b e y o n d b a n k i n g — p a r t n e r s f o r i n n o v a t i o n

Alternative Funding Sources &

Debt FinancingPhilip G. Korn - Senior Vice President

Emerging Technologies

Silicon Valley Bank

March 3, 2001

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A Bit About SVB - Who We Are

Only US commercial bank that focuses exclusively on entrepreneurs developing early stage tech and life sciences companies

Established 1983, NASDAQ listed under SIVB 1,000 employees located in 25 offices serving

9,000 clients nationwide Financing partner with VCs and more recently

the much broader angel and incubator community

Focus on relationships - never too early to open an account

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Chicago, IL

Phoenix, AZ

San Diego, CA

Northern Virginia, VA

Boston, MA

Atlanta, GA

Austin, TXBoulder, CO

Seattle, WA

Portland, OR

Napa Valley, CA

Sand Hill, CAPalo Alto, CA

Santa Clara, CA

Los Angeles, CAIrvine, CA

SVB

SVB

SVBSVBSVBSVB

SVB

SVBSVB

SVB

SVB

SVB

SVB

SVB

SVB SVB

SVBSanta Barbara, CA

SVB

SVBSonoma, CA

SVB

Minneapolis, MN

Philadelphia, PA

SVB

Dallas, TX

SVB

25 offices nationwide with clients in all 50

states

Silicon Valley Bank is the the source of financial services for early-stage

companies throughout the United States…

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2000 IPO Clients @Road, Inc.

Aclara Biosciences Inc.

Advanced Power Technology, Inc.

AeroGen, Inc.

Alliance Fiber Optic Products, Inc.

Applied Molecular Evolution, Inc.

Apropos Technology, Inc.

Argonaut Technologies

Array Biopharma, Inc.

AvantGo, Inc.

Avenue A, Inc.

Centra Software, Inc.

Ciphergen Biosystems, Inc.

ClickSoftware, Inc.

Corillian Corp.

CoSine Communications, Inc.

CrossWorlds Software, Inc.

Cypress Communications, Inc.

Deltagen, Inc.

DigitalThink Inc.

DURECT Corporation

Dyax Corp.

Eprise Corporation

Esperion Therapeutics, Inc.

Evergreen Solar, Inc.

Evoke Communications, Inc.

Exelixis Inc.

Genomica Corporation

Handspring, Inc.

HealthGate Data Corp.

iBEAM Broadcasting Corp.

I-many, Inc.

inSilicon Corporation

InterMune Pharmaceuticals Inc.

IntraBiotics Pharmaceuticals, Inc.

Lightspan Partnership, Inc.

Mainspring Communications, Inc.

MatrixOne, Inc.

McData Corporation

Moldflow Corporation

Neoforma.com, Inc.

Network Engines, Inc.

Nogatech, Inc.

Nuance Communications, Inc.

Numerical Technologies, Inc.

OmniSky Corporation

Opus360 Corporation

OraPharma, Inc.

Oratec Interventions, Inc.

Organic Inc.

Pixelworks, Inc.

Quantum Effect Devices, Inc.

Rosetta Inpharmatics, Inc.

Selectica, Inc.

Sequoia Software Corporation

Sonic Innovations Inc.

Sonus Networks, Inc.

Speechworks International,

Inc.

Support.com, Inc.

T/R Systems, Inc.

Talarian Corporation

Triton Network Systems, Inc.

Vicinity Corporation

ViryaNet Ltd.

webMethods, Inc.

Websense Inc.

Witness Systems

The companies highlighted above represent some, but not all, of Silicon Valley Bank’s current clients which completed initial public offerings during 2000.

