ipo process overview

May 19, 2001

Soup to Nuts Seminar Series

2

Presenter: Brian Kasser, Principal, Software Investment Banking Practice

Founded in Q4 1998 by Thom Weisel, former CEO of Montgomery Securities for 27 years, and officially opened doors for business February 1999

Capital raised: 1999: $16B 2000: $28B

$ in M&A advisory transactions: 1999: $ 7B 2000: $ 76B

Annual revenue: 1999: $186MM 2000: $492MM

810 employees at 5/19/01

Offices in San Francisco, Menlo Park, New York, Boston and London

Focused exclusively on investment themes transforming the economy & targeting the high quality growth companies

Merchant banking approach combining research, underwriting, M&A advisory and private equity investment activities

Combines deep domain expertise with bulge bracket execution capabilities

Thomas Weisel Partners is the Leading Investment BankExclusively Focused on Emerging Growth

3

Table of Contents

I. IPO Process Overview

II. IPO Market Overview

III. Overview of Thomas Weisel Partners

IPO Process Overview

5

IPO Process Overview

Select the Team

Draft a Document / Conduct Due Diligence (Bankers & Research)

File Registration Statement with the SEC

Marketing (Roadshow)

Pricing / Trading

6

Quarterly revenue run rate greater than $10 million and attractive sequential growth

Visibility (2 quarters out)

Profitability (≤ 2 quarters after filing)

Market position (first mover advantage – market leaders)

Stable customers (Global 1000)

Solution sold at sizable average selling prices (“ASP”)

Proven business model

Strong strategic channel partners

Reasonable mix between license / service revenue

Reasonable mix between direct / indirect sales channels

Strong board representation

Well-recognized investors

Management (seasoned / experienced)

Today Institutional Investors are evaluating potential technology IPOs based on the following metrics / attributes:

Characteristics of Companies that are Ready for an IPO

7

Identifying and Selecting Investment Banks for an IPO

Full-Service Investment Bank

Strong Research Capability with Domain Expertise and “Active” Approach Names (Publishing) Dialogue with both Sales Force and Institutions

Focused and Active Sales and Trading within the Company’s Sector

Experienced Investment Banking Professionals with Sector Wide Knowledge and Advisory Capabilities

Reputation and Strength of Firm

“Fit” and Comfort with the Firm

8

Landscape of the Leading Investment Banks (Unbiased)

StrongExecution

LimitedExecution

Emerging GrowthFocus

Broad/DilutedFocus

Goldman Sachs

Morgan StanleyMerrill Lynch

CS First Boston DLJ

Salomon Smith Barney

First Union

SG Cowen

Deutsche Bank Alex. Brown

Banc of America

Fleet Robertson

J.P. Morgan Chase

Piper Jaffray

Wit Soundview

RBC DRW

UBS

William Blair

9

Timing, Participants and Tasks of the IPO Process

Weeks 1-4 Weeks 5 – 10 Weeks 11 – 12 Week 12 Beyond

ManagementBankersResearchAttorneys

Accountants

ManagementBankers

AttorneysSyndicate

ManagementInst. Investors

BankersSyndicate

SalesResearch

Inst. InvestorsSyndicateAttorneys

ManagementInst. Investors

BankersResearch

SalesTrading

OrganizationalMeeting

Draft RegistrationStatement

Market PositioningEstablished

Financial/Customer Due

Diligence

CommitmentCommitteeApproval

File RegistrationStatement

PrepareRoadshow

Presentation

Respond to SECComments

PrintPreliminary

Prospectuses

Presentation toUnderwriters’Salesforces

One-on-oneswith Institutions

GroupPresentations

Bring Down DueDiligence

Price and Close

ThoroughResearchCoverage

Strong SalesSupport

Strong TradingSupport

Formulate M&AStrategy

InvestorRelations

Mini-Roadshows

Core Tasks

Key Participants

Time Frame

Drafting / Due Diligence

SEC Review Period

Marketing / (Roadshow)

PricingAfter Market

Support

10

Proceeds of the Offering

Gross Proceeds: The total offering size. Shares Offered * Expected Price

Gross Spread: The percentage of the gross proceeds paid to underwriters to cover management fees,selling commissions and underwriting concessions. Almost always 7% on IPO’s; less on follow-ons (usually negotiable)

Offering Expenses: Expenses of the offering borne by the company. Typically accounting and legal fees, filing fees and printing costs.

