The Virtual Goods Ecosystem - Gridley & Company
The Virtual Goods Ecosystem - Gridley & Company
The Virtual Goods Ecosystem - Gridley & Company
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<strong>The</strong> <strong>Virtual</strong> <strong>Goods</strong> <strong>Ecosystem</strong><br />
December 2010<br />
CONFIDENTIAL
A Word from <strong>Gridley</strong> & <strong>Company</strong>, LLC<br />
<strong>The</strong> post Web 2.0 digital environment is creating communities and different<br />
“realms” where users can connect with others. <strong>The</strong> biggest example is social<br />
networks, but they also include other various platforms as well as online games. In<br />
many of these virtual worlds, especially niche ones, users are very engaged with<br />
their communities and activities. <strong>The</strong>se activities have spawned a particular class<br />
of assets: virtual goods. By creating a currency that users actively work for and<br />
trade, the users become even more engaged in their virtual world. This presents an<br />
opportunity for marketers to reach audiences and provides a way for virtual world<br />
operators to monetize their creation. In this report, we go through the different<br />
players in the virtual goods ecosystem.<br />
We hope you enjoy this comprehensive industry overview and our perspectives.<br />
Please give us a call to discuss the content of this presentation.<br />
Karen Yau Smith<br />
Vice President<br />
karen.smith@gridleyco.com<br />
212-400-9718<br />
Linda <strong>Gridley</strong><br />
President & CEO<br />
linda.gridley@gridleyco.com<br />
212-400-9710 Pratik Patel<br />
Vice President<br />
pratik.patel@gridleyco.com<br />
212-400-9712<br />
2
Fresh Opportunities in <strong>Virtual</strong> <strong>Goods</strong><br />
• Global virtual goods market amounts to $5.5 billion; U.S. market alone expected<br />
to reach $2.5 billion by 2013<br />
• Approximately 12% of Americans have bought a virtual good at some point<br />
between July 2008 and July 2009, and average spending is up 14% in 2010 to $99<br />
<strong>Virtual</strong> <strong>Goods</strong> Revenue Estimates<br />
$M<br />
$7,000<br />
$6,000<br />
$5,000<br />
$4,000<br />
$3,000<br />
$2,000<br />
$1,000<br />
$0<br />
$6,006<br />
$5,047<br />
$4,070<br />
$3,544<br />
$3,107<br />
$3,028<br />
$2,219<br />
$2,523<br />
$2,020<br />
$1,325<br />
$1,598<br />
$2,462<br />
$1,060<br />
$2,019<br />
$1,547<br />
$1,087<br />
$265 $621<br />
2008 2009 2010 2011 2012 2013<br />
U.S.<br />
Non-U.S.<br />
Source: eMarketer (August 2009), Magid Survey (May 2010)<br />
Note: More recent figures from Inside <strong>Virtual</strong> <strong>Goods</strong> estimate the U.S. market to be $1 billion and $1.6 billion for 2009 and 2010, respectively<br />
3
Recent Investments Are Legitimizing Opportunity<br />
/<br />
• Former Disney CEO Michael Eisner invested $300,000 in seed<br />
funding in social gaming company Diversion through his<br />
investment company on October 18, 2010<br />
/<br />
• Google announced acquisition of Jambool (Social Gold) for a<br />
rumored $70MM on August 13, 2010<br />
/<br />
• Google invested $100-$200 million in Zynga in an under-thetable<br />
deal in July 2010<br />
• SponsorPay raised $5 million in its first round of funding, led by<br />
Hasso Plattner Ventures, on June 9, 2010<br />
/<br />
• Digital River acquired FatFooGoo for $10 million on May 5,<br />
2010<br />
4
Industry Perspectives on <strong>Virtual</strong> <strong>Goods</strong><br />
• “Monetization in virtual goods will continue to grow, and we will see the<br />
emergence of a select few successful platforms, as well as several popular virtual<br />
currencies. Once such currencies have been established, the growth of secondary<br />
markets and currency exchanges will most likely follow.”<br />
- Vikas Gupta, Co-Founder/CEO, Social Gold by Jambool<br />
• “<strong>Virtual</strong> goods will become a strong option for brands to drive engagement in<br />
social media and will become the standard for branded advertising in social<br />
media, finally providing clear value proposition for brands in social media and<br />
social gaming.”<br />
- Joe Hyrkin, Entrepreneur in Residence, Trinity Ventures<br />
