Robert Ackerman 2010 Ibf Opening Remarks

C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM

Opening Remarks

“I Woke Up and it Wasn’t
A Nightmare After All”

Conference Chairman
Robert R. Ackerman, Jr.
Managing Director - Allegis Capital

12th Annual Corporate Venturing &
Innovation Partnering Conference
February 23, 2010
www.allegiscapital.com Copyright 2010 © Allegis Capital

2009 – It Started Bad…
The Capital Well Dried Up for Start-Ups
$17.7 billion invested in 2,795 deals (1997 Level)
$28.1B in 08’ and $30.5B in 07’
When Capital did Flow – It Was Very Very Expensive
And the River was Damned for Venture Firms
$15.2 billion committed to Venture Partnership
120 Funds Raised – 80% of them Established Players
$28.5B in 08’ and $36.1B in 07’
Venture Reactions:
Preserve Capital at All Costs (Life and Death)
Reserves for Existing Portfolio Companies
Triage to free up Capital

Source: Dow Jones VentureOne/Ernst &Young

2
Copyright 2010 © Allegis Capital

… And It Did Not Get Much Better
Thirteen (13) Venture-backed IPOs in 09’
(6) in 08’ -- (86) in 07’ (Average Offering: $150M in 09’)
1990-2000: 1776 IPOs: 56% of Exits
2001-2009: 405 IPOs: 13% of Exits
M & A Barely Keeps Industry on Life Support
262 Venture-backed exits in 09’ (348 in 2008)
Median M & A Proceeds: $30M
Average M & A Deal Size: $144M
10 Year Venture Returns –
The News Finally Hits
1999 “Peak Returns” about to drop from the 10-year avg.
IRR 17.2% (3/31/08) IRR 19.3% (6/30/07)
IRR 8.4% (9/30/09)
Venture Still Out Performed Most Investment Indexes
Source: Dow Jones VentureOne/Ernst &Young

3


Capital
Investments Drop
Start-Ups Just Got a Lot Harder

4

MoneyTree Total Investments: 1980 – 2009
$ in Billions Annual Venture Capital Investments 1980 to 2009
$120

100.5
$100

$80

$60
51.3

38.6
$40
30.5
26.3 28
21 19.1 22 23
19.8 17.7
$20 14.2
10.6
7.4
2.8 2.8 2.6 2.9 3.2 3.2 3.2 2.6 2.1 3.4 3.5 3.9
0.5 1.1 1.5
$0

PricewaterhouseCoopers/National Venture Capital Association
MoneyTree™ Report based on data from Thomson Reuters Copyright 2010 © Allegis Capital 5

MoneyTree Total Investments: Q1 2001 – Q4 2009

$ in Billions
$14.0
Q1 Q2 Q3 Q4
$12.3
$10.7

$12.0

$10.0

$8.0
$7.9
$7.7

$7.7

$7.7
$7.4

$7.4
$7.3
$7.1

$7.1
$8.0

$6.6
$6.5

$6.3

$6.3

$6.3
$6.1
$5.9

$5.9

$5.9
$5.8

$5.8
$5.5

$5.2

$5.1
$5.0

$5.0
$6.0
$4.8

$4.8
$4.7
$4.4
$4.3

$4.2
$4.1

$3.4
$4.0

$2.0

$0.0

2001 2002 2003 2004 2005 2006 2007 2008 2009
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1284 1221 1009 990 845 856 696 728 708 743 724 792 731 865 699 853 737 839 802 830 881 980 920 965 875 1063 1011 1078 1016 1064 995 910 632 680 689 794

Number of Deals by Quarter

MoneyTree™ Report based on data from Thomson Reuters 6


Capital Inflows
Under Stress

What Have You Done for
Me Lately?

7

Venture Capital Fundraising
Total Number of
Year First Time Funds Follow-On Funds VC Raised ($M)
Funds
2004 63 155 218 19,154.4
2005 67 175 242 28,962.7
2006 56 186 242 31,964.9
2007 61 189 250 36,131.4
2008 49 174 223 28,571.3
2009 22 98 120 15,220.2

Q1’ 08 12 12 12 12
Q2’ 08 22 22 22 22
Q3’ 08 14 14 14 14
Q4’ 08 11 11 11 11
Q1’ 09 4 4 4 4
Q2’ 09 8 8 8 8
Q3’ 09 7 7 7 7
Q4’ 09 7 7 7 7
Data current as of January 11, 2010 Source: Thomson Reuters & National Venture Capital Association

8

US Venture Capital Index
(Investment Horizon Performance through 09/30/2009)