Net Proceeds: Gross Proceeds - Gross Spread - Offering Expenses

Example:

Gross Proceeds -- 5.0 million shares issued X $10.00/share expected price $50.0 million

Less: Gross Spread @ 7% --$10.00 X .07 = $0.70 X 5.0 million shares $ 3.5 million

Less: Offering Expenses ---$700,000 $ .7 million

Equals: Net Proceeds $45.8 million

11

Mechanics of an IPO Valuation

Some Form of Public Comparable Company Analysis: Price-to-Revenue, Price-to-Earnings, Combined with a Discounted Cash Flow

Pricing an “Art” Not a “Science” (Within Accepted Metrics)

Aftermarket Demand and Performance

Majority of Shares Still Held by Founders and Existing Investors

Market Ultimately Prices the Deal Based Upon Demand Characteristics

Post Offering, Valuation Fluctuates Based on:

Operational Progress and Announcements

Meeting “Street” Expectations Quarter After Quarter

Research Coverage and Visibility

Trading Volume and Liquidity

12

Variables of an IPO Valuation

Trading Multiple: Based on comparable analysis, the multiple at which the investment banks believe a company will trade in the public markets.

IPO Discount: The amount by which the investment bank discount the trading multiple to calculate the IPO Multiple. Typically, IPOs

are priced such that the stock price is expected to appreciate 15%.

IPO Multiple: The multiple at which a company is taken public. Trading Multiple/ (1 + IPO Discount)

Post Money Equity Value: The equity value of the company at an assumed IPO price. Post Deal Shares Outstanding * IPO Price

Pre-Money Equity Value: Post-Money Equity Value - Offering Size

Primary Shares: New Shares sold by the company

Secondary Shares: Existing Shares Sold by Insiders (Typically Not Applicable for an IPO)

13

Typical Stock Splits Prior to an IPO

Prior to going public, companies will usually effect a stock split or reverse stock split.

This is done to manipulate the price range of the common stock. To get it into a reasonable “filing range” (Typically low to mid teens)

A stock split does not change the company’s capitalization just the number of shares outstanding and consequently the earnings per share and per share price.

IPO Market Overview

15

Overview of the Current Economy

The slowing U.S. economy has resulted in a reduction of capital spending by enterprises, especially on IT equipment and software

The reduction in IT equipment and software spending has resulted in weak financial performance for technology companies and significant stock price declines

The combination of a slowing U.S. economy and significant valuation adjustments has all but dried up the IPO market for early-stage emerging growth companies

Investors have returned to historical less aggressive metrics to evaluate public technology companies and initial public offerings

Companies architected for the investor environment of 1999 and 2000 must be restructured

No more “top line growth at any cost” mentality Earnings matter!!!

16

Return to Historical Valuations

Siebel Historical P/E Multiple

0

50

100

150

200

250

Mar

-97

Jul-9

7

Nov

-97

Mar

-98

Jul-9

8

Nov

-98

Mar

-99

Jul-9

9

Nov

-99

Mar

-00

Jul-0

0

Nov

-00

Mar

-01

Oracle Historical P/E Multiple

0

20

40

60

80

100

120

Apr

-91

Apr

-92

Apr

-93

Apr

-94

Apr

-95

Apr

-96

Apr

-97

Apr

-98

Apr

-99

Apr

-00

Apr

-01

17

IPO Market Overview

Monthly Initial Public Offerings: 1996 to Present

$ Amount Raised ($ in Billions)

1996 1997 1998 1999 2000 2001 (a)

January $1.3 $1.3 $0.8 $0.9 $4.0 $0.2February 2.7 2.7 2.5 4.6 8.5 3.8March 4.0 1.6 2.7 4.4 14.4 4.2April 6.8 1.3 3.9 1.9 15.9 2.2May 6.2 3.5 3.9 7.9 2.3 0.1June 5.4 5.5 4.8 5.4 10.9July 2.5 3.8 3.8 11.2 10.8August 2.4 2.8 1.3 2.6 6.4September 2.8 3.6 0.1 3.4 5.1October 6.8 6.1 5.1 7.1 8.7November 5.3 8.2 3.7 17.1 6.5December 2.0 2.0 3.1 4.5 2.8

