R.I.P.

GOODTIMES

1

NOW WHAT?

3

WALL STREETHOW DID WE GET HERE?

ERIC UPIN

HOUSING LED RECESSION

OVER LEVERAGED FINANCIALS

FALLING ASSET PRICES

FROZEN CREDIT MARKETS

WEAK HOUSEHOLD BALANCE SHEET

GLOBALLY SYNCHRONIZED SLOWING EXACERBATING ALL OF ABOVE

FORCES OF INFLATION VERSUS FORCES OF DEFLATION

MULTIPLE PROBLEMS

0

5,000

10,000

15,000

5

10

15%

Dow Jones Industrials (solid line)

1970 1980 1990 2000 2008

Inflation (dotted line)

Source: Bureau of Labor Statistics, Dow Jones

Bear Market 1966-1982

Bull Market 1983-2000

MARKET CYCLES ARE LONG

Source: Federal Reserve, International Labour Organization

100

125

150

1996 2002 2006

Indexed global productivity

0

2

4

6

8

10%

1990 19

Fed funds

95 2000 2005

rate

Sep 20080

1

2

3

4B

1980 1990 2000 2008

Size of global workforce

DRIVEN BY PRODUCTIVITY AND CENTRAL BANK

Source: Bureau of Labor Statistics, Federal Reserve

0

4

8

12

16%

Average

2000

Yield on 10-year U.S. treasuries

1960 1970 1980 1990 June 2008-5

5

15

25%

Av

1950 1960 1970 1980 1990 2000

U.S. inflation (annual year/year CPI change)

2007

erage

RESULTING IN FALLING INFLATION AND COST OF DEBT

Source: Bureau of economic analysis

-8

-6

-4

-2

0

2%

1985 1990 1995 2000 2005

U.S. current account / GDP

FUELING A NATION OF CONSUMERS

U.S. BUYS

FOREIGNGOODS

FOREIGN COUNTRIES USE PROCEEDS TO BUY

TREASURIES

DEMANDKEEPS

LONGER-TERM RATESLOW

FOREIGN $s RECYCLED INTO TREASURIES

Source: Bridgewater

AS A RESULT, DEBT BALLOONED

Source: Bridgewater

DEPENDENT ON THE KINDNESS OF STRANGERS

Source: Bridgewater, National Association of Home Builders

0

20

40

60

80

100%

2002 2006

Alt-A

Subprime

Prime-Conforming

Government

Prime-Jumbo

Distribution of U.S. dollar mortgage originations

0

1

2M

Average

1980 1985 1990 1995 2000 2005

Single family housing starts

2008E

LIQUIDITY AND EASING SPREAD TO HOUSING

Source: Robert Shiller

50

100

150

200

250

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

U.S. real home price index

2007

1998-2006 8.0% annualized

1930 - 19970.7% annualized

1900-1929-1.2% annualized

HOME PRICES GREW SUBSTANTIALLY ABOVE MEAN

GROWTH IN SECURITIZATIONS

LEVERAGE ON THOSE STRUCTURES

INCREASED LEVERAGE ON BANK’S BALANCE SHEETS

OFTEN MIS-RATED BY AGENCIES

REPEAL OF GLASS-STEAGALL

REGULATORY CHANGES ENCOURAGING HOME OWNERSHIP

STRUCTURED PRODUCTS AND REGULATORY CHANGES COMPOUND THESE ISSUES

Note: Outstanding amount is not a pure measure of risk as some positions are netted and have collateral; U.S. GDP was $13.8T in 2007Source: Bank for International Settlements

0

175

350

$525T

U.S. GDP

1995 1998 2001 2004 2007

Outstanding amount of open positions in OTC derivatives markets

35x U.S. GDP

HUGE GROWTH IN DERIVATIVES

Source: Bridgewater

SIGNIFICANT EXCESS CAPACITY

Source: Merrill Lynch

0

100

200

300

400

500

1998 2000 2002 2004 2006 2008

Investment grade spreads (basis points)