For the Period 1 3 5 10 15 20
Ending Qtr.
Year Years Years Years Years Years

September 30, 2009 2.3 -12.4 1.3 4.9 8.4 36.6 23.1

June 30, 2009 0.2 -17.1 1.3 5.7 14.3 36.3 22.7

September 30, 2008 -2.9 -0.9 10.2 10.7 40.2 33.3 22.2

Other indices at September 30, 2009
DJIA 15.8 -7.4 -3.3 1.8 1.6 8.7 9.2

NASDAQ Composite 15.7 1.5 -2.0 2.3 -2.5 7.0 7.8

S&P 500 15.6 -6.9 -5.4 1.0 -0.2 7.6 8.0

Source: Cambridge Associates LLC
Note: Because the US Venture Capital index is cap weighted, the largest vintage years mainly drive the index’s performance.



Where Are The $’s Going

10

Visit www.pwcmoneytree.com for Industry definitions

Investments by Industry: Full Year 2009
$ in Millions
Biotechnology $3,543.3

Software $3,096.4

Medical Devices and Equipment $2,502.3

Industrial/Energy $2,304.8
# of % Change $
Media and Entertainment $1,177.0 Industry
Deals from 2008
IT Services $1,076.9 Biotechnology 406 -18.57%
Software 619 -39.83%
Semiconductors $771.6
Medical Devices and Equipment 309 -26.58%
Networking and Equipment $716.0 Industrial/Energy 232 -49.69%
Media and Entertainment 251 -31.65%
Telecommunications $558.8
IT Services 203 -40.80%
Financial Services $364.8 Semiconductors 118 -53.10%
Networking and Equipment 93 -5.27%
Consumer Products and Services $362.0
Telecommunications 140 -66.56%
Computers and Peripherals $341.6 Financial Services 52 -27.16%
Consumer Products and Services 81 -16.87%
Electronics/Instrumentation $300.5 2009 Total:
Computers and Peripherals 59 -25.37%
Business Products and Services $253.3 $17,680.2 million in Electronics/Instrumentation 60 -47.66%

Retailing/Distribution $172.2 2,795 deals Business Products and Services 81 -47.63%
Retailing/Distribution 31 -27.45%
Healthcare Services $102.4 Healthcare Services 33 -43.94%
Other 27 84.52%
Other $36.1

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500

Visit www.pwcmoneytree.com for Industry definitions Copyright 2010 © Allegis Capital

Investments by Industry –
Quarterly Percent of Total U.S. Investments
Top 5 Industries – Q4 ‘08 to Q4 ‘09

(% of Total Dollars)
30%
23.17%

25%
20.18%

19.83%

19.11%
19.04%
18.69%

18.38%
18.02%

17.87%

16.23%

15.95%
15.78%
15.45%
20%

14.34%

14.34%
12.52%

11.35%
10.97%
10.79%
15%

10.03%

8.75%
7.65%
7.16%
6.50%
10%

3.06%
5%

0%
Biotechnology Software Medical Devices and Industrial/Energy Media and
Equipment Entertainment
Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09


Investments by Stage of Development: FY 2009
$ in Millions 2009 Total: $17,680.2 million in 2,795 deals

Later Stage $5,918.9

Expansion $5,484.3

Early Stage $4,626.8
Stage of # of % Change in $
Development Deals Amount from 2008

Later Stage 799 -44.45%
Expansion Stage 801 -47.23%
Early Stage 883 -13.02%
Startup/Seed $1,650.3 Startup/Seed 1.62%
312
Total 2,795 -36.84%

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000


Investments by Sequence of Financing: FY 2009
$ in Millions 2009 Total: $17,680.2 million in 2,795 deals

5th and Beyond $6,675.0

First $3,350.3

Second $2,728.8

% Change in
# of
Financing $ Amount from
Deals
Q3 2009
Third $2,594.2 5th and Beyond 807 -26.77%
First 725 -44.64%
Second 539 -47.37%
Third 414 -40.74%
Fourth 310 -28.52%
Fourth $2,331.9 Total 2,795 --36.84%

$0 $2,000 $4,000 $6,000 $8,000 $10,000


First Sequence Financing – Number of Deals
$ in Billions First Sequence Deals
500
384

372
400

365
334

333
333
330
327

321
299

289
283

275
273

300

264
262
259

262
253
252

237
236

230
235

224
224

217

196
184
183
188
183

176

200

168
168
159
100

0
2001 2002 2003 2004 2005 2006 2007 2008 2009

Q1 Q2 Q3 Q4


First Sequence Financing – Investment Amount
$ in Billions First Sequence Investments