Total $48.1 $42.3 $35.8 $71.1 $96.4 $10.4Average/month 4.0 3.5 3.0 5.9 8.0 2.1

Number of Transactions

1996 1997 1998 1999 2000 2001 (a)

January 21 23 11 10 18 3February 54 41 37 31 48 7March 56 31 33 20 53 8April 47 18 35 26 35 4May 71 30 40 45 24 2June 77 54 49 54 35July 44 47 39 53 48August 46 38 16 27 63September 45 41 1 41 27October 82 64 3 52 26November 65 77 11 54 20December 38 32 14 38 9

Total 646 496 289 451 406 24Average/month 54 41 24 38 34 5

18

IPO Market Overview

Initial Public Offerings

% Priced Below Filing Range

% Priced Within Filing Range (a)

% Priced Above Filing Range

0%

20%

40%

60%

80%

100%

May

-98

Jul-

98

Sep

-98

No

v-98

Jan

-99

Mar

-99

May

-99

Jul-

99

Sep

-99

No

v-99

Jan

-00

Mar

-00

May

-00

Jul-

00

Sep

-00

No

v-00

Jan

-01

Mar

-01

May

-01

Pricing Trends in IPOs

The Big IPO Party…...

……..And The Morning Hangover

19

IPO Market Overview

1999 IPOs: After-Market Performance

222.0%

281.6%

51.7%

184.2%195.4%

292.6%305.7%

354.8%

317.1%

224.3%

153.2%

128.9%

234.8%

8.2%

79.0%

(42.3%)

31.9%

98.2%82.7%

10.0% 11.7% 8.7%

(21.2%)(9.9%)

(46.2%)

19.1%

108.5%

38.1%

(42.9%)

26.3% 21.2% 22.0%

(31.2%)

(2.8%)(21.7%)

(34.5%)(21.0%)

(53.8%)

(8.7%)

(100.0%)

(50.0%)

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

350.0%

400.0%

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTD


(3.6%)

(56.8%)

(47.4%)

13.5%

38.2%

0.2%

(24.6%)

(14.7%) (17.3%)

(3.0%)

2.1%

37.8%

(15.5%)

(1.6%)

(62.1%)(57.5%)

(1.9%)

13.0%

(11.7%)

(49.5%)

(37.1%)(30.3%)

(15.0%)(10.7%)

36.4%

(30.5%)

(80.0%)

(60.0%)

(40.0%)

(20.0%)

0.0%

20.0%

40.0%

60.0%

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTD


(23.1%)

16.3%

42.4%

25.0%

32.6%

22.9%

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Jan Feb Mar Apr May YTD

After Market Performance of IPOs that priced in 2001, 2000, and 1999

Overview of Thomas Weisel Partners

21

Focused exclusively on investment themes transforming the economy Target selected growth industries and highest quality companies Merchant banking approach combining traditional institutional brokerage with significant

private equity investment activities Comprehensive banking services for growth companies including equity underwriting,

convertible debt, private placements, M&A advisory and private client services

Founded in Q4 1998, officially opened doors for business February 1999 810 employees, expected to increase to over 900 by end of 2001 $40.4 billion in equity capital raised $85.7 billion in M&A advisory transaction volume announced/completed

Thom Weisel, CEO of Montgomery Securities for 27 years At Montgomery, Thom and other founders supervised an organization that in the 1990s

raised $100 billion in 988 equity offerings and executed 385 M&A transactions representing $100 billion in value

Other senior executives with 20+ years experience at Merrill Lynch, Credit Suisse First Boston, Salomon Smith Barney, Alex. Brown and others

San Francisco: Institutional Brokerage, Research, Corporate Finance, Private Client Dept. & Private Equity

New York: Research, Private Client Dept. & Corporate Finance Boston: Institutional Brokerage & Corporate Finance London: Institutional Brokerage & Corporate Finance


Strategic Positioning

Business Momentum

Management Team

Global Reach

Thomas Weisel Partners is the Leading Investment BankExclusively Focused on Emerging Growth