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Q3 2000 IPO Clients

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Silicon Valley Bank Northern California banking niches include the following:

TECHNOLOGY & LIFE SCIENCES - ANGEL / INCUBATOR / BOOTSTRAPPED

Emerging Technologies:

TECHNOLOGY & LIFE SCIENCES - VENTURE BACKED

Online Services

Communication & Electronics

Software

Life Sciences

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Other Bank Products & Groups

Commercial Finance eSource Executive Banking Cash Management Corporate Finance Venture Capital Group Supply Chain Services International

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Recent Bank Developments

Closed on $120 million “fund of funds” Closed on a $60 million Venture Fund to invest

in bank clients (passive investments) Emerging Tech Showcase series New offices in San Francisco, NY and FL Electronic Banking (SVBeConnect) Venture Connect

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SVB Emerging TechClient Focus

1,100+ early stage technology companies Similar client hurdles - funding, management

team, product development, strategic alliances Leverage existing cash with SVB credit

facilities. Connect clients with other service providers

(accountants, attorneys, HR and PR firms) Work closely with angel investors, professional

angel organizations & technology incubators. Provide access to networking opportunities and

referral sources.

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SVB Emerging TechClient Focus (cont’d)

Understand the needs of early stage non-venture capital backed technology & life sciences clients.

Act as a business consultant to our clients as opposed to solely being their banker

Selectively take on clients with a high probability of success.

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Typical Needs Early On

Standby Letter of Credit Corporate credit cards Equipment Financing Referrals for office space, controller, recruiters

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Debt Financing

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Bank Debt Is Defined As: 12

From

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Debt financing has one key difference from

equity:

IT MUST BE PAID BACK!

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Debt Financing

•Who is ready to take on debt,

•What type of debt is appropriate,

•Why should you use debt,

•When to layer on debt, and

•How much to obtain

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Early Stage Debt FinancingTypical Hurdles

Lack of track record (alpha, beta) No revenues or minimal revenues Lack of alliances Strong competition (certain industries) Incomplete management team Short window of opportunity 3-6 months cash on hand

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Early Stage Debt FinancingTypical Strengths

Founders’ technical/marketing expertise One or more well connected angel investors Well focused and well defined business plan Board of Advisors that can validate company Quality service providers ***Enthusiasm and ability to execute

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Debt Financing Vehicles: (Who, What & When)

Stage of Development / Financial Profile

R&D Product Launch Market PenetrationMaturity

Cash Flow Negative Cash Flow Positive

Available Debt Financing

Venture Leasing

Niche Banking

Factoring

Asset Based

Traditional Banking

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Debt Financing: (Why)

Basic Concepts:

• Debt is less expensive than equity. Utilize debt financing whenever available.

• Debt Financing is used to leverage existing equity, not replace it, in an effort to improve valuation.

• Debt finances growth in assets:

• Accounts Receivable Growth

• Capital Expenditures

• Business Acquisitions

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Underwriting Criteria: (How)

• Management Team ?

• Investors ?

• Advisors ?

• Market size and market growth ?

• Defensible Business Plan / Technology -- What is your IP ?

• Cash Generation/Burn Rate ?

• Future Milestones for Funding ?

• Sources of repayment ?

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Sources of Repayment: (We need 2)

• Cash on Hand

• Future Equity Rounds

• Cash Flow:

•Existing

•Projected/Future (how certain)

• Guarantors

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Financial Covenants

• Simply Designed To Protect Sources of Repayment

• Should be Established as per Company Projections

• Violations Viewed as Red Flags

• Must Match Structure of the Debt

• Working Capital: Current, Quick and Leverage

• Term: Debt Service, Profitability and Tangible Net Worth

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What we expect from our borrowers

• Frequent and open communication

• Access to management, advisors, investors, alliance partners, service providers and customers

• Timely and Accurate Financial Reporting: Must have systems in place

• Hold the Company to self-generated projections

• Contingency planning

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Summary•SVB is far more than just a source of credit but additionally a trusted advisor.

•Establish the banking relationship early and keep us informed as you accomplish your milestones and face new milestones.

•Bank debt can be a key component in a growth company’s overall capitalization. It is inexpensive relative to equity and will allow you to build your valuations without spending precious equity cash.

•Look for a Bank that understands your business, is committed to technology lending, and welcomes start-ups !

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Q & A