0

250

500

750

1,000

1,250

1998 2000 2002 2004 2006 2008

High yield spreads (basis points)

VERY TIGHT CREDIT

Source: Bank of Japan, Yahoo Finance

0

10,000

20,000

30,000

40,000

1990 1995 2000 2005

Nikkei Index 1988 - present

Oct 20080

2

4

6

8%

1990 1995 2000 2005

Japanese discount rate

Jul-08-6

-3

0

3

6%

Average

1990 1995 2000 2005

Annual real GDP growth

JAPAN MAY BE INSTRUCTIVE

GLOBAL

SECULAR

NOT “NORMAL CRISIS”, WILL TAKE TIME

CREDIT NOT EQUITY DRIVEN

SIGNIFICANT RISK TO GDP GROWTH

POTENTIAL FOR GREATER REGULATORY REFORMS / SCRUTINY

KEY THEMES

MANAGE WHAT YOU CAN CONTROL

SPENDING

GROWTH ASSUMPTIONS

EARNINGS ASSUMPTIONS

FOCUS ON QUALITY

LOWER RISK

REDUCE DEBT

OUR TAKE

21

MAIN STREETWHERE ARE WE NOW?

MICHAEL BECKWITH

THE U.S.: A NATION OF CONSUMERS

THE CHANGING FACE OF THE ECONOMY

$ TRILLIONS 1987 1997 2007

TOTAL U.S. GDP 4.7 8.3 13.8

CONSUMER SPENDING 3.1 5.8 10.1

CONSUMER AS % OF TOTAL GDP 66% 70% 73%

DISPOSABLE PERSONAL INCOME 3.5 6.0 10.2

Source: Bureau of Economic Analysis.

EXPLOSION IN HOME OWNERSHIP

LONG-TERM AVERAGE

HO

ME

OW

NER

SHIP

%

Source: Current Population Survey/Housing Vacancy Survey, Series H-111 Reports, Bureau of the Census, Washington, DC 20233.

WAGE GROWTH & PERSONAL SAVINGS

PERSONAL SAVINGS RATE FALLING REAL WAGES ERODING PCE

PERSONAL SAVINGS RATE EVAPORATED

REAL WAGE GROWTH FELL

Source: Bureau of Economic Analysis, Federal Reserve, Haver, Bureau of Labor Statistics, Census Bureau, Factset, Morgan Stanley Research.

CONSUMERS BUCKLING UNDER DEBT

HOUSEHOLD DEBT SERVICE RATIO HOUSEHOLD FINANCIAL OBLIGATION RATIO

DSR = DEBT PAYMENTS ON OUTSTANDING MORTGAGES AND CONSUMER DEBT/DISPOSABLE PERSONAL INCOME

FOR = ADDS AUTOMOBILE LEASE PAYMENTS, RENTAL PAYMENTS, H/O’S INSURANCE AND PROPERTY TAX PAYMENTS TO THE DSR

Source: Bureau of Economic Analysis.

MEWs BECAME THE NEW PIGGY BANK

MEW CONTINUES TO FADE…

Source: Haver, BEA, NAHB, Conference Board, EIA, Morgan Stanley Research.

FROM VIRTUOUS TO VISCIOUS CYCLE

MORTGAGE RESET

DELINQUENCIES/FORECLOSURES

PRICES FALL

MEWS DECREASE

CONSUMER SPEND FALLS

JOB MARKET ERODES

RECESSION

UNEMPLOYMENT SPIKES HIGHER

Source: Federal Reserve, Haver, Bureau of Labor Statistics, Census Bureau, Factset, MorganStanley Research, Case-Shiller & DB Global Market Research.

ON THE BRINK OF A RECESSIONCONSUMER CONFIDENCE AT MULTI-DECADE LOWS

ISM IS FALLING FAST GDP IS POISED TO TURN NEGATIVE

Source: Haver, NAHB, Conference Board, NFIB, Morgan Stanley Research, DoL & DB Global Markets Research.

