Morgan Stanley Dean Witter Venture Partners

1
Morgan Stanley Dean WitterVenture Partners

• Venture Capital Perspectives on the Ag.com
  Industry

February 1999
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Morgan Stanley Dean Witter Overview

• Morgan Stanley Dean Witter is a preeminent global
  financial services firm that maintains leading
  market positions in each of its businesses
  Securities, Asset Management and Credit Services.
• Currently over 53,000 employees in 550 offices
  operating in 25 countries
• 425 Billion in Assets Under Management
• The Investment Banking Division is a worldwide
  leader ranking among the top institutions in
  mergers and acquisitions, underwriting of equity
  and equity-related transactions, high yield
  financing and corporate debt issuance.
• In the Internet and Technology Space, Morgan
  Stanley Dean Witter is the market leader
• 15.4 Bn in Initial Public Offering volume(1)(2)
• 357.5 Bn in Technology Mergers and Acquisition
  volume(3)(4)(5)

Source Securities Data Corporation, 1999
Institutional Investor All-America Research
Team Notes (1) Full credit to sole bookrunning
managers. Credit split equally between joint
bookrunning managers (2) Includes all U.S.
technology issues greater than 10MM from
01/01/95 to 1/20/00 (3) 01/01/95 to 1/20/00.
Includes worldwide transactions completed and
announced greater than 25MM (4) Full credit
given to target and acquirer advisor (5) Excludes
spin-offs
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Morgan Stanley Dean WitterVenture Partners
Overview

• Limited Partnership with 1.1 billion under
  management
• Currently investing 550 million fund MSVP IV
• The vast majority of MSDWVPs funding originates
  from independent sources
• MSVP I and MSVP II both top quartile performers
• Invest in Early and Expansion Stage Companies and
  Growth Buyouts in the U.S. and Western Europe
• Focus on Information Technology and Health Care
• Equity Investments of 5 to 25 million
• Actively involved in portfolio companies at the
  board level
• Part of Morgan Stanley Dean Witter Private Equity
  - 8.0 billion under management
• Utilize Morgan Stanley Dean Witters global
  resources and relationships

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Morgan Stanley Dean Witter Venture
PartnersSelected Internet Investments


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Our Active Role as Venture Investors

• Select industry-leading companies to partner with
• Marshal Morgan Stanleys resources and leverage
  our brand name on behalf of our portfolio
  companies
• Work with portfolio companies to develop their
  businesses
• Contribute capital
• Help set up strategic partnerships
• Assist in business planning/strategy setting
• Help build out management team
• When the time is right, help them secure the
  right investment banks for their IPO or sale
• If it makes sense, continue to work with post-IPO

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MSDWVPs B2B Strategy
What We Look For in B2B Markets

• Large, Fragmented Market no concentration of
  buying or selling power
• Transaction Randomness buyers who change
  suppliers on a regular basis
• Dynamic Products scrappage and spoilage
  changing values based on product quality and
  shelf-life
• Inefficiencies in Supply Chain opportunity to
  create value through supply chain
  optimization...manage complex business
  information online
• Opportunity to Create a Sustained Competitive
  Advantage create barriers to entry benefit
  from networking effects, velocity
• Gross Margins and Gross Income Opportunity
• No Established Winner Yet unless, of course,
  we can back them!

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Some Things Weve Learned from B2C Apply to
B2B...

• First Mover Advantage and Critical Mass whoever
  signs up the buyers/suppliers/partners first will
  have strong potential to keep them
• Increased Productivity B2B success will be
  based on increasing customers productivity by
  reducing cost, improving service and/or saving
  time
• Deep Beats Broad focusing on solving all of the
  needs of an individual market may beat solving
  some of the needs of lots of markets
• Markets will be dominated by one, perhaps a
  couple, players

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...But Some Things Will Be Different from B2C