22

$134.0

$80.9

$136.3$132.1

$97.6

$48.5

$31.5

$8.5

$126.5

0

20

40

60

80

100

120

140

160

Q1 1999 Q2 Q3 Q4 Q1 2000 Q2 Q3 Q4 Q1 2001

Brokerage

Investment Banking

Thomas Weisel Partners Status Report

IPOs and Follow-ons Completed 156 transactions $40.4 billion raised 18 lead managed offerings

IPOs and Follow-ons Pending 14 transactions filed/announced $1.4 billion filed/announced 2 lead-managed offerings

Mergers and Acquisitions 68 transactions completed/announced 42 transactions in backlog $85.5 billion in completed transactions $178 million announced

Private Placements 25 transactions completed 15 transactions in process $1.4 billion raised

Convertibles 8 transactions completed $3.1 billion raised


Dollars ($mm)

As of April 9, 2001IPOs and follow-ons completed include over-allotment and convertibles do not include over-allotment

23

Company Life Span

Sta

ge

of

Dev

elo

pm

ent

M&A Advisory

Research, Sales & Trading

Capital RaisingsIPO

Private Client Services

Private Placements

Late Stage Private Equity (TWCP)

Venture Capital (TWVP)

Private Public


Comprehensive Services Across the Entire Lifecycle of Today’s Emerging Growth Companies

24

20+ years experience in investment banking Completed over 156 financings in Thomas Weisel Partners short history Focused exclusively on emerging growth companies Raised over $40 billion in equity financing since inception

Deep relationships with strategic and institutional investors Understanding of the strategic investor landscape Highly integrated with M&A and Equity Research teams

Experience in managing and completing IPOs and secondary offerings 18 lead managed offerings completed Deliver size and valuation objectives for clients

Thomas Weisel Partners Equity Underwriting Expertise


Experience

Dedicated & Integrated Team

Track Record of Success

25


Thomas Weisel Partners Equity Expertise

26

Average of 15 years experience in mergers and acquisitions advisory Blend of bulge bracket, boutique and growth-oriented M&A experience Led by two of the industry’s most respected M&A professionals

Mark Shafir -- former Head of Global Technology Investment Banking at Merrill Lynch

-- advised Cisco on more than 10 transactions

-- advised SDL on its $41 billion sale to JDS Uniphase Bob Kitts -- former Managing Director in the M&A Group at Morgan Stanley

Deep understanding of the growth sector M&A landscape Highly integrated with Investment Banking and Equity Research teams

Experience in managing and completing M&A transactions 68 transactions completed/announced


Thomas Weisel Partners M&A Advisory Expertise

Experience



27

M&A Environment & TWP Capabilities

M&A All Sectors M&A Technology Sectors (1)

(1) Technology Includes SDC Tech Industries (e.g. Biotechnology, Computer Equipment, Communications, Electronics, Robotics, etc…Transactions counted in the period in which they are announced. Excludes spinoffs, buybacks & withdrawn dealsTransactions with undisclosed values are included in the deal count but do not contribute to the Txn Value TotalSource: Securities Data Corp. 4/4/01 - Transaction Values are equivalent to SDC’s rank values.

Strategic US Advisory Rankings: 2001 YTD Ranked by Dollar Volume

# of Trans. Val.Rank Advisor Deals ($MM)

1 Goldman Sachs & Co 20 $18,9642 JP Morgan 21 15,8073 Merrill Lynch & Co Inc 8 13,7244 Credit Suisse First Boston 33 9,8165 Morgan Stanley 16 7,8146 Salomon Smith Barney 18 6,2207 Daniels & Associates Inc 7 4,0618 Waller Capital 1 2,2159 FleetBoston Financial Corp 7 2,092

10 Thomas Weisel Partners LLC 3 1,68211 Societe Generale 6 1,57312 Broadview 9 1,39013 Lehman Brothers 15 1,31614 Wit Soundview Group Inc 3 1,06215 RBC Dominion Securities 1 1,02316 Dresdner Kleinwort Wasserstein 2 1,01817 Deutsche Bank AG 10 92218 Bear Stearns & Co Inc 9 91819 US Bancorp 5 71020 Updata Capital Inc 6 69121 UBS Warburg 7 57422 CIBC World Markets 7 35623 Houlihan Lokey Howard & Zukin 5 18424 Banc of America Securities LLC 4 15125 Alliant Partners 3 133

