- 1 -© 1999 Boston Millennia Partners

Millennia

Boston Millennia Partners30 Rowes WharfBoston, MA 02110Tel. 617 428-5150Fax 617 428-5160

www.bmpvc.com

Jobs for MassachusettsVenture Capital Update 2008

A. Dana Callow Jr.

May 2008

- 2 -© 2008 Boston Millennia Partners

MillenniaPartners

Boston Millennia Partners – a venture capital firm that evolved from Boston

Capital Ventures in 1997

▲ 10 investment professionals

▲ 100 years of venture capital experience

▲ $700M+ in assets under management

▲ 100 direct investments and 150 acquisitions completed

▲ Managed 7 separate venture partnerships

▲ New fund is focused on healthcare and life sciences

Investors and Partners from 14 countries worldwide

Strategic and investor relationships with IBM Corp. (Healthcare) and

PAREXEL International Corp. (NASDAQ: PRXL)

Located in downtown Boston

MillenniaPartners BMP OverviewBMP Overview

- 3 -© 2008 Boston Millennia Partners

MillenniaPartners

MillenniaPartners’

Sold to Incyte Genomics, 12/00

(IPO: 1/97)

Information Technology

Massachusetts Portfolio

(Sold to Oxford Health Plans, 3/02)

HMO

(Sold to Cedara Software, 10/04)

(IPO: 5/98)

(PowerFone)Telecommunications

(IPO: 2/00; Sold to SPSS)Internet Technology

Healthcare/Life Sciences

(IPO, 11/05)

(Nasdaq: EPIX)

(Sold to TSAI, 9/06)

(Sold to Blackboard, 2/06)

(Sold to Carrier Corp., 6/06)(Sold to Merck, 6/06)

(IPO: 1996)

(IPO: 1997)

Orthopedic Devices

Contract Research Organization

Health Care Information Technology

Clinical Trial Solutions

Wi Fi Communication

Retail

Sensor Technology

Optical Communications

Telecommunications

Drug Development

Drug Development

Pharmaceuticals

Drug Development

Protein Platform

Educational Software

Financial Software Services

Protein Platform

Healthcare Internet Services

- 4 -© 2008 Boston Millennia Partners

MillenniaPartners

2003-2010

Historical “Take-off Periods” For Value Creation

After initial investment in early stage venture investing

1x

5x

1 2 3 4 5 6 7 8 9 10 11 12

1985-1997

Years

Co

mp

any

“Val

ue”

to

In

vest

ed C

apit

al

1997-2003

10x

- 5 -© 2008 Boston Millennia Partners

MillenniaPartnersSource: VentureSource/Venture One

Commitments to U.S. Private Equity/VC FundsCommitments to U.S. Venture Capital & Buyout Funds, 1992-2007

37 6 7

1317

27

58

84

50

139

18

24 2629

1218

2127

50

7471

76

47

2529

51

96102

143

34

$0

$20

$40

$60

$80

$100

$120

$140

$160

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Co

mm

itm

en

ts t

o F

un

ds

($

Bil

lio

ns

)

Years

US Venture Fund Commitments

US Buyout Fund Commitments

1 Year 3 Year*

Overall US Buyout Fund Growth 40% 41%

Overall US Venture Fund Growth 11% 17%

*Compound Annual Growth Rate

- 6 -© 2008 Boston Millennia Partners

MillenniaPartners

Fund Type1 Year

Return (%)3 Year

Return (%)5 Year

Return (%)10 Year

Return (%)20 Year

Return (%)

All Venture 19.5 9.4 8.5 18.3 16.7

All Buyouts 21.2 13.1 15.2 8.3 12.2

NASDAQ 7.6 6.6 14.5 5.3 10.9S&P 500 2.1 6.4 10.6 4.2 9.3

Private Equity Performance Index

Private equity funds continue to outperform the public markets over the long term

In recent 5 year period, Buyouts have outperformed

Increasing capital base and interest rates will likely decrease future returns in the buyout asset

class

Over the longer term, Venture Capital has outperformed

Early stage VC is the most attractive investment over the 10 and 20 year periods

The “bubble cycle” has reduced recent venture returns dramatically

Source: Thompson Financial/NVCA

Source: Thomson NVCA (12/31/07)