• “Growth will continue to be exponential as social gaming becomes more and<br />
more mainstream. Everyone will make more money as the pie grows bigger for all<br />
of us collectively.”<br />
- Charles Ju, Founder, Playmesh<br />
• “We have seen companies go from nothing in the last 18-24 months to tens and<br />
hundreds of millions of dollars in revenues [from virtual goods].”<br />
- Jeremy Liew, Lightspeed Venture Partners<br />
5
Young Players in a Fresh Landscape<br />
Ad<br />
Networks<br />
Social<br />
Networks<br />
<strong>Virtual</strong><br />
Currency<br />
Providers<br />
Platform<br />
Providers<br />
Game<br />
Developers<br />
Payment<br />
Processors<br />
6
Young Players in a Fresh Landscape<br />
7
Social Networks Provide Users<br />
• Exhibited phenomenal growth within the past 5 years<br />
- By 2013, an estimated 52% of internet users will be regular social network visitors<br />
• Provide consumer base, marketplace, and contextual structure for virtual goods<br />
transactions<br />
Facebook MySpace Friendster hi5 Classmates.com Bebo<br />
CEO<br />
Mark<br />
Zuckerberg<br />
Michael Jones<br />
&<br />
Jason Hirschorn<br />
Richard<br />
Kimber<br />
Bill Gossman<br />
Mark<br />
Goldston<br />
Joanna<br />
Shields<br />
Registered<br />
Users > 500,000,000 70,000,000 100,000,000 60,000,000 50,000,000 12,000,000<br />
User<br />
Profile<br />
About 75% of<br />
users are<br />
outside the<br />
U.S.<br />
User base<br />
Predominantly<br />
within U.S.<br />
Popular in<br />
South East<br />
Asia<br />
Popular in<br />
Mexico,<br />
Thailand,<br />
and<br />
Portugal<br />
User base<br />
Predominantly<br />
within U.S.<br />
More<br />
popular<br />
in UK than<br />
in U.S.<br />
8
Social Networking M&A Transactions<br />
($ in millions)<br />
Implied LTM LTM<br />
Enterprise Revenue EBITDA<br />
Date Acquiror Target Value Multiple Multiple<br />
10/22/10 Kabam, Inc. WonderHill, Inc. NA NA NA<br />
10/06/10 Beyond.com, Inc. Orbius, Inc. NA NA NA<br />
09/14/10 GameHouse, Inc. Backstage Technologies Inc NA NA NA<br />
09/02/10 Recruiter.com RecruitingBlogs.com Inc. NA NA NA<br />
08/31/10 AOL, Inc. Rally Up, Inc. NA NA NA<br />
08/30/10 Google Inc. SocialDeck Inc. NA NA NA<br />
08/25/10 Undisclosed Meetrandom.com $0.2 NA NA<br />
08/20/10 Facebook, Inc. Hot Potato NA NA NA<br />
08/06/10 Google Inc. Slide, Inc. 182.0 NA NA<br />
08/04/10 Black Pants, Inc. Diva Dirt NA NA NA<br />
07/21/10 NetParty, LLC Charlotte Young Professionals, LLC NA NA NA<br />
07/09/10 Insparisk, LLC AuthorizedInspector.com NA NA NA<br />
07/08/10 Facebook, Inc. nextstop.com, Inc. NA NA NA<br />
07/01/10 FertilityAuthority.com, LLC FertileThoughts.com NA NA NA<br />
06/16/10 Criterion Capital Partners, LLC Bebo, Inc. < 10.0 NA NA<br />
06/08/10 Salem Web Network Big Jump Media, Inc. 2.5 NA NA<br />
06/09/10 Vocus Inc. Two Cats and a Cup of Coffee 1.6 NA NA<br />
06/08/10 PurePhoto, Inc. PhotographyMentor.com, LLC NA NA NA<br />
05/26/10 Facebook, Inc. Sharegrove Inc. NA NA NA<br />
05/04/10 Trans Global Group, Inc. RandPort, Inc. NA NA NA<br />
03/26/10 Maverick Capital, Ltd. Loopt, Inc. NA NA NA<br />
03/22/10 WebMediaBrands Inc Rotorblog.com NA NA NA<br />
02/02/10 Ali Wing, Inc. <strong>The</strong> Cradle, LLC NA NA NA<br />
12/16/09 Ontela, Inc. Photobucket, Inc. NA NA NA<br />
12/09/09 MOL AccessPortal Bhd Friendster, Inc. 39.4 NA NA<br />
9
Social Networking M&A Transactions (cont’d)<br />
($ in millions)<br />
Implied LTM LTM<br />
Enterprise Revenue EBITDA<br />
Date Acquiror Target Value Multiple Multiple<br />
12/08/09 Global Grind Digital, Inc. CelebrityTweet NA NA NA<br />
10/09/09 Stratus Media Group, Inc. ProElite, Inc. NA NA NM<br />
09/27/09 GovDelivery, Inc. GovLoop NA NA NA<br />
08/26/09 Delivery Concepts, LLC Eats Media, LLC NA NA NA<br />
08/19/09 MySpace, Inc. iLike, Inc. $19.5 NA NA<br />
07/31/09 Atrinsic, Inc. Shopit.com, Inc. 2.7 NA NA<br />
07/28/09 Cascadia Investments, Inc. www.phace.mobi NA NA NA<br />
07/06/09 Match.com, LLC People Media L.L.C. 57.0 NA NA<br />
06/04/09 Cascadia Investments, Inc. TinyTwirp.com NA NA NA<br />
04/07/09 No Sleep Media LLC Limbo Inc. NA NA NA<br />
03/09/09 Stardoll AB Piczo, Inc. NA NA NA<br />
03/02/09 TuitionU.com Inc. GreenNote, Inc. NA NA NA<br />