$4
$2.7

$3

$2.1
$1.9

$1.9

$1.8
$1.7

$1.7
$2

$1.6
$1.6

$1.6
$1.5
$1.5

$1.5

$1.5
$1.4

$1.4
$1.4
$1.3
$1.2
$1.2
$1.2

$1.2

$1.2
$1.2

$1.2
$1.1

$1.1
$1.0
$1.0

$1.0
$1.0
$0.8

$0.8
$0.7

$0.7

$0.7
$1

$0
2001 2002 2003 2004 2005 2006 2007 2008 2009

Q1 Q2 Q3 Q4


Stage of Development –
Quarterly Percent of Total First Sequence Dollars
(% of first Stage Development – Q4 2008 to Q4 2009
sequence dollars)

60% 48.76%

45.20%
42.75%

42.60%
50%

36.50%
40%

26.88%
30%
21.84%

21.70%
21.63%

21.35%
19.95%
19.77%

19.57%

19.35%
19.29%
19.10%

18.95%

15.86%

13.87%
20%

5.07%
10%

0%
Startup/Seed Early Stage Expansion Later Stage

Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09


Stage of Development –
Quarterly Percent of Total First Sequence Deals
(% of first Stage Development – Q4 2008 to Q4 2009
sequence deals)
60%

51.30%
45.83%
45.28%
44.66%

43.45%
50%

40%
30.95%
27.10%

26.42%

24.40%

23.91%

30%

19.64%
17.86%

17.39%
16.41%

14.47%

13.84%
11.83%
20%

10.12%
7.74%

7.39%
10%

0%
Startup/Seed Early Stage Expansion Later Stage

Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09



Where’s The Action

Silicon Valley Dominates,
but…

19

Investments by Region: Full Year 2009
New England
Upstate NY $2,113.4 M
$18.0 M 348 Deals
Northwest
13 Deals 12% of US total
$704.8 M 0% of US total
132Deals
4% of US total NY Metro
Sacramento/N. CA
$17.0 M
$1,415.9 M
North Central 247 Deals
8 Deals
0% of US total $368.9M 8% of US total
58 Deals
Silicon Valley 2% of US total
Midwest Philadelphia Metro
$6,983.9 M
$721.1 M $423.8 M
863 Deals Colorado
40% of US total
219 Deals 89 Deals
$528.8 M 4% of US total
2% of US total
71 Deals
LA/Orange County 3% of US total South Central
$953.7 M $23.8 M
Southwest 37 Deals DC/Metroplex
159 Deals
5% of US total $313.8 M 0% of US total Southeast $539.6 M
San Diego 68 Deals $985.9 M 117 Deals
$903.2 M 2% of US total 137 Deals 3% of US total
107 Deals 6% of US total
Texas
5% of US total
$644.6 M
KAUAI
111 Deals
AK/HI/PR NIIHAU

OAHU
4% of US total
$7.1 M MOLOKAI

MAUI

LANAI

2 Deals KAHOOLAWE

HAWAII

0% of US total

2009 Total Investments - $17,680.2 million in 2,795 deals
Unknown region totals not included

Investments by Region: Full Year 2009
$ in Millions

# of % Change $
Region
Deals from 2008

Silicon Valley 863 -34.90%
New England 348 -36.09%
NY Metro 247 -28.32%
Southeast 137 -19.13%
LA/Orange County 159 -52.54%
San Diego 107 -24.21%
Midwest 219 -43.60%
Northwest 132 -34.52%
Texas 111 -49.94%
DC/Metroplex 117 -45.20%
Colorado 71 -36.84%
Philadelphia Metro 89 -43.78%

2009 Total: North Central 58 -40.30%
SouthWest 68 -32.71%
$17,680.2 million in South Central 37 -69.76%

2,795 deals Upstate NY 13 -80.07%
Sacramento/N. Cal 8 -75.33%
AK/HI/PR 2 -66.22%
Total 2,795 -36.84%

Unknown region totals not included

Investments by Region –
Quarterly Percent of Total U.S. Investments
Top U.S. Regions Q4 ‘08– Q4 ‘09

46.04%

50%
38.53%

38.31%
34.72%

33.71%

40%

30%
13.63%

12.94%

12.65%

12.22%
20%
11.71%

10.81%

9.29%
7.92%

6.87%
6.62%

6.05%

5.98%

5.74%
5.31%
5.08%

5.08%

4.86%
4.43%
3.37%
10%

2.71%
0%
Silicon Valley New England NY Metro San Diego LA/Orange County

Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09



Heading For The “Exits”
No way Out

23

Venture Capital Fundraising
Total Venture- Average Venture- Total Number of
Number Average M&A
Date Backed Offering Backed Offering Venture-backed
of IPOs* Deal Size ($M)**
Amount ($M) Amount ($M) M&A Deals