- 7 -© 2008 Boston Millennia Partners

MillenniaPartners

Challenges in the VC Investment Environment

- 8 -© 2008 Boston Millennia Partners

MillenniaPartners

A Basic VC Rule:

“Discover and innovate close to home,” but – “Scale up where costs are lowest”

High cost of living - expensive to relocate to Massachusetts High housing and healthcare costs Labor force outsourcing is increasing in VC as well

IDC Research expects outsourcing to increase at an annual rate of 20% through 2008

It is not possible, in specific skill sets, to compete on the same basis as other low cost international geographies

Massachusetts is a Challenging Environment

MillenniaPartners

- 9 -© 2008 Boston Millennia Partners

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Issues Facing the Venture Capital Industry

Available supply of qualified entrepreneurs

Limited capital available for start-up companies

Inefficient business models requiring large amounts of capital

Incentive programs for entrepreneurs given option expensing

Capital gains tax discussions

Governance issues, Sarbanes-Oxley

Valuation guidelines and consistency

Capital flow to shorter term investment vehicles

Reduced liquidity through IPOs and lower values from M&A

- 10 -© 2008 Boston Millennia Partners

MillenniaPartners

IPO Companies Older in 2003

3.53.2

2.8 2.83.1

4.5

3.6

5.7 5.7 5.6

6.2

7.1

0

1

2

3

4

5

6

7

8

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Time from Initial Equity Funding to IPO for Venture-backed Companies

Mature Companies Going Public

Source: VentureOne

Ye

ars

He

ld T

o E

xit

IIncreases in time to IPO• Illiquidity in the current markets have set the bar higher• Sarbanes Oxley has made the IPO process more challenging for younger companies• VCs have attempted to rebuild portfolios in post bubble years• VCs are becoming more risk averse and looking for later stage deals

- 11 -© 2008 Boston Millennia Partners

MillenniaPartners

4.0

4.7

3.5

3.02.8

2.42.0

2.7

3.6

4.6

5.4

6.0

6.7

0

1

2

3

4

5

6

7

8

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years to M&A Exits IncreasesMean Time From Initial Funding to M&A Exit for Venture-backed Companies

Ye

ars

He

ld T

o E

xit

Source: VentureSource/VentureOne

Increases in time to M&A• Current financial markets have slowed the M&A process at large corporations• VCs have attempted to rebuild portfolios in post bubble years• VCs are becoming more risk averse and looking for later stage deals

- 12 -© 2008 Boston Millennia Partners

MillenniaPartners

0

100

200

300

400

500

600

700

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Venture-backed IPOs vs. M&A Transactions

Nu

mb

er

of

Tra

ns

ac

tio

ns

Source: NVCA

= Venture-backed M&A

= Venture-backed IPOs

IPO vs. M&A Exits

Shift in Exit Strategy % IPO 1990-2000: 55% % IPO 2001-2007: 14%

- 13 -© 2008 Boston Millennia Partners

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NVCA Perspective on Trends in Massachusetts VCObservations from Mark Heesen, President, National Venture Capital Association – 4/9/2008

• MA has a stable venture industry that has been actively investing in regional innovation since the

early days of venture investing in the US (late 1970’s)

• In 2006, Massachusetts ranked 4th overall in revenues generated by venture-backed companies

headquartered in the state from 2003-2006 with $131 billion and a 13% increase compared to a

national average of 12%

• In 2006, Massachusetts ranked 4th overall in employment at venture-backed companies

headquartered in the state between 2003-06 with 674,000 people and a 3% increase compared to a

national average increase of 4%

• Last year, Massachusetts venture invested $3.5 billion into 356 Massachusetts companies. $1.3B

went into Massachusetts Internet related companies

• New England based venture funds committed most of their capital to life sciences companies

- 14 -© 2008 Boston Millennia Partners

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Venture Capital Investment - By Geography: 2007

California $14.6B

Washington $1.3B

Texas $1.5B

Colorado $0.5B

Massachusetts $3.5B

Virginia $0.4B

New York $1.2BMaryland $0.6B New Jersey

$0.6B

Pennsylvania $0.8B

= $1.4 Billion

Georgia $0.5B

Source: PWC MoneyTree

MillenniaPartners

$1B+ S.C.