01/27/09 Digital Age Motorsports, LLC Hot Import Nights LLC NA NA NA<br />
01/26/09 Alloy Inc. Takkle, Inc. 0.7 NA NA<br />
01/13/09 MixMatchMusic, Ltd. Mix2r Media Inc. NA NA NA<br />
12/17/08 IB3 Networks, Inc. MGV Communications NA NA NA<br />
12/01/08 Six Apart Ltd. Pownce, Inc. NA NA NA<br />
08/27/08 Lifetime Entertainment Services Inc. ParentsClick Network, Inc. NA NA NA<br />
08/24/08 Amazon.com Inc. Tastemakers, Inc. NA NA NA<br />
08/04/08 AOL, LLC (nka:Historic AOL LLC) Socialthing, Inc. NA NA NA<br />
07/30/08 Deluxe Corp. PartnerUp, Inc. 3.8 NA NA<br />
07/20/08 CrowdFunder, Inc. Gubb, Inc. 0.2 NA NA<br />
07/09/08 Bigstring Corp. Buddystumbler, Inc. 0.1 NA NA<br />
03/30/08 Buzznet, Inc. Tagshine Corp. NA NA NA<br />
03/24/08 Follett Corporation Fourteen40, Inc. NA NA NA<br />
10
Social Networking M&A Transactions (cont’d)<br />
($ in millions)<br />
Implied LTM LTM<br />
Enterprise Revenue EBITDA<br />
Date Acquiror Target Value Multiple Multiple<br />
03/13/08 AOL, LLC Bebo, Inc. $860.0 NA NA<br />
02/28/08 LiveUniverse.com, Inc. Revver, Inc. NA NA NA<br />
02/07/08 uLocate Communications, Inc. (nka:Where, Zync, Inc.)<br />
NA NA NA<br />
12/31/07 USA Today International Corporation BNQT NA NA NA<br />
12/19/07 Tiger Global Management; MYNET Yonja, LLC NA NA NA<br />
12/06/07 Double Eagle Holdings, Ltd. Ultimate Social Network, Inc. 1.8 NA NA<br />
12/04/07 Fox Digital Media Beliefnet, Inc. NA NA NA<br />
11/17/07 Penthouse Media Group, Inc. Various, Inc. 500.0 NA NA<br />
11/02/07 Microsoft Corporation WebFives Corp. NA NA NA<br />
10/09/07 Disaboom Inc. Lovebyrd.com, LLC 0.1 NA NA<br />
08/28/07 BabyCenter, LLC Maya's Mom, Inc. NA NA NA<br />
08/25/07 Hi-Media S.A. Fotolog, Inc. 90.0 NA NA<br />
08/14/07 Jack 9 Entertainment, Inc. CommunityX.net NA NA NA<br />
07/02/07 SideStep, Inc. TripUp, Inc. NA NA NA<br />
06/12/07 American Capital Strategies, Ltd. Zencon Technologies, L.L.C. NA NA NA<br />
06/11/07 <strong>The</strong> Amergence Group SonicMountain, Inc. NA NA NA<br />
05/30/07 Canvas Technology Inc. Flektor, Inc. NA NA NA<br />
05/30/07 MySpace, Inc. Photobucket, Inc. NA NA NA<br />
05/10/07 SonicMountain, Inc. Odeo, Inc. NA NA NA<br />
04/17/07 ProElite, Inc. MMAMix.com NA NA NA<br />
03/09/07 NA Decentral.tv Corp. NA NA NA<br />
02/09/07 Cisco Systems, Inc. Five Across, Inc. NA NA NA<br />
11
Online Games Are <strong>The</strong> Swans…<br />
• Global population of virtual worlds expected to grow to about 640 million by 2015<br />
• According to eMarketer, social games could generate $2.2 billion in virtual dollars<br />
by 2012<br />
<strong>Company</strong><br />
Year<br />
Founded Type Investors<br />
Capital<br />
Raised ($mm)<br />
www.bigfishgames.com<br />
Seattle, WA<br />
2002 Social<br />
Networking<br />
Balderton Capital, General Catalyst Partners,<br />
Salmon River Capital LLC<br />
$88.3<br />
www.bigpoint.net<br />
New York, NY<br />
2002 Social<br />
Networking<br />
GMT Communications Partners LLP, Peacock<br />
Equity Fund<br />
8.2<br />
www.gaiaonline.com<br />
San Jose, CA<br />
2003 MMOG Benchmark Capital, DAG Ventures LLC,<br />
Institutional Venture Partners, Redpoint<br />
Ventures, Sony Pictures Television Inc.,Time<br />
Warner Investments<br />
19.9<br />
(Linden<br />
Lab)<br />
www.secondlife.com<br />
San Francisco, CA<br />
2000 <strong>Virtual</strong> World Benchmark Capital, Catamount Ventures<br />
Management LLC, Globespan Capital Partners,<br />
Omidyar Network<br />
19.0<br />
www.playdom.com<br />
Mountain View, CA<br />
2008 Social<br />
Networking<br />
Lightspeed Venture Partners, New Enterprise<br />
Associates, Norwest Venture Partners<br />
76.0<br />
(Disney)<br />
www.sulake.com<br />
Helsinki, Finland<br />
2000 Social<br />
Networking<br />
3i Group plc, Balderton Capital, Benchmark<br />
Capital, Elisa Oyj, Movida Group, Taivas<br />
35.9<br />
(Makena)<br />
www.there.com<br />
San Mateo, CA<br />
www.zynga.com<br />
San Francisco, CA<br />
2005 <strong>Virtual</strong> World NA NA<br />
2007 Social<br />
Networking<br />
12<br />
Avalon Ventures, Foundry Group, Institutional<br />
Venture Partners, Kleiner, Perkins Caufield &<br />
Byers, Union Square Ventures<br />
589.6
Online Gaming M&A Transactions<br />
