US Venture Capital – Realistic OptimismJune 29, 2009

Sand Hill Road

Step One Ventures

Stanford University

StepOne’s US Office is In Silicon Valley…

…And we’ve seen the worst of it

Sequoia CapitalOct 10, 2008

TheFunded.comOct 2008

IT Services Have Been Hit as Companies Cut Back Budgets

$M

•IT funding is highly correlated with the economy

•IT spending is highly scrutinized in a down economy

•Depressed earnings expectations from comparable companies push down valuations for startups

Source: PWC MoneyTree Report

US VC Funding in IT Services by Quarter

Even Life Sciences Has Had Less Funding

Source: PWC MoneyTree Report

• Bio-tech, as a sector, is more resistant to downturns

Less funding = less $$ available in VC

• Recent large deals between public pharma and biotech companies indicate significant sector potential

$M

US VC Funding in Biotech and

Med Devices by Quarter

Cleantech Remains One of the Few Bright Spots

Source: Ernst & Young and Dow Jones Venture Source

• Cleantech is still a high growth industry; although many predicted a bubble in 2008

• Latest data indicates a sharp downturn in funding (63% $ decrease YoY in Q1 2009)

• Solar, alternative fuels, and energy efficiency were the three largest funding categories in 2008; Battery technology led funding in Q1 2009

$M

US VC Funding in Cleantech by Year

VCs Will Strive to Fix a Broken Investing Model

Startups Will Try to Survive

8

Today’s views

• Optimism remains as VCs vow to cautiously “stay the course”

• The US government is expected to be highly supportive of VC, especially clean-tech

• Important lessons from the 2001 bubble burst are being applied to today

• Certain verticals will remain hot (e.g., clean-tech, transaction processing, mobile applications and components)

VC Investing in Context

• Remained within historical norms even with market turmoil• Likely will see impact in next quarters – Q12009 VC funding was down 60%

YoY from Q1 2008

Why is there any optimism?

• “It is reasonable to be optimistic for 2010”-Eric Schmidt, Google CEO

• Cisco has made 10 acquisitions in the past year• Roche, Applied Bio, Schering-Plough indicate that

there is still acquisition money available for Life Sciences / good companies

• 1930s: General Electric grew• 1970s: Apple and Microsoft grew• 2000s: Google grew

Corporate Support

Corporate Support

History On Our Side

History On Our Side

Some investing areas to note

• Cleantech– Energy alone is a $6 trillion market, compared to $100 billion for the Internet– Obama calling for creation of 5M green jobs– Energy bill likely to be passed in Obama’s first term, initiating a nation-wide cap-

and-trade regime– Several funds focused only on cleantech

• Other Attractive Areas– Time and Cost reduction, (e.g. BPO, SaaS)– Transaction processing / Micropayments– iPhone / Mobile Applications– Niche businesses