EARNINGS BEGINNING TO ROLL

EARNINGS DOWN 18% ON ESTIMATES MADE 12 MONTHS AGO

Source: Datastream, Robert Shiller, Factset and Morgan Stanley Research.

V-SHAPED RECOVERY UNLIKELY

S&P 500ITMEDIATELECOM SVCS

Y /

Y

Current S&P 500 Consensus Actual and Expected Operating Earnings Growth (Weighted-Avg. % / Y/Y)CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08E CY09E

Financials 5% -10% 18% 25% 11% 5% 23% -37% -46% 109%Consumer Discretionary 0% -24% 33% 11% 28% 2% 9% -10% -16% 41%Media -1% -6% 34% 12% 33% 28% 27% 15% 11% 11%Information Technology 28% -63% 0% 46% 43% 20% 12% 21% 10% 17%Telecom Services 6% -24% -8% 0% -8% 14% 17% 5% -1% 10%S&P 500 17% -17% 5% 18% 20% 15% 16% -4% 1% 23%

ADVERTISING MARKETS ARE CRACKINGY

/ Y

Source: TNS U.S. Advertising Expenditure Estimates

RETAIL/ECOMMERCE DETERIORATINGY

/ Y

Source: US Census Bureau.

MOBILE IS NOT IMMUNEY

/ Y

Source: TNS U.S. Advertising Expenditure Estimates

TECH SPENDING DEPENDS ON ECONOMYY-Y Change in S&P 500 Earnings, Technology Spending (1996-2008E)

Source: Bernstein Strategy Group; First CallDrop in earnings in Dec 07 was partly due to financial services industry write offs

-30%

-20%

-10%

0%

10%

20%

30%

Jun-

95

Dec

-95

Jun-

96

Dec

-96

Jun-

97

Dec

-97

Jun-

98

Dec

-98

Jun-

99

Dec

-99

Jun-

00

Dec

-00

Jun-

01

Dec

-01

Jun-

02

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

Jun-

07

Dec

-07

Jun

08E

S&P 500 EPS Growth Tech Spending Growth

ENTERPRISE INDICATORSP

C U

NIT

S S

OLD

(Y/Y

)

“IT spending is being more scrutinized now than at any point in the 2003 through 2007 timeframe … customers are showing more caution.”

- EMC, JUL 2008

“It's now clear that this economic softness is continuing into September.”

- INGRAM MICRO, SEP 2008

“Market developments of the past several weeks have been dramatic and worrying to many businesses. These concerns triggered a very sudden and unexpected drop in business activity.”

- SAP, OCT 2008

Source: Gartner Personal Computer Quarterly Statistics Worldwide Database, 5/08. JPMorgan estimates for 2008-2009

AMAZON.COM & BUY.COM

•Strong business model•Focus on core value proposition

•Profitable growth•Trim fat during lean times

Amazon.com Financial Performance '99‐'05

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

1999 2000 2001 2002 2003 2004 2005

$ Mil

‐40%

‐20%

0%

20%

40%

60%

80%

Revenue Opex Revenue Growth EBIT Margin

Buy.com Financial Performance '99‐'05

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

1999 2000 2001 2002 2003 2004 2005

$ Mil

‐60%

‐50%

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

Revenue Opex Revenue Growth EBIT Margin

SALESFORCE.COM & SIEBEL

•Tailor sales message to environment•Take advantage of competitors’ weakness

•Understand your true customers•Value of quick ROI and low cost

Salesforce.com Financial Performance '00‐'05

$0

$50

$100

$150

$200

$250

$300

$350

2000 2001 2002 2003 2004 2005

$ Mil

‐150%

‐100%

‐50%

0%

50%

100%

150%

200%

250%

300%

350%

Revenue Opex Revenue Growth EBIT Margin

Siebel Financial Performance '00‐'05

$0

$500

$1,000

$1,500

$2,000

$2,500

2000 2001 2002 2003 2004 2005

$ Mil

‐25%

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

25%

Revenue Opex Revenue Growth EBIT Margin

38

YOUR STREETWHERE DO WE GO FROM HERE?