($ in millions)<br />
Implied LTM LTM<br />
Enterprise Revenue EBITDA<br />
Date Acquiror Target Value Multiple Multiple<br />
10/22/10 Kabam, Inc. WonderHill, Inc. NA NA NA<br />
09/14/10 GameHouse, Inc. Backstage Technologies Inc NA NA NA<br />
09/13/10 DeNA Global, Inc. Gameview Studios, LLC NA NA NA<br />
08/30/10 Google Inc. SocialDeck Inc. NA NA NA<br />
08/17/10 Zynga, Inc. Conduit Labs, Inc. NA NA NA<br />
08/11/10 Joytoto <strong>Company</strong> Limited Joytoto America, Inc. NA NA NA<br />
08/02/10 Titan Gaming, Inc. Xfire, Inc. NA NA NA<br />
07/27/10 Walt Disney Co. Playdom, Inc. $763.2 NA NA<br />
07/08/10 MTV Networks <strong>Company</strong> Social Express, Inc. NA NA NA<br />
06/24/10 Playdom, Inc. Hive7.com, Inc. NA NA NA<br />
06/03/10 Zynga, Inc. Challenge Games, Inc. NA NA NA<br />
05/18/10 Playdom, Inc. Acclaim Games, Inc. NA NA NA<br />
05/12/10 ngmoco, Inc. Stumptown Game Machine, LLC NA NA NA<br />
04/26/10 Playdom, Inc. Merscom, LLC NA NA NA<br />
04/20/10 News Corp. Irata Labs NA NA NA<br />
03/03/10 Playdom, Inc. Offbeat Creations, Inc. NA NA NA<br />
02/24/10 hi5 Networks, Inc. Big Six Games, Inc. NA NA NA<br />
02/08/10 Zynga, Inc. Serious Business, Inc. NA NA NA<br />
02/03/10 Almaz Capital Partners Alawar Entertainment Inc. 13.0 NA NA<br />
01/13/10 iEntertainment Network Inc. Thriller New Media, Inc. NA NA NA<br />
01/06/10 Cascadia Investments, Inc. CustomFlashGames.com NA NA NA<br />
12/03/09 Intralot SA CyberArts Licensing LLC 34.3 NA NA<br />
12/03/09 Artix Entertainment LLC Epic Inventions LLC NA NA NA<br />
11/18/09 NeoEdge Networks, Inc. Offspring NA NA NA<br />
11/12/09 Playdom, Inc. Trippert, Inc. and Green Patch, Inc. NA NA NA<br />
13
Online Gaming M&A Transactions (cont’d)<br />
($ in millions)<br />
Implied LTM LTM<br />
Enterprise Revenue EBITDA<br />
Date Acquiror Target Value Multiple Multiple<br />
11/09/09 Electronic Arts Playfish $391.3 NA NA<br />
08/24/09 Live Gamer, Inc. TwoFish, Inc. NA NA NA<br />
07/28/09 Cascadia Investments, Inc. www.phace.mobi NA NA NA<br />
01/16/09 Sony Online Entertainment, LLC Octopi LLC NA NA NA<br />
12/09/08 Infogrames Entertainment SA Cryptic Studios, Inc. 74.8 4.40x NA<br />
10/10/08 SouthPeak Interactive Corp. Gamecock Media Group 32.5 8.83x NM<br />
09/23/08 Funtank, LLC Candystand.com NA NA NA<br />
08/18/08 IG Interactive Entertainment Limited True Games Interactive, Inc. NA NA NA<br />
07/28/08 NA Octopi LLC NA NA NA<br />
06/30/08 Mediastay North America Inc. LSF Network, Inc., Luckysurf Assets in US & NA Europe NA NA<br />
04/01/08 THQ Inc. Elephant Entertainment, LLC NA NA NA<br />
11/12/07 Big Fish Games, Inc. Thinglefin, Inc. NA NA NA<br />
09/21/07 RealNetworks Inc. Game Trust, Inc. 20.2 NA NA<br />
07/20/07 Finam Capital Partners Alawar Entertainment Inc. NA NA NA<br />
05/15/07 Sony Online Entertainment, LLC Sigil Games Online, Inc. NA NA NA<br />
04/30/07 NA Interplay Entertainment Corp. NA NA NM<br />
14
…And <strong>Virtual</strong> <strong>Goods</strong> Are <strong>The</strong> Golden Eggs<br />
• Microtransactions drive the virtual goods market<br />
- Microtransactions expected to grow to $17.3 billion in 2015<br />
<strong>Company</strong><br />
www.ariasystems.net<br />
Media, PA<br />
www.come2play.com<br />
NA<br />
Year<br />
Founded<br />
Investors<br />
Capital<br />
Raised<br />
($mm)<br />
2002 Hummer Winblad Venture Partners, Venrock $14.0<br />
2007 NA 1.0<br />
www.dealunited.com<br />
Munich, Bavaria<br />
2007 Bertelsmann Digital Media Investments, High-Tech<br />
Gründerfonds Management GmbH, Sympasis Innovation<br />
Capital GmbH, VI Partners AG<br />
6.2<br />
(Digital River)<br />
www.fatfoogoo.com<br />
Vienna, Austria<br />
2006 Acquired by Digital River, Inc. on May 5, 2010; previous<br />
investors include Digital River and Gamma Capital<br />
Partners<br />
NA<br />
(Kickflip)<br />
www.gwallet.com<br />
San Francisco, CA<br />
www.getgambit.com<br />
San Jose, CA<br />
www.heyzap.com<br />
San Francisco, CA<br />
2008 Adams Street Partners, LLC, Trinity Ventures 10.5<br />
2007 Shopping.com NA<br />
2009 Union Square Ventures, Y Combinator<br />
$3.7<br />
15
…And <strong>Virtual</strong> <strong>Goods</strong> Are <strong>The</strong> Golden Eggs<br />