= Faster VC Investment Growth than MA(2004-2007)

= Slower VC Investment Growth than MA(2004-2007)

- 15 -© 2008 Boston Millennia Partners

MillenniaPartners

Allocation of US Venture Investments by State

0%

10%

20%

30%

40%

50%

60%

Californ

ia

Mas

sach

uset

ts

New York

Texas

Colorad

o

New Jers

ey

Penns

ylvan

ia

Wash

ingto

n

Georg

ia

State

% o

f T

ota

l U

S C

apit

al I

nve

sted

Source: PWC MoneyTree

20042007

MillenniaPartners

- 16 -© 2008 Boston Millennia Partners

MillenniaPartners

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Start-up

Early

Expansion

Later

Stage: Massachusetts VC Market EnvironmentC

ap

ita

l (

$ B

illi

on

s)

Lack of Capital for Early Stage Companies

Source: VentureSource

39% Start-up and Early

31% Start-up and Early

20% Start-up and Early

• In last 5 years, Later Stage investments have become roughly half of all Massachusetts venture investing

- 17 -© 2008 Boston Millennia Partners

MillenniaPartners

$0 $200 $400 $600 $800 $1,000

Retail

Healthcare

Business

Networking

IT Services

Computers

Media

Semiconductors

Industrial/Energy

Telecom

Medical Devices

Software

Biotech

200720062005

Source: PWC MoneyTree Survey

$ Millions

Venture Capital Investments in Massachusetts: 2005 – 2007

2007 Funding SizesBiotech

86 Deals$10M/Deal

Software118 Deals$6M/Deal

Medical Devices 41 Deals

$8M/Deal

MillenniaPartners

$868M:

$708M:

$328M:

Venture Investments 2005-2007Sector Total Invested ($M) Sector Growth

Biotech 2,201 57%Software 2,019 21%Medical Devices 838 36%Telecom 702 -23%Industrial/Energy 666 209%

Highlights

• Biotech overtook software in 2006

• Software are telecomm have suffered from foreign competition for VC money

• Robust growth in the industrial/energy sector

- 18 -© 2008 Boston Millennia Partners

MillenniaPartners

2004-2007 International GDP Annualized Growth Rate

United States

Europe

China - $2.28 Trillion

Germany

United Kingdom

France

Italy

Middle East

Canada

India

Brazil

Spain

South Korea

Mexico

Australia

Netherlands

Taiwan

Russia

Argentina

0%

2%

4%

6%

8%

10%

12%

0.01x0.1x1x10x

Global GDP Growth – 4.2%

Individual Country/Region

US Healthcare

Relative Market Share

MillenniaPartners C

om

po

un

d A

nn

ua

l G

DP

Gro

wth

Ra

te

= $2 Trillion in 2007 GDP

US Healthcare - $2.26 Trillion

Source: US Department of Health & Human Services/ US Department of Commerce

Japan

- 19 -© 2008 Boston Millennia Partners

MillenniaPartners

Mass Biotech 25 - 2007

Indicates a venture-backed company

Source: Yahoo Finance (# of employees is approximate)

56% of the companies on the Mass Biotech 25 Index are venture-backed and currently employ 68,451 people