2005 57 4,485.0 78.7 350 105.7

2006 57 5,117.1 89.8 375 116.0

2007 86 10,326.3 120.1 378 175.5

2008 Q1 5 282.7 56.6 108 116.3

2008 Q2 0 0.0 0.0 87 123.0

2008 Q3 1 187.5 187.5 89 96.3

2008 Q4 0 0.0 0.0 64 132.8

2008 6 470.2 78.4 348 114.9

2009 Q1 0 0.0 0.0 63 46.9

2009 Q2 5 720.7 144.1 64 197.7

2009 Q3 3 572.1 190.7 68 57.4

2009 Q4 5 649.3 129.9 67 215.9

2009 13 1,942.1 149.4 262 144.2

* Includes all companies with at least one U.S. VC investor that trade on U.S. exchanges, regardless of domicile
**Only accounts for deals with disclosed values 24
Source: Thomson Reuters and National Venture Capital Association Copyright 2010 © Allegis Capital


So, What’s It All Mean…

25

Summary
Significant Reduction in the Availability of Venture Capital
Start-Ups (Series A) will need to be “perfect”
Valuation based upon the Net Present Value of an Identified Exit Path
Smaller Funds become COOL again (tied to M & A exits)
Partnering is back in vogue
Start-Ups Need to Rethink their Capitalization Plans
Capital Efficiency is the Watch Word
Cost of Failure is Terminal
Need to Rethink Distribution, Manufacturing, Go To Market Plans
Leverage Leverage Leverage
Venture Industry
Emergence of New Industry Leaders in tune with times
It remains tough until the returns are back
Corporation Investors are well Positioned to “Bridge the Gap”

26


Looking Forward….

27

The VC Environment…
The VC Industry
In for a Period of Significant Recalibration & Restructuring (3-4 Years)
Successful firms will focus on “old fashioned VC” or become Asset Managers
Material reduction in the number of venture firms (30-50%?)
When all is Said and Done – A Healthier Environment
For Start-Up Companies
Innovation is Alive and Well but the Bar for Funding is a Lot Higher
Partnerships become Increasing Imperative
Better Ideas, Stronger Teams, Greater Discipline will get Funded
IronPort was started in 2001 and Funded by Allegis 2002: Cisco purchased in
2007 for $830M
Indicators are for a Period of Greater Return and Success
Corporate Venture Investors
Competition continues to Accelerate
Start-Up Companies are More Likely than Ever to Seek Corporate Partnerships
Split Personality – Past Failures versus Future Imperatives
Time to Re-Visit PARTNERING with the Experienced Venture Firms (LEVERAGE)
The Window is Wide Open for Corporate Investors

28

Planning for Success
Looking to Exits – Assume there are NO IPOs
You have no visibility into the next IPO market
You have even less control or influence
M & A remains a viable path to Liquidity – IF YOU ARE
CREATING VALUE
Corporate M & A
Emergence of the Private Equity Buyer
Control the Fundamentals for Profitable Exits
Solve “Real” Problems
Watch Your Cost Basis
Capital Efficiency is Critical
Syndicates are Essential
Great Companies don’t Fail – they run out of CASH
Preemptively Recapitalize When Necessary or the Opportunity
Presents Itself
Strong Syndicates are CRITICAL – Not all Co-Investors are Equal

29


Profiting from Turmoil…

30

The Allegis Playbook…
Exploit the Market Downturn with
Established Companies
Take Advantage of Financing Difficulties for
Quality Companies
Provide Capital when others Can’t
Nearer term exits
Actively Maintain Seed & Early-Stage Investment Focus
Create “Value” from “Ideas”
Control the Fundamentals for Profitable M & A exits
Greatest leverage to generate returns
Syndicate
Leverage Corporate Partnerships
Lower “GO TO MARKET” risks/costs
Infrastructure to Accelerate Growth as Economies Stabilize

31

The Allegis Playbook…
Get Ahead of the Financing Crisis
“Time is not your Friend”
Pro-actively re-capitalize companies to
strengthen syndicates
“Interim” Valuations are just that - INTERIM
Anticipate the Market Recovery –
Don’t Wait for It
What sectors remain strong (Security)
Where can we improve efficiency in an existing
market (Supply Chain)
Where can we create value in a Down Economy
“Is Now the Time to Start this Company”?
Pick Your Partners very Carefully
Firms and Partners are going to Disappear

32


It’s a Great Time to
Build a Portfolio!

35


Have a Great Conference

Conference Chairman
Robert R. Ackerman, Jr.
Managing Director - Allegis Capital

www.allegiscapital.com

Robert Ackerman 2010 Ibf Opening Remarks

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