• Microtransactions drive the virtual goods market<br />
- Microtransactions expected to grow to $17.3 billion in 2015<br />
<strong>Company</strong><br />
Year<br />
Founded<br />
Investors<br />
Capital<br />
Raised<br />
($mm)<br />
www.livegamer.com<br />
New York, NY<br />
2007 Charles River Ventures, FirstMark Capital LLC, Kodiak<br />
Venture Partners<br />
$36.6<br />
(Shanda<br />
Games)<br />
www.mochimedia.com<br />
San Francisco, CA<br />
2005 Purcahsed by Shanda Games (NasdaqGS: GAME) on Jan.<br />
31 , 2010, for $80.0MM; previous investors include Accel<br />
and Shasta Ventures<br />
14.0<br />
www.peanutlabs.com<br />
San Francisco, CA<br />
2005<br />
BV Capital, BV Capital Management, LLC, eVenture<br />
Capital Partners GmbH, LundKenner A/S<br />
4.2<br />
www.playspan.com<br />
Santa Clara, CA<br />
2006<br />
Easton Capital Investment Group, <strong>Ecosystem</strong> Ventures<br />
LLC, Menlo Ventures, Novel TMT Ventures Limited, STIC<br />
International, STIC Investments Inc.<br />
48.3<br />
www.qinteractive.com<br />
Chicago, IL<br />
1995<br />
Intrepid Investments<br />
NA<br />
www.sometrics.com<br />
Los Angeles, CA<br />
2007<br />
AT&T, Inc., Big Sky Partners, Greycroft, LLC, Steamboat<br />
Ventures, LLC, <strong>The</strong> MailRoom Fund<br />
NA<br />
www.sponsorpay.com<br />
Berlin, Berlin<br />
2009 Hasso Plattner Ventures, Kite Ventures, Team Europe<br />
Ventures 4.6<br />
16
…And <strong>Virtual</strong> <strong>Goods</strong> Are <strong>The</strong> Golden Eggs<br />
• Microtransactions drive the virtual goods market<br />
- Microtransactions expected to grow to $17.3 billion in 2015<br />
<strong>Company</strong><br />
supersonicads.com<br />
London, UK<br />
www.twofish.com<br />
Palo Alto, CA<br />
www.viximo.com<br />
Cambridge, MA<br />
Year<br />
Founded<br />
Investors<br />
Capital<br />
Raised<br />
($mm)<br />
2008 NA $2.0<br />
2006 Rustic Canyon Partners, TriplePoint Capital LLC, Venrock 9.5<br />
2007 North Bridge Venture Partners, Sigma Partners 9.0<br />
17
<strong>Virtual</strong> <strong>Goods</strong> M&A Transactions<br />
($ in millions)<br />
Implied LTM LTM<br />
Enterprise Revenue EBITDA<br />
Date Acquiror Target Value Multiple Multiple<br />
08/09/10 Google Inc. Jambool, Inc. $70.0 NA NA<br />
03/09/10 InComm, Inc. Zeev Exchange, Inc. NA NA NA<br />
08/24/09 Live Gamer, Inc. TwoFish, Inc. NA NA NA<br />
07/28/09 Live Gamer, Inc. N-Cash Co., Ltd. NA NA NA<br />
04/21/09 PlaySpan, Inc. Spare Change Payments, Inc. NA NA NA<br />
07/15/08 PlaySpan, Inc. Internet Payment Solutions, Inc. NA NA NA<br />
18
Platform Providers Facilitate the Process<br />
<strong>Company</strong><br />
www.doubletrump.com<br />
New York, NY<br />
www.sponsorpay.com<br />
Berlin, Germany<br />
Year<br />
Founded<br />
Investors<br />
Capital<br />
Raised<br />
($mm)<br />
2006 Cedar Fund, Giza Venture Capital NA<br />
2009 Hasso Plattner Ventures, Kite Ventures, Team Europe<br />
Ventures<br />
$4.6<br />
www.offerpalmedia.com<br />
Fremont, CA<br />
2007 D.E. Shaw Venture Capital, InterWest Partners, North Bridge<br />
Venture Partners<br />
www.payvment.com NA NA NA<br />
19.6<br />
(Adknowledge)<br />
www.rixty.com<br />
San Francisco, CA<br />
www.srpoints.com<br />
Vancouver, Canada<br />
www.trialpay.com<br />
Mountain View, CA<br />
NA NA 1.2<br />
2007 Technology Crossover Ventures 48.0<br />
2006 Atomico Investment Holdings Limited, Battery Ventures,<br />
Index Ventures<br />
15.8<br />
19
Payment Processors Power the Process<br />
<strong>Company</strong><br />
Year<br />
Founded<br />
Investors<br />
Capital<br />
Raised<br />
($mm)<br />
www.billingservicesgroup.com<br />
AIM: BILL<br />
San Antonio, TX<br />
2005 ABRY Partners LLC, Artemis Investment Management<br />
Ltd., CapitalSouth Partners, CapitalSouth Partners<br />
Fund L.P., Patient Safety Technologies Inc., Waterside<br />
Capital Corporation<br />
NA<br />
(J.P.Morgan<br />
Chase & Co.)<br />
www.paymentech.com<br />
Dallas, TX<br />
1985 First Data Corp. NA<br />
www.daopay.com<br />
NA<br />
NA<br />
NA<br />
London, UK<br />
(DaoTec Ltd.)<br />
www.orcaone.com<br />
New York, NY<br />
NA NA NA<br />
(Playspan Inc.)<br />
www.paybycash.com<br />
Charlottesville, VA<br />
www.paymentpin.com<br />
Montreal, Canada<br />
