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1 Global Software II, 31January - 5 February 2002

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2 Jarkko Virtanen, Investment Director 3i Finland Oy Global Software II, 1 - 5 February 2002 www.3i.com jarkko_virtanen@3i.com, tel. +358 9 6815 4458 Venture capital market after the bubble

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3 Global Software II, 31January - 5 February 2002 1 3i key facts and value add 2 Marketplace - General - US VC market - European VC market - Finnish VC market 3 The IT Opportunity - End-user buying dynamics - What do VCs expect from potential investee companies? 4 Summary Content - discussion points

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4 Introduction to 3i

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5 Global Software II, 31January - 5 February 2002 3i key facts The leading international venture capital company Experience & reputation Over 50 years experience investing 23,6 billion in more than 13,800 businesses Member of the FTSE 100, Eurotop 300 and MSCI Europe indices Strategy the best network deliver value for 3i and its portfolio a balanced business 36 offices in 16 countries A portfolio of over 2,700 companies Introduction to 3i

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6 Global Software II, 31January - 5 February 2002 3i Technology 850 technology investments in the portfolio Substantial resource dedicated to technology Market conditions 3is continuing commitment to technology 9% 42% 17% 23% Life sciences and healthcare Communications and networking Electronics and other technologies E-business Software and computer services Total number 850 Introduction to 3i

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7 Global Software II, 31January - 5 February 2002 3i delivers globally networked venture capital Sector knowledge in all focus areas Industry group specialists Software, communications, electronics, healthcare sector groups Over 300 portfolio companies in traditional software sectors in 3 continents Independent directors programme Over 80 wireless software companies in portfolio Global network with local knowledge 1000 employees in 36 offices 3i is committed to technology and helps entrepreneurs build successful international businesses Introduction to 3i

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8 Global Software II, 31January - 5 February 2002 3i in Finland One of the oldest and most experienced venture capital companies in Finland established in 1991 Previously SFK Finance, was acquired by 3i in June 2000 Based in Helsinki employs 15 professionals, 10 of which investment executives Introduction to 3i Finland

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9 Marketplace

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10 Global Software II, 31January - 5 February 2002 Tough economic and market conditions Private equity (buy-outs) Reduced deal volumes Pricing now changing Growth capital Increasing demand Venture (technology) Fewer risk takers, syndications Some new funds in difficulties Focus on portfolio Corporate VC closures Fund raising difficult Valuations back to 1998-99 level Exits tough, values low VC marketplace - general

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11 Global Software II, 31January - 5 February 2002 YTD Investment Pace at 99 Levels in US VC marketplace - US Source: VentureOne/PwC Amount Invested ($B) Equity into venture-backed companies

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12 Global Software II, 31January - 5 February 2002 Valuations have diminished across all financing stages in US VC marketplace -US Median Premoney Valuations by Round Class Median Premoney Valuation ($M) Source: VentureOne/PwC

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13 Global Software II, 31January - 5 February 2002 US IPO is the worst in many years VC marketplace-US $2.9 $4.9 $8.7 $4.6 $3.7 $19.4 $18.8 $1 13 198 248 68 119 216 142 121 $0 $5 $10 $15 $20 $25 1994199519961997199819992000YTD'01 0 50 100 150 200 250 Amount Raised ($B) Venture-Backed IPOs Deals and Amount Raised Through IPOs Number of Deals Amount Invested ($B) Source: VentureOne/PwC

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14 Global Software II, 31January - 5 February 2002 Europes Technology Market % by number 20002001 Early stage 38 % 29 % Expansion 48 %65 % Start-up 8 % 4 % Seed 6 % 2 % Cumulative Early Stage & Expansion technology deals in Europe Year to November 2001 Total market value (Euros bn) 20002001 (to 11/01) 177 Software and Internet investments down 50 % Source: Initiative Europe

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15 Global Software II, 31January - 5 February 2002 Investments 344 M => (397 M/2000, -13%) 432 investments => ( 418/2000, +3%) 208 initial 224 follow-on New funds raised 412 M => (563M/2000, -27%) Total capital under management 2 653 M*=> (2202M/2000, +20%) Share of the investments Private independent funds 84 % government related 16 % 3i Finland investments up 70% from year 2000 Venture capital industry in Finland Venture Capital in Finland year 2001 has not been effected as strongly as Europe and US Source: FVCA preliminary statistics from 2001

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16 There is always an opportunity

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17 Global Software II, 31January - 5 February 2002 The software and services market is in constant transformation. Now the speed is faster than ever Emerging vendors need to constantly review their go-to-market tactics Budgets are increasingly in the hands of the business rather than technology management Source: Meta Group Consulting End-user buying dynamics Emphasis through 2002/3 will be on risk reduction and value generation from existing assets Reducing complexity will continue as a major theme Vendors must partner proactively and effectively to help users increase performance whilst reducing risk Vendors that are able to measure and demonstrate value generation to their customers will be strongly positioned

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18 Global Software II, 31January - 5 February 2002 Satisfaction Value High Low 200 IT Suppliers Rated by 500 IT Buyers Anticipating value movement is critical during transformations Source: Meta Group Consulting

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19 Global Software II, 31January - 5 February 2002 Impact on Customer Relationship (brand, loyalty, retention) Perceived Value (Importance to the Customer) Primary Secondary Strategic Supplier Status (Critical Provider) Commodity (Tactical and Tangible Benefit) Resource Mgmt and Asset Extension #1 Customer Intimate Link to Business Requirements #2 Credible Mass #3 Relationship Economics #4 Technical Proficiency #5 Source: Meta Group Consulting Buyers key value drivers

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20 Global Software II, 31January - 5 February 2002 What VCs expect from investee companies? Management, management.. Market opportunity Business orientation, Execution Market leadership plans, clear USPs At the present market situation, all evidence of the capability to execute and proof of concept is appreciated Value creation potential

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21 Global Software II, 31January - 5 February 2002 Summary VCs and their financers are having tough times especially in Technology Finnish VC-market not hit as badly as general (yet?) Software and services are growing part of IT Buzzwords; J2EE,.net, peer to peer, mission critical wireless, e-business... Global IT spending will return to year 2000 growth levels +11% year 2004 Transformation in software generates opportunities Partnerships, networks are even more important than before There is an opportunity and timing is everything

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22 thank you For further information visit our website www.3i.com or contact our office +358 9 6815 4100 or helsinki@3i.com

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23 Global Software II, 31January - 5 February 2002