge funds vs.
fundamental investors, de-emphasis on sell side research
Cost of being public has gone way up; perceived net benefit
way down
Lack of more home run potential IPO candidates

8. What is the Right Course of Action for Emerging Private
Companies?
Plan to be more judicious with outside capital
– Spend big doesn’t work any more
– Pursue non-dilutive sources (i.e. government funding)
Utilize a “Leveraged Network”
– Non-direct channels
– Create ecosystem partnerships with larger companies
– Outsource supply chain
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– Outsource non-critical functions
– License non-core tech
Drive to profitability as soon as possible
Get a Board that can help you navigate current waters
Target different investors for later rounds
– Strategics
– Sovereign wealth
– Quasi government

9. Can This New Model Work? – Why Not?
Number of venture rounds: 3
Total amount raised: ~$8.2 mm
Years to profitability: 4
Number of venture rounds: 2
Total amount raised: $7.1 mm
Years to profitability: 3.5
Galileo Technology Case Study Passave’ Case Study
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Head count at IPO: ~200
Revenue run rate at IPO: $36.5 mm
IPO: 1997 for $53 mm
October 2000: Marvell Technology Group
acquired Galileo Technology for $2.7 billion at
approximately 34x revenue
Head count at sale: 150
Revenue run rate: $40 mm
April 2006: PMC-Sierra acquired Passave for
$360 million in stock for an enterprise value of
$345 million at approximately 8.6x revenue

10. What Should the Banker Look For in a Potential Client?
Demonstrated commercial traction
Distinctive competitive advantage
Strong multi-year growth opportunity
Proven track record
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Proven track record
Ability to hit forecasts
Depth and leadership from management team
– Ability to get a company to $300 MM+ in sales

11. What Should You Look For From A Banker?
Ability to add value/competency with an emerging growth
company
Commitment to working w/smaller companies
Depth, commitment and track record of organization to support
company post-IPO
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company post-IPO
– M&A
– Sales
– Research
– Trading
Will you be an important client