1998 NA $28.3<br />
2004 NA NA<br />
www.paypal.com<br />
San Jose, CA<br />
1998 Acquired by eBay on October 3, 2002, for $1.5BN NA<br />
(Google)<br />
www.jambool.com<br />
San Francisco, CA<br />
2006 Bay Partners, Charles River Ventures, Hit Forge,<br />
Madrona Venture Group<br />
6.0<br />
20
Facebook’s Push into <strong>Virtual</strong> <strong>Goods</strong><br />
• Facebook introduced a virtual currency / payment platform called<br />
Facebook Credits<br />
• Credits are used to make purchases within the Facebook platform, e.g.<br />
premium items in games, virtual gifts, and other services<br />
• Facebook gets a 30% fee for usage of Credits<br />
• Target stores have started selling Facebook Credits gift cards nationwide<br />
• According to Sean Parker, who was founding President, Facebook<br />
Credits will make up a third of Facebook’s income in the next twelve<br />
months<br />
21
Investment Considerations<br />
Highlights<br />
Risks<br />
Recent investment and partnership<br />
activity in virtual goods underscore<br />
potential growth in the industry<br />
– Facebook’s partnerships with PayPal<br />
and Zynga<br />
Margins are spectacular<br />
Monetization of virtual goods dependent<br />
on volume of users and scale<br />
<strong>Virtual</strong> payment infrastructure is still in<br />
its infancy<br />
Software model is still a hindrance in<br />
virtual currency adoption<br />
– Packaged software model still persistent<br />
– Lack of free-to-play model<br />
22
Investment Recommendations<br />
• <strong>Virtual</strong> goods ecosystem for gaming is maturing around Facebook<br />
• Removes points of control for incumbents (Zynga, etc.)<br />
• Creates more liquid market for consumers<br />
• Levels playing field for newcomers – opportunity in creative game<br />
creation still very large<br />
• Tremendous opportunity for virtual goods in many other areas where<br />
consumers will engage<br />
• Customer loyalty<br />
• Shopping<br />
• Health<br />
• Education<br />
• Many others<br />
23
Appendix<br />
24
Highly Focused Industry Expertise Underlies<br />
Our Investment Banking Services<br />
• Founded in 2001, headquartered in New York, NY<br />
• Sharp focus provides valuable strategic insights and perspectives for clients<br />
Advertising &<br />
Marketing Services<br />
• Advertising Agencies<br />
• Customer Care<br />
• Database Marketing<br />
• Loyalty Marketing<br />
• Market Research<br />
• Specialty Marketing Services<br />
• Teleservices<br />
Database /<br />
Information Services<br />
• Data Analytics / Decisioning<br />
• Consumer / Specialty Data Providers<br />
• Business Data Providers<br />
• Financial Information Services<br />
• Specialty Information Providers<br />
• IT Research<br />
INFORMATION<br />
&<br />
TECHNOLOGY<br />
&<br />
SERVICES<br />
Internet Services<br />
• Adserving / Online Media Network<br />
• Customer Acquisition / Affinity Marketing<br />
• Content Driven Aggregation<br />
• Contextual Advertising / Search<br />
• Customer / Web Analytics<br />
• Online Research<br />
• Electronic Payments / Internet Banking<br />
• EC / Web Integrators<br />
Financial Technology and<br />
Outsourcing Services<br />
• Payment and Transaction Processing<br />
• Financial Security<br />
• Financial Technology / Outsourcing<br />
• Business Process Services<br />
• IT Consulting / Systems Integration<br />
• IT Outsourcing<br />
25
About <strong>Gridley</strong><br />
• Leading boutique Investment Bank specializing in Information Services<br />
– Comprehensive perspective on Advertising, Marketing, Financial Technology and Information Services<br />
trends and transactions<br />
• Strong industry reputation on assignments led by senior bankers<br />
– Sellside = Excellent strategic positioning and valuation<br />
– Buyside = Deep knowledge and access to emerging companies and industry trends<br />
• Trusted advisor and strategic matchmaker<br />
– Thoughtful M&A ideas – not just the logical public company combinations<br />
– Deliver value to buyers and sellers alike<br />
• Broad industry network developed over 20+ years<br />
– Industry leaders, hot emerging growth companies, and senior investors<br />
– Senior executives on <strong>Gridley</strong> Advisory Board<br />