DOUG LEONE

UPS AND DOWNS ALWAYS OCCUR

IT IS DIFFERENT THIS TIME

RECOVERY WILL BE LONG

TIME

$

CHANGES IN FINANCING ENVIRONMENT

Venture firms brace for cash crunchBig investors turn away from VCs as the financial crisis takes its toll.By Michael V. Copeland

“If you are a venture capitalist looking for a new limited partner, don't stop in here. Don't try and sell me on a new fund, and good luck trying with everyone else."

“If you’re a second or third-tier venture firm trying to raise another fund, forget about it.”

“It will start first in private equity funds where there will be a substantial miss on capital calls. Then we'll see it next in venture capital."

"If you are start-up that is not cash-flow positive you are in a tough spot right now. If you haven't figured out your business model yet you are in trouble.”

“It's going to be hard to get another round. You aren't going to get a second life this time."

NEW REALITIES

$15M RAISE @ $100M POST IS GONE

SERIES B/C WILL BE SMALLER RAISES

CUSTOMER UPTAKE WILL BE SLOWER

CUTS ARE A MUST

NEED TO BECOME CASH FLOW POSITIVE

INCREASED CHALLENGES

M&As WILL DECREASE

PRICES WILL DECREASE

ACQUIRING ENTITIES WILL FAVOR PROFITABLE COMPANIES

IPOs WILL CONTINUE TO DECREASE AND WILL TAKE LONGER

SURVIVAL

PRESERVECAPITAL

GRABSHARE

CASH IS KING

UNDERSTANDING OF MARKET UPTAKE

ASSESSMENT VS. COMPETITORS

CUSTOMERS’ ABILITIES TO PAY

NEED FOR PROFITABILITY

ESTABLISHED REVENUE MODEL✔

✔

✔

✔

✔

✔

MUST-HAVE PRODUCT✔

OPS REVIEW

ENGINEERING DECREASE HEADCOUNT FOR NEXT VERSION?✔

PRODUCT WHAT FEATURES ARE ABSOLUTELY ESSENTIAL?✔

MARKETING MEASURING & CUTTING WHAT’S NOT WORKING? ✔

SALES & BUS DEV GETTING RETURN ON EXPENSE INCREASE?✔

PIPELINE REAL PROBABILITIES OF CLOSING DEALS?✔

FINANCE✔CASHBURN WHERE CAN PAYMENTS BE DEFERRED?G&A WHAT DEPARTMENTS ARE ESSENTIAL?

DEATH SPIRAL

SURVIVAL OF THE QUICKEST

TIME

EXPE

NSE

S

DEATH SPIRAL

10/08

COMPANY ACOMPANY B

NO ONE MOVES FAST ENOUGH

OP EX % Y/Y CY01 CY02 CY03 CY04

CSCO -3%

9%

-2%

-3%

-15%

-3%

-10% -1% 9%

EMC -22% -4% 31%

ADBE -1% 12% 18%

YHOO 14% 33% 57%

AMZN -4% 10% 24%

Average -5% 10% 28%

CHOICES

WHAT DECISIONS DOYOU PLAN TO MAKE?

WHAT DECISIONS DO YOU WISH YOU HAD MADE?vs.

THE SOLUTION

PERFORM SITUATION ANALYSIS

ADAPT QUICKLY

USE A ZERO-BASED BUDGETING APPROACH

MAKE CUTS

REVIEW SALARIES

EMPLOY A HEAVILY COMMISSIONED SALES STRUCTURE

BOLSTER BALANCE SHEETS

BECOME CASH FLOW POSITIVE AS SOON AS POSSIBLE

SPEND EVERY DOLLAR AS IF IT WERE YOUR LAST

GET REAL OR GO HOME

54

Q & A