Moving forward in tough times - Why VC’s will continue to build successful global tech companies.

1. Moving forward in tough times - Why VC’s will continue to build successful global tech companies. Growing Galileo 2009 Brussels 28 January 2009 Georges H. Noël, EVCA Director

2. About EVCA • Established in 1983 and based in Brussels • Represents the European private equity and venture capital industry (PE/VC) and promotes the asset class within Europe and throughout the World • 1,300 members in over 55 countries, representing more than 80% of European PE/VC Assets under Management • PE/VC fund management companies • Institutional investors (banks, pension funds, insurance companies, family offices, endowments, foundations...) • Professional advisors (lawyers, auditors, placement agents, investment bankers...) • National (European) Trade Associations • Activities: Professional Standards, Public & Regulatory Affairs, Research, Publications, Training, Conferences & Networking events • Team 40 people based in Brussels and Bucarest (Statistics)

3. Agenda • About EVCA • Mission of Venture Capital • A few key data & recent developments • Key success drivers to build global leaders • What is the profile of target companies? • What is the added value provided by VC’s? • Conclusions

4. A key “Mission” of Venture Capital is to finance companies developing emerging or breakthrough technologies and develop those companies over a longer term (up to 5-10 years)

5. What has been achieved so far by European VC’s? During the 8 years from 2001-2008 €57bn equity has been invested into 21.320 technology companies e.g. an average of €2,7m per company

6. Recent Developments on the VC Market I • In 2008 217 VC Funds raised $49bn worldwide (out of 768 PE funds raising $553bn) of which European VC’s raising some 7$bn • Currently in early 2009 483 VC’ funds are targeting $97bn • Despite the financial turmoil 29% of institutional investors intend to increase allocation to PE/VC and 67% to maintain current levels • Fundraising becomes growingly global: 2.600 active investors in PE/VC funds from 72 countries • Most of portfolio companies of VC funds continue to perform well Source: Prequin / EVCA Desk Research

7. Recent Developments on the VC Market II 100% equity, zero debt and fast growth characterize our business and explain why VCs are much less affected by the financial crisis than other financial institutions. 3 Key challenges for VCs impacting also the tech companies: Fundraising: • Extremely difficult in S2 of 2008 and expected to continue in 2009 Banks, some insurances and some pension funds are affected by liquidity squeezes. • Rapid Internationalization (fund raising and portfolio level). e.g. Earlybird, Germany €130m, 2 lead investors Abu Dhabi Investment Authority, U.A.E. and Osaka Gas, Japan. Exits: • Industry challenged by market conditions with IPO markets closed and weak M&A market due to the financial turmoil. • Only exceptional trade sales delivering cash to investors • Holding periods have risen => pressure on reverves of funds built for 10 years life Lack of patient capital (from 10 years to 15 years): 8 to 15 years to build a business. Often imperatives for early returns, and premature exits as a barrier to reach maturity.

8. Recent Developments on the VC Market III Investments: • Low entry prices which makes the outlook for investment excellent (Vintage years 2009 and 2010). • Trend to focus on larger & later stage investments. Pressure by LP’s on holding periods in order to realize cash returns • Funds which have closed in 2007/08: Focus on follow up investments on most promising companies in the portfolio. • Lack of patient capital (from 10 years to 15 years). 8 to 15 years to build a business. Often imperatives for early returns, and premature exits as a barrier to reach maturity. • EU VC firms have achieved some key successes: Skype, MySQL, Q.Cells, Ersol, CSR, etc.

9. What is driving European Venture Capitalists over the next decade? • Core technology expertise • Global consumer markets • Large localized markets • Central & Eastern European development • Regulatory environment for VC ecosystem moving in the right direction InnovationDrivers • High profile successes • Entrepreneurial activity • Clusters • Serial entre-preneurship • Strong IPO market in “normal” years • Global M&A opportunities Entre-preneurialSpirit FinancialMarkets

10. What are the key success drivers for building a global leader? • Aspiration • Experience • Business model • Access to networks Source: London Business School / EVCA

11. Pyramid of Success: VC‘s and Entrepreneurs Reputation • Investment experience • Industry experience • Entrepreneurial experience External Resources Experience • Industry contacts • Contacts to investors • Other contacts, e.g. head-hunters Aspiration Business Model • Building scalable businesses • Striving to grow international • Funding strategy • Investment preparation • 100 day strategy • Time allocation

12. What are Venture Capitalists looking for? VC - focus on high growth potential companies only: • Management team • Industry and previous entrepreneurial experience • Balanced management team with complementary skills • Management experience • Ability to develop an exit strategy & to grow the company towards it • Market potential • High growth, competitive products and services • Accurate market size with real growth potential • Company processes & status • Good strategic and financial planning, or ready to implement it • The right tools and information systems to provide management and investors with timely and relevant data • transparent legal structure Source: EVCA Barometer May 2005

13. Satellite / Space related sample investments by VC’s iOpener (D-NL - mapping real-world competitions): first VC-backed ESA spin-off by Triangle Venture Group - €4,1m –2006 Galileo Masters Winner 21Net (UK – broadband internet access to Thalys high-speed trains): Octopus Ventures - £1,5m Ip.access (UK – 3G femtocell system ): Amadeus Capital Partners, Scottosh Equity Partners, Rothschild Gestion, Intel Capital, Cisco, Motorola Ventures, ADC - $10m

14. What is the Added Value typically provided by a VC? • Partnership sharing risks and awards within the framework of a pre-negotiated contract • Smart & patient capital to build global leaders • Professional Corporate Governance standards • Strategic advise and support through active board membership • High-performance management standards • Extended network • Increased visibility and standard with investors, suppliers, clients, head-hunters, potential managers, co-investors • Advise and support in times of crisis • Assistance with subsequent financing transaction • Definition of an exit strategy • Alignment of interests between managers and VC

15. So in conclusion why VC’s continue to be bullish in the macroeconomic backdrop? • Europe’s Innovation quality and world class technology • Growing strength of the European entrepreneurial base • Growing maturity of the European VC Ecosystem • Europe’s VC industry has sufficient dry-powder available • Lesson from the past: down-cycles are producing the best historical vintage years)

16. Thank you! For more information: www.evca.eu or georges.noel@evca.eu