• Well-known thought leader<br />
– Host of leading Annual Information Services Conference and participant in industry events<br />
– Highly regarded quarterly newsletter – 2,200+ distribution<br />
– Sought after commentator and resource for the media<br />
26
<strong>Gridley</strong> Provides Comprehensive Investment<br />
Banking Services<br />
Client-centric Products and Services<br />
Industry Leaders<br />
• Buyside Advisory Services<br />
• Fairness Opinions<br />
• Corporate Divestitures<br />
• Strategic Industry and<br />
<strong>Company</strong> Studies<br />
• Industry and Market Trends<br />
Presentations to Senior<br />
Management and Board of<br />
Directors<br />
Emerging Growth Companies<br />
• Sellside Advisory Services<br />
• Private Placement Services<br />
• Buyside Advisory Services<br />
• Strategic Growth Consultants<br />
• Potential Board Member<br />
Introductions<br />
• Potential Business Partner<br />
Introductions<br />
• Industry and Market Trends<br />
Presentations to Senior<br />
Management and Board of<br />
Directors<br />
Private Equity Firms<br />
• Buyside Advisory Services for<br />
Existing Portfolio & New<br />
Business Initiatives<br />
• Sellside Advisory Services for<br />
Portfolio Companies<br />
• Potential Management / Board<br />
Member Introductions<br />
• Industry and Market Trends<br />
Presentations to Senior<br />
Management and Board of<br />
Directors<br />
27
<strong>Gridley</strong> Provides Comprehensive Investment<br />
Banking Services<br />
Transaction<br />
Pricing and<br />
Structuring<br />
Strategic Acquirer<br />
Targeting<br />
Strategic<br />
Consulting<br />
Negotiation of<br />
Issues and<br />
Documentation<br />
Due Diligence<br />
M&A AND<br />
ADVISORY<br />
CAPABILITIES<br />
M&A Modeling and<br />
Valuation<br />
Fairness Opinions<br />
Other General<br />
Advisory Services<br />
Board<br />
Presentations<br />
28
Leading Annual Industry Conference Showcases<br />
Our Extensive Network of Relationships<br />
• Bellwether event focused on our targeted industries<br />
• Approximately 475 senior-level executives from over 300 companies<br />
– Industry leaders, emerging companies, and premier private equity and debt investors<br />
– Creates exceptional industry networking and exchange of ideas<br />
• Differentiated audience and participants vs. other conferences<br />
– Audience = senior industry executives, not institutional buy-side investors<br />
– Speakers = leading CEOs and executives from top companies:<br />
• Highly personalized with <strong>Gridley</strong> arranged “1-on-1”s for clients, presenters, sponsors<br />
• Presentations by approximately 30 premier private companies and industry panels addressing<br />
timely topics each year<br />
29
Event History – Track Record of Finding<br />
Successful Companies<br />
• 164 private companies have presented since 2004<br />
• Approximately 60% have completed liquidity transactions<br />
30
Participation at Industry Events Extends Our<br />
Network and Showcases Our Thought Leadership<br />
Dec. 2010<br />
Conferences with <strong>Gridley</strong> Participation<br />
Business Insider: IGNITION<br />
Speaker<br />
“How to Build a $1 Billion Content Business in Three Years or Less”<br />
Nov. 2010<br />
Nov. 2010<br />
Nov. 2010<br />
May 2010<br />
Mar. 2010<br />
Digital Hollywood NYC: Media<br />
Disruption<br />
ad:tech NYC 2010<br />
Stand Up and Deliver: <strong>The</strong><br />
Targeting Machine Gets Tested<br />
TARGUSinfo 2010 Scoring Summit<br />
SIIA Digital Media & Software<br />
Investment Conference<br />
Moderator<br />
- Private Equity and Investor Strategy Panel<br />
- “<strong>The</strong> Technology and Entertainment Based <strong>Company</strong>: From First Round<br />
to Implementing the Revenue Growth Target Strategy”<br />
Keynote Speaker<br />
“Digital: Taking a BIG Bite out of the Big Apple”<br />
Panelist:<br />
“I’m With the Brand: Is Ad Net Inventory Ready to Lift the Right Metrics?<br />
Speaker:<br />
“Innovation and Shareholder Value: Why You Need to Take Analytics Real<br />
Time”<br />
Speaker:<br />
“How to Play Your Hand in the M&A Market”<br />
Feb. 2010 OnMedia NYC 2010 Panelist:<br />
