THE FUTURE OF HIGH TECH STARTUPS

Investments by Venture Capitalists in 2000 v. 2001

The number of companies funded by VC’s:

• 7,094 (with 842 in telecom) in 2000

• 3,928 (with 484 in telecom) in 2001

Total Amount Invested in U.S. down 63%:

• $99.6 billion in 2000– $17.9 billion in telecom

• $36.5 billion in 2001– $5.9 billion in telecom

Average Investment Size:• Approximately $14.0 million in 2000

- $21.3 million in telecom

• Approximately $9.3 million in 2001- $12.2 million in telecom

Small Growth in 4Q over 3Q 2001:

• $7.1 billion invested in 4Q2001• $7.0 billion invested in 3Q2001

• 856 companies funded in 4Q2001• 810 companies funded in 3Q2001

SAMPLE TERMS FOR VENTURE CAPITAL EARLY ROUND INVESTMENTS DURING AND AFTER THE INTERNET BUBBLE

TERM BEFORE AFTER

CLOSING 1-2 month cycle, 3-5 month cycle,

single closing tranches based

on milestones

TERM BEFORE AFTER

Dividends None, or non- Mandatory,

cumulative payable cumulative 8%

when, as and if per year

declared by Board

TERM BEFORE AFTER

Liquidation Original purchase Multiple of

Preferences price plus accrued 2-3x original

dividends, and purchase price

participation with plus

common stock participation

with cap with common

stock

TERM BEFORE AFTER

Redemption None At option of holders,

up to 50% in 5 years

and remaining 50% in

6 years at purchase

price plus accrued

dividends

TERM BEFORE AFTER

Automatic Qualified IPO with Qualified IPO of

Conversion no per share price at least 5x limit purchase price

TERM BEFORE AFTER

Anti- Standard broad-based Same

Dilution weighted average

anti-dilution

TERM BEFORE AFTER

Voting Investors must approve: Investors must approve: change Rights change of rights, creation of rights, creation of senior or

of senior securities, pari passu securities; payment of payment of dividends, dividends, liquidation, board liquidation size, merger, consolidation or

acquisition, redemption, debt or other

TERM BEFORE AFTER

Board Seats 2-3 Investors; Same

2-3 Common Stock;

1 outsider

TERM BEFORE AFTER

Preemptive Right to maintain Same

Rights pro rata ownership

TERM BEFORE AFTER

Pay to Play None Preferred loses anti-

dilution if don’t

participate in later

down round, or

preferred converts to

common if don’t

participate in later

down round

TERM BEFORE AFTER

Right of Investors have Same

First Refusal right to purchase

shares not purchased

by Company to be

sold by other

shareholders

TERM BEFORE AFTER

Co-Sale None or limited to Right to sell

Rights right to sell with with founder

founder who sells or any other

shares shareholder

(other than

another investor) whosells shares

TERM BEFORE AFTER

Drag-Along None Right to force

Rights shareholders to

approve sale of

company upon Board

and majority

shareholder approval

TERM BEFORE AFTER

Registration Two demand rights Two demand rights

Rights after IPO, piggyback on earlier of 4-5

rights subject to years of closing

cutback, S-3 rights or following IPO,

piggyback rights

subject to cutback,

S-3 rights

TERM BEFORE AFTER

Founder Portion up front, Same

Vesting 2-4 year vesting

TERM BEFORE AFTER

Employment None May have with founders,

Agreements key technical employees

TERM BEFORE AFTER

Information Quarterly and annual Monthly,

Rights financial statements quarterly and

annual financial

statements,

annual business

plan and budget