No. Company Symbol Market Cap Employees

1 Thermo Fisher Scientific TMO $23,810 30,500

2 Boston Scientific Corp. BSX $20,380 27,500

3 Genzyme Corp. GENZ $19,620 10,000

4 Biogen Idec BIIB $19,390 4,300

5 Hologic HOLX $7,770 3,580

6 Waters Corp. WAT $5,660 5,000

7 Millennium Pharmaceuticals MLNM $5,430 966

8 Charles River Laboratories CRL $4,010 8,500

9 Millipore Corp. MIL $3,770 6,000

10 Vertex Pharmaceuticals VRTX $3,620 1,132

11 PerkinElmer PKI $2,980 8,700

12 Cytec Corp. CYT $2,730 6,800

13 Bruker BioSciences Corp. BRKR $2,630 2,212

14 Sepracor SEPR $2,430 2,271

15 Haemonetics Corp. HAE $1,550 1,826

16 Parexel International Corp. PRXL $1,480 7,500 17 Alkermes ALKS $1,170 830

18 Cubist Pharmaceuticals CBST $1,130 469

19 Alnylam Pharmaceuticals ALNY $970 129

20 PolyMedica Corp. PLMD $960 2,441

21 Phase Forward PFWD $723 509

22 AMA Pharmaceuticals AMAG $667 88

23 Zoll Medical Corp. ZOLL $586 1,290

24 Momenta Pharmaceuticals MNTA $424 163 25 Palomar Medical Technologies PMTI $282 252

- 20 -© 2008 Boston Millennia Partners

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Mass High Tech 25 - 2007Nearly 52% of the companies on the Mass High Tech 25 Index are venture-backed and currently employ 62,088 people

No. Company Symbol Market Cap Employees1 EMC Corp. EMC $31,170 37,700 2 Raytheon Co. RTN $28,360 72,100

3 American Tower Corp. AMT $16,050 1,124

4 Analog Devices ADI $8,790 9,600

5 Iron Mountain IRM $5,500 11,600

6 Akamai Technologies AKAM $5,220 1,300

7 Nuance Communications NUAN $3,900 3,900

8 Teradyne TER $2,210 3,600

9 Novell NOVL $2,200 4,100

10 Varian Semiconductor Equip VSEA $2,160 1,702

11 Parametric Technology Corp. PMTC $1,790 4,449

12 VistaPrint Ltd. VPRT $1,600 992

13 Kronos KRON $1,320 2,400

14 Progress Software Corp. PRGS $1,270 1,662

15 Hittite Microwave Corp. HITT $1,250 315

16 MKS Instruments MKSI $1,130 2,924

17 L-1 Identity Solutions ID $1,060 1,819

18 Sycamore Networks SCMR $1,030 426

19 Sonus Networks SONS $1,010 926

20 Cognex Corp. CGNX $997 799

21 Aspen Technology AZPN $993 1,291 22 3Com Corp. COMS $961 6,309

23 Avid Technology AVID $950 2,728 24 Brooks Automation BRKS $675 1,900 25 CMGI CMGI $669 3,200

Indicates a venture-backed company

Source: Yahoo Finance

- 21 -© 2008 Boston Millennia Partners

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Influence of Massachusetts Leaders on the Future of VC

- 22 -© 2008 Boston Millennia Partners

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NVCA Perspective on Challenges facing Massachusetts VCObservations from Mark Heesen, President, National Venture Capital Association – 4/9/2008

• Southern California (San Diego, Los Angeles, Orange County) is quietly becoming the second

largest geographic region receiving venture dollars eclipsing the New England region which

has held this position since venture capital statistics were kept.

• An informal survey of the region’s top venture firms indicates that the Massachusetts venture

industry is increasingly focused on deals outside New England because of high operating costs

& the perceived superiority of opportunities elsewhere

• The educated youth brain drain combined with a more conservative risk profile of region can

discourage young entrepreneurs. Coupled with the high cost of living and infrastructure issues,

we continue to export many of our most educated citizens to other states.

- 23 -© 2008 Boston Millennia Partners

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Massachusetts Universities

Massachusetts Government

Massachusetts Technology/Biotech

Companies

Increasing cooperation among Massachusetts Government, Universities & Tech/Biotech Companies is essential to future job growth, preservation of talent, and economic development

MillenniaPartnersMassachusetts Technology Development Triangle

Job Creation

Talent Preservation

Long Term Economic Development

External FundingInternal Funding Long Term Massachusetts Development

• Government Initiatives

• $1B Biotech Proposal

• Venture Funding

• Angel Investments

• Biotech IPO’s