#1Rebuilding the IPO On-Ramp Putting Emerging Companies, Investors and the Job Market Back on the Road to Growth October 20, 2011 Confidential 1#2Agenda IPO Task Force Members IPOs In Decline Last 15 Years IPOs Support Innovation & Create Jobs Structural & Regulatory Elements Impacting IPOs Four Simple Steps to Tilt Balance Back Confidential 2#3IPO Task Force Members Venture Capitalists Kate Mitchell, Scale Venture Partners, Task Force Chairman Mark Gorenberg, Hummer Winblad Partners ■ Tom Crotty, Battery Ventures Public Investors Jeff Cardon & Karey Barker, Wasatch Advisors Henry Ellenbogen, T. Rowe Price Entrepreneurs Magid Abraham Ph.D., CEO, Comscore Josh James, former CEO, Omniture Desh Deshpande, former CEO and co- founder Cascade Communications & Sycamore Networks and co-chair of NACIE Securities Attorneys Joel Trotter, Latham & Watkins Steve Bochner, Wilson, Sonsini, Goodrich & Rosati Academicians/Accountants Bill Sahlman, Harvard School of Business Carol Stacey, S.E.C. Institute Chuck Robel, private investor & retired head of PWC Tech Practice Investment Bankers Paul Deninger, Evercore Carter Mack, JMP Securities Brent Gledhill & Brett Paschke, William Blair Additional Support From: Investors, CEOs, NYSE, NASDAQ, NVCA Confidential 3#4Emerging Company IPOs Have Dropped Dramatically Confidential 4#5IPOs Are Down... Particularly Smaller IPOs Number of Initial Public Offerings 900 800 700 600 500 400 300 200 100 0 1991 1993 Pre-1999 Avg 547 IPOs / Year 1995 1997 1999 2001 Post-1999 Avg 192 IPOS / Year 2003 Deal size >= $50M Deal size < $50M ML.. 2005 2007 Source: JMP Securities, Dealogic, Capital Markets Advisory Partners, Grant Thornton 2009 2011 YTD Pre-1999, Majority of IPOs Were Done for Emerging Growth Companies. Sub $50M Deal-Sizes Were More Common than Larger Deals Shift to Larger Deals Impacts IPO Ecosystem: Issuers, Small IBs, Institutional Buyers Confidential 5#6... And the Time to IPO Has Doubled Average Age Since Company Inception (in Years) at IPO Median Age at IPO Early 1980s Since 2007 4.8 Years 9.4 Years Source: Thomson Reuters/National Venture Capital Association Confidential 6#7Shift to M&A - Resulting in Fewer U.S. Jobs 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1990 1991 1992 A 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Thomson Reuters/National Venture Capital Association (Based on number of exits per year; M&A exits are for private company sales only.) 1% IPO 1% M&A Confidential 7#8Emerging Growth IPOs Are Critical to The U.S. Economy Confidential 8#9Innovative Startups Become Market Leaders Google amazon.com® Sun ORACLE Success. Not Software. A Allscripts Linked in. eby High Tech hp I CISCO Life Science Genentech IN BUSINESS FOR LIFE Web (intel) athenahealth YAHOO! PANDORA FedEx Retail / Services T MAPQUEST. Ⓡ TESLA OpenTable™ STAPLES Cleantech that was easy." A123 SYSTEMS GAP Confidential 9#10Innovative Companies Create Jobs and Grow Quickly As a % of Total U.S. GDP in 2008 - 2010 VC-Backed U.S. Revenues ($T) $1.5 $1.7 $2.9 $3.1 2000 2003 2006 2010 21% Source: Venture Impact 2007, 2008, 2009 & 2010 by IHS Global Insight VC-Backed Revenue Outpaces 2008-2010 Total U.S. Sales Growth 1.6% VC-Backed Growth Former Startups Now Generate 21% of U.S. GDP & Were Able To Grow Even Through The Recent Recession (1.5%) Total Growth Confidential 10#11IPOs Finance Significant Job Creation Post-IPO Employment Growth Pre-IPO Employment Growth 97% 1970s 94% 1980s 88% 1990s 76% Source: Venture Impact 2007, 2008, 2009 & 2010 by IHS Global Insight; IPO Task Force August 2011 CEO Survey 2000s 92% Overall 92% of Job Growth in a Company Occurs Post-IPO 86% Post-IPO Job Growth Per August 2011 Survey of 2006+ IPOs Confidential 11#12Elements of the IPO Problem Confidential 12#13Challenges for Emerging Growth Company IPOs Supply Down Channel Evolution Weak Link To Demand Increased Regulation Makes IPO More Costly Less Likely to "Invest" in IPO in Uncertain Market ■ Regulations Favor High-Volume, Low-Cost Trades Shift In Economics From Investing to Trading IPO Shares Allocated to Traders vs. Investors. ■ Decrease in Information Available Pre- & Post-IPO Confidential 13#14Supply: Post-IPO CEO Survey Costs of Going and Staying Public Are High Average Cost $2.5M to Go Public $3-4M 20% >$4M 14% <$1M 0% $2-3M 31% $1-2M 35% Annual Cost $1.5M to Stay Public >$4M 3% $2-3M 31% $3-4M 6% <$1M 14% $1-2M 46% Costs Including SOX, Legal, Accounting Source: IPO Task Force August 2011 CEO survey of incremental IPO costs from 35 CEOs of companies that went public since 2006; Consistent with Independent Review of Public Filings for 47 2011 IPO's Raising Less Than $200M (Avg. Cost of $3M for IPO) Confidential 14#15Channel Focus: Trading Drives Revenue For Largest Investment Banks Typical Large Bank Asset Management 5% Fixed Income & Equities 70% Source: JMP Securities Prime Brokerage 10% Investment Banking 15% Typical Boutique Bank Asset Management 10% Fixed Income & Equities 40% Investment Banking 50% ■ Large Bank Client Base Dominated by Traders vs. Investors ■ High Frequency Trading Up From <25% to 75% of Volume Over Last 5 Years Research Focused on Large-Cap Stocks That Drive Revenue Confidential 15#16Demand Exists: Emerging Company IPOs Deliver Returns To Investors. ■ Myth: Small-Cap IPOs Lag in Performance ■ Truth: Small-Cap Performance Equal or Exceed Large-Cap IPOs Post-IPO Market Cap $200-$500 Average $1B or more Average 1 Day 27.5% Source: JMP Securities, Dealogic Note: Includes all IPOs from 1/1/2001 - 9/30/2011 35.9% 1 Month 34.8% 39.7% 3 Months 45.1% 37.7% 6 Months 43.9% 32.8% 1 Year 33.5% 28.5% Investor Interviews Showed: Strong Performance & Demand for IPOs Challenge to Get Allocation of Shares Decline in Availability of Research for IPO Companies Confidential 16#17IPO Task Force Draft Recommendations Confidential 17#18Four Draft Recommendations to Stimulate IPOs Increase Supply Improve Channel Incent Demand Provide Regulatory "On Ramp" For Emerging Growth Companies. ■ Improve Availability of Information for Investors. Educate Issuers on How to Work With Banks Effectively One-Time IPO Tax Incentive to Buy & Hold IPO Shares Confidential 18