“Pricing Private Companies: What’s the 2010 Strategy?”<br />
Nov. 2009<br />
Audience is King: Targeting the<br />
Challenges of 2010<br />
Panelist:<br />
“Is the Long Tail Wagging? Have the Vertical Networks Lived Up to <strong>The</strong>ir<br />
Own Hype?”<br />
Aug. 2009 LeadsCon East Panelist:<br />
“Role of Institutional Advertising in Shaping Internet Advertising”<br />
July 2009<br />
April 2009<br />
Ad Network Gold Rush - Boom or<br />
Bust?<br />
Mobile Marketing<br />
Moderator:<br />
“Are Verticals Standing Up?”<br />
Panelist:<br />
“Resolved: Sorry, It’s Still Not Ready”<br />
31
More than 2,200 Senior Industry Executives<br />
Read Our Quarterly Newsletter<br />
• Highly respected quarterly newsletter<br />
on industry trends and corporate<br />
finance / M&A activity – <strong>The</strong> Compass<br />
– Broad, targeted reach: over 2,200 industry<br />
CEO’s and CFO’s, investors, and financial<br />
sponsors<br />
– One of the top investment banking<br />
generated publications in the industry<br />
– Less than 25 opt-out requests since initial<br />
publication in Q1 2003<br />
<strong>The</strong> Compass Readership<br />
Readers<br />
3,000<br />
2,500<br />
2,000<br />
1,500<br />
1,000<br />
500<br />
+23.7%<br />
+29.3% +26.7% 2,350<br />
+47.6%<br />
1,900<br />
+31.0%<br />
1,500<br />
1,160<br />
786<br />
600<br />
2,548<br />
Annual Growth<br />
0<br />
2003 2004 2005 2006 2007 2008 7/30/09<br />
32
<strong>The</strong> Media Also Seeks Out Our Insights on<br />
Industry Trends and Transactions<br />
33
Selected Recent <strong>Gridley</strong> Transactions<br />
• <strong>Gridley</strong> clients include industry leaders and premier emerging growth companies<br />
• <strong>Gridley</strong> provides strategic advisory work in addition to the transactions listed below<br />
$20,500,000<br />
Undisclosed<br />
Undisclosed<br />
Undisclosed<br />
Undisclosed<br />
Undisclosed<br />
Undisclosed<br />
Acquired by<br />
<strong>The</strong> Dolan <strong>Company</strong><br />
Acquired by<br />
WPP Group plc<br />
Acquired<br />
FetchBack Inc.<br />
Acquired<br />
M3 Mobile Marketing<br />
Acquired by<br />
MDC Partners Inc.<br />
Acquired<br />
Pepperjam<br />
Acquired<br />
Silverlign Group Inc.<br />
Advisor<br />
Advisor<br />
Advisor<br />
Advisor<br />
Advisor<br />
Advisor<br />
Advisor<br />
$20,000,000<br />
$367,000,000<br />
$157,000,000<br />
Undisclosed<br />
Undisclosed<br />
Undisclosed<br />
Undisclosed<br />
Email Business of<br />
Ad serving Business of<br />
Investment by<br />
TZP Group LLC<br />
Placement Agent<br />
Acquired by<br />
Roper Industries, Inc.<br />
Advisor<br />
Acquired<br />
e-Dialog, Inc.<br />
Advisor<br />
Acquired by<br />
WPP Group plc<br />
Advisor<br />
Acquired by<br />
Quest Software<br />
Advisor<br />
Sold to<br />
One to One Interactive, Inc.<br />
Advisor<br />
Sold to<br />
Aegis plc<br />
Advisor<br />
Undisclosed<br />
$113,189,337<br />
$17,450,000<br />
PrePay Intelligent Network<br />
Solutions (INS) Business Unit of<br />
Undisclosed<br />
Undisclosed<br />
$138,000,000<br />
Undisclosed<br />
Sold to<br />
Parthenon Capital LLC<br />
Advisor<br />
Secondary Offering<br />
Co-Manager<br />
Acquired by<br />
Verisign<br />
Issued Fairness Opinion<br />
Acquired by<br />
Schulman, Ronca, &<br />
Bucuvalas, Inc.<br />
Advisor<br />
Acquired by<br />
ISIS Equity Partners, Inc.<br />
Advisor<br />
Acquired<br />
Modem Media, Inc.<br />
Advisor<br />
Acquired by<br />
Valassis Communications Inc<br />
Advisor<br />
$58,000,000<br />
Undisclosed<br />
$55,200,000<br />
Undisclosed<br />
Undisclosed<br />
Advisory Communications<br />
Systems, Inc. (ACS) d/b/a<br />
Marketing One to One, Inc. d/b/a<br />
Acquired<br />
Performics, Inc.<br />
Acquired by<br />
ARAG Group<br />
Follow-On Offering<br />
Acquired by<br />
Carlson Marketing Group<br />
Acquired by<br />
Alliance Data Systems, Inc.<br />
Advisor<br />
Advisor<br />
Co-Manager<br />
Advisor<br />
Advisor<br />
34
<strong>Gridley</strong> & <strong>Company</strong> LLC<br />
10 East 53 rd Street, 24 th Floor<br />
New York, NY 10022<br />
212.400.9720 tel<br />
212.400.9717 fax<br />
Twitter: @gridleyco<br />
www.gridleyco.com<br />
35
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