• Domain Expertise companies need to understand
  the industry to understand the problem that needs
  to be solved
• Strong Back-End System Integration businesses
  need to keep records so system integration is
  key, this creates much higher switching costs
  than B2C and is the key to customer retention
• There are a lot of verticals to be dominated
  so, there may be a lot more dominant players
  (read great investments) than in B2C, at least
  in the early days
• Purchases/commissions can be big
• Session stickiness may not be key business
  users want to do business quickly and save time

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Displacing Will Be Much Harder inB2B than in B2C

• Harder to Amazon the entrenched
• In B2B, buyer/seller relationships matter, golf
  is golf
• B2C switching costs are nominal
• B2B switching costs are high both offline and
  online
• Lower risk strategies
• Add value to channel without replacing
• Create channel where one does not currently exist
• Riskiest strategy replacing current channel

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Agriculture Is Attractive

• Large, Fragmented Market
• Transaction Randomness
• Dynamic Products
• Supply Chain Inefficiencies
• Opportunity for Sustained Competitive Advantage
• Gross Income
• No Established Winner

400 Bn 10s of suppliers 100s of
distributors 1000s of dealers 2.2 million
farms Few long-term contracts Spoilage/switching M
ultiple tiers, suppliersdont have relationships
with buyers Highly possible In some
segments Backing a leader,no incumbents (yet)
ü ü ü ü ü ü ü
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How Do We Evaluate Ag.com Companies?

• Value created by Ag.com Revenues to Ag.com
  Earnings Success
• Websites increasing efficiencies in value chain
  are interesting

Solution
Inefficiencies in the Ag value chain
Multiple-tiered distribution adds complexity
Fragmented buyers are costly to sell to and
service Regional distributors cannot sell outside
their geography Difficult and costly to track
orders Excessive returns and unused inventory in
channel Illiquid markets and price translucency
create inefficient spot markets for commodities
Rationalize distribution system, eliminate
inefficiencies Automate transactions and customer
service, add self-service functionality Virtual
marketplace Automate and web-enable order
tracking Immediate knowledge of demand enables
faster shifting of inventory Build markets of
scale online
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Agriculture Opportunities

• Large opportunities exist on the Input side

• Even larger opportunities exist on the Output
  side
• Produce
• Livestock
• Grains
• Fiber
• Meat
• Crops

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Keys to a successful Ag.com

• Management team with drive, vision and ability to
  execute
• Focused on measurable efficiency improvements
• Emphasis on fulfillment, logistics and back
  office support
• Gross margin opportunity critical to financial
  viability of company
• Selling products that can easily be purchased
  online
• Focus on driving transactions, not just community
  or content

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How Will the Internet Change Agriculture?

Wholesaler

Sells to Retailer
Buys
Market, Sell
Ag Input Producers
Service
Buys
Internet
Internet
Retailer
Market Info
Buys
Channel Sale
Inputs
Sell
Drive sales
Outputs
Farmer
Distributors

• All processes, from transfer of input producers
  inventory to the eventual sale of product to a
  retailer, are integrated with Web sites or a Web
  site that creates streamlined processes and
  efficient markets, tracks product information,
  hosts farm management software and serves as the
  information system for the agriculture industry.

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How Will the Internet Change Agriculture?
Predictions/Possibilities

• Farmers manage all aspects of business using
  hosted applications on a website
• Farmers buy (and return) agricultural inputs
  directly via the internet including financing
  and shipping
• Inputs manufacturers track sales real time, down
  to the county level, hold 50 of their current
  inventory level
• GMO-related outputs tracked from dirt to dinner
  plate via smart chips embedded in livestock and
  Web-based database
• Farmers educate themselves on new products via
  on-line tutorials, online chats with experts.
  For more assistance, they contract with service
  providers at an on-line marketplace
• Farmers can get a single bill for all of their
  inputs and services, with online financing
  options available

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B2B Exchanges Evolve to Collaboration Hubs

• Its not just buying and selling over the Web
• Collaboration implies a more expansive concept to
  include many business processes
• Project management, replenishment, knowledge
  management, forecasting, planning, analytics
• Big B2B exchanges will be Integration and Hosting
  Platforms instead of just trading exchanges