Angel Investor Ron Conway Adresses His Portfolio Companies Over Financial Meltdown

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To: Angel Investors, L.P. Portfolio CEOs

Date: 05/10/2000 05:23 PM

From: Ron Conway

RE: Market Conditions Effect on Angel Investors, L.P. Portfolio

Companies

I want to "touch base" again; given the continued uncertainty in the capital markets.

As the market turmoil continues, we must underscore the advice that we have provided since mid April and it boils down to just a few points:

1) The capital market window is shut, including IPOs and VC Funding (VCs are looking at their existing portfolio funding needs - not new opportunities). Basically the market is now looking for PtoP (Path to Profitability) instead of BtoC, BtoB, etc! PtoE will prevail price to sales ratios! You must lower your "burn rate" to raise at least 3-6 months more of funding via cost reductions, even if it means selective staff reductions and reduced marketing and G&A expenses. This is the equivalent to 'raising

an internal round" through cost reductions to buy you more time until you need to raise money again; hopefully when fund raising is more feasible.

2) If you have $10M or less in the bank you must do #1 above plus look at M&A options for your company; especially if your company is BtoC, content, advertising model, community, commerce, and even BtoB. An M&A transaction will allow you to gain critical mass and to get two sets of funding sources and rolodexes working on your behalf. M&A transactions take over 90 days so you need at least that much cash to fund your company. You must attend our M&A day on May 24th at the San Mateo Marriott at 3:00 PM. We will have investment banks there in addition to entrepreneurs who have

successfully accomplished M&A transactions. We will send you details.

We are still developing many new funding sources for our portfolio companies that are in funding cycle.