# of Trans. Val.Rank Advisor Deals ($MM)

1 Goldman Sachs & Co 55 $85,0342 Credit Suisse First Boston 76 76,1473 Morgan Stanley 43 72,7204 Merrill Lynch & Co Inc 29 60,3595 UBS Warburg 17 28,9936 JP Morgan 42 26,4987 Salomon Smith Barney 46 25,3728 Lehman Brothers 33 19,5749 Dresdner Kleinwort Wasserstein 7 18,608

10 Greenhill & Co, LLC 4 13,33311 Bear Stearns & Co Inc 26 9,46712 Deutsche Bank AG 20 7,80913 Touchstone Securities Ltd 1 4,92914 Daniels & Associates Inc 9 4,06115 Keefe Bruyette & Woods Inc 15 4,04316 Petrie Parkman & Co Inc 2 2,64817 FleetBoston Financial Corp 11 2,48818 ABN AMRO 2 2,22519 Waller Capital 1 2,21520 Rothschild 2 2,03321 Georgeson Shareholder 1 2,01522 BMO Nesbitt Burns Inc 2 1,90923 Lazard 7 1,70724 Thomas Weisel Partners LLC 4 1,68225 Societe Generale 7 1,573

28

Thomas Weisel Partners Private Placement Expertise


17 years experience in dedicated private equity effort Completed over 100 financings at Montgomery Securities during the 1990s Focus on a broad set of growth company industry groups Raised over $3 billion in private equity in the 1990s

Private equity team focused solely on the private equity placement market Deep relationships with private equity investors Understanding of the strategic investor landscape Highly integrated with Investment Banking, M&A and Equity Research teams

Experience in managing and completing private placements Completion in 8 to 14 weeks Deliver size and valuation objectives for clients Realize liquidity objectives through public offering or sale within 24 months

Experience



29

Thomas Weisel Partners Private Placement Transactions


30

Overview of Thomas Weisel PartnersThomas Weisel Partners Private Placement Transactions

31

Fund Size Close Date Fund Description Manager

Thomas Weisel Capital Partners (“TWCP”)

$1.3B December 1999 Mid- to late-stage private equity fund focusing on New Economy Companies

Alan Menkes Former Partner – Hicks, Muse, Tate, &

Furst

Tailwind Capital Partners

$50mm July 1999 & March 2000

Venture fund capitalized by TWP employees

Andy Sessions Former General Partner – Technology

Crossover Ventures Former Senior Managing Director –

Montgomery Securities

TWP Global Growth Partners (“GGP”)

$500mm Q4 2000

“Fund of funds” - investing in a portfolio of premier venture and private equity funds focused on growth company investing

Derek Lemke Former Head of Private Equity –


Thomas Weisel Venture Partners (“TWVP”)

$260mm Q4 2000 Early stage venture funding

Andy Sessions Former General Partner – Technology

Crossover Ventures, and Former Senior Managing Director –

Montgomery Securities David Crowder Former Senior Managing Director –


TWCP – Europe $500mm 2001 Growth company investing in Europe

Thomas Nilsson Previously with Investor AB

Overview of Thomas Weisel PartnersThomas Weisel Partners Private Equity Funds

32

Over $700 million committed to 28 leading companies on the cutting edge of change in software and internet infrastructure, technology services, media & communications, communications equipment and healthcare technology.

Thomas Weisel Capital Partners, L.P.$1,311,503,386


TechnologyServices Media & Communications Software & Internet Infrastructure

Healthcare Technology

33

Private Client Services

Corporate Cash Management

Corporate Services

Investment Management Consulting

Tax & Estate Planning

Brokerage Services

Management of cash flow and

other short-term capital needs

Identification of tax efficient investment

strategies

Comprehensive asset allocation and

diversification

Brokerage services provided to

“friends” of the deal; execution of restricted security

transactions

Competitive execution and agent

approach to fixed income

Thomas Weisel Partners Private Client Services strives to preserve the capital base of clients through wealth diversification and asset allocation


ipo process overview

Documents