Black sheep fund introduction

An introductionTuesday, March 29, 2011

The result of a powerful partnershipbetween expert venture capitalists and world class brand builders.

Spark Ventures. Start up experts.Overview Key strengths!  One of Europe’s leading seed and early stage !  One of the most entrepreneurial and established venture management groups early stage investors in Europe!  Formed as NewMedia Investors in 1996 and !  Excellent deal flow from successful entrepreneurs, floated on AIM as NewMedia SPARK in 1999 leading Universities and our position as one of the most active players in our sectors!  Now an independent management company managing £200m of investments in Technology, !  Visibility on trends and opportunities arising from a Digital Media and Life Sciences position in over 80 companies in the sectors!  Funds under management: !  Managing funds with LPs including The European Investment Fund, IF, Paul Capital, NIF SMBC •  SPARK Ventures plc - £48m balance sheet investments Ventures and GE Equity and with shareholders •  Quester Venture Partnership - £69m Limited including M&G (part of the Prudential), Barclays, Partnership. Morgan Stanley •  Quester VCTs aggregate £50m LSE listed retail funds. •  Isis College Funds - £15m technology focused Limited Partnerships (Oxford University) !  An experienced investment team who have •  Lachesis University Challenge Seed Fund - £10m 5 managed portfolios through several market cycles, universities – inc Nottingham, Leicester, Loughborough consistently delivered successful exits from a high risk investment category, and many of whom have worked together for over 10 years

More than £1 billion of exits over last 20 years. Selected exits from pre-SPARK and SPARK investments 1990 to 2010: Date March 1989 Date March 2000 Date Sept 2000 Date Sept 2001 Date Aug 2004 Date Oct 2005 Amount £100m Amount £570 IPO Amount £100 Amount £545m Amount $35m Amount £50m MAID plc IPO IPO IPO was acquired by IPO IPO Date Aug 2005 Date Dec 2005 Date Nov 2005 Date Aug 2006 Date Oct 2006 Date Nov 2007 Amount $60m Amount £35m Amount £5m Amount £120m Amount $5m Amount £5m was acquired by was acquired by was acquired by was acquired by was acquired by was acquired by Date Jan 2008 Date Jan 2008 Date Mar 2007 Date April 2008 Date Mar 2009 Date Aug 2009 Amount £5m Amount $58m Amount $60m Amount $20m Amount undisclosed Amount £30m NOMAD was acquired by was acquired by was acquired by was acquired by was acquired by was acquired by

Entrepreneur driven success.Proven ability to work with successful entrepreneurs over three investment cycles “SPARK stood out from other VCs in their ability to £500k Seed Round 1998 understand the consumer gap in the market and the £570 million IPO 2001 applications of technology to the problem. SPARK is a very IRR 2183% supportive team, doesnt get rattled when the going gets tough, and adds value across the spectrum.” Brent Hoberman, Founder Lastminute.com £700k Seed Round 2000 “SPARK saw exactly what we were trying to do when £120 million Sale 2007 we simply had a business plan and lots of enthusiasm, they backed both. SPARK understands entrepreneurs IRR 63% because they are entrepreneurs.” Caspar Hobbs, CEO Mergermarket “SPARK’s magic formula is the belief and excitement £400k Seed Round 2007 they have for the business, combined with a gentle Revenue CAGR 290% ‘hand on the tiller’ at precisely the right moment.” Holly Tucker, Sophie Cornish, Founders Notonthehighstreet.com

Spark has a strong record.Team Seed Investment Performance SPARK I Performance (2000 vintage) 4.9x 1.32x Total invested capital Total value Total invested capital Total value •  The team’s investment track record is extremely •  SPARK’s 2000 vintage fund has delivered top strong delivering 4.9 times the invested capital and decile performance relative to other funds raised an IRR of 42% that year (BVCA) •  This covers a total of 20 investments made (average •  Currently at 1.32 times the invested capital and £1m) over the last 20 years both at SPARK Ventures realisations of 67% of the value of the fund. and prior to its formation Forecast to achieve 14% IRR.

The Spark investor network. Access to over 75% of UK VC market.

BBH. A truly creative business. Overview!  BBH is the world’s leading independent communications agency. 27 years spent building brand value for clients including:!  6 offices around the world: London, New York, Sao Paulo, Singapore, Mumbai and Shanghai.!  The ability to create big emotional platforms for brands that engender customer loyalty.!  Unique access to consumer trends and behavior across a range of sectors.!  Insight driven brand development and multimedia communication planning.!  Proven prowess in digital marketing. 11

BBH. Value creation. *+,-."/012"The business has grown 20% year- #()$$$"on-year for the past 5 years and also #$)$$$"catapulted the brand from a $0 to$500m business in the us. ()$$$" $" %$$$" %$$#" %$$%" %$$3" %$$&" %$$(" %$$" %$$4" %$$!" %$$5" *+,-."/012"Audi UK doubled in size in 5 years, #($)$$$"selling over 100,000 units by 2007. #$$)$$$"The brand is now bigger thanMercedes. ($)$$$" $" Millions of casesWorldwide retail sales increased $1 #"billion with the addition of the ‘Keep #&"walking’ campaign. #%" #$" !"

Zag. Inventing brands.•  Zag is the brand ventures division of BBH.•  Zag creates new revenue streams for BBH by inventing brands and bringing them to market with Joint Venture partners.•  Zag also helps emerging businesses with their brand strategy and marketing plans in return for equity.

An example of invention. Stylish Security.•  Zag spotted that crime was rising – and no brands were offering women personal safety solutions. The products in market were poor and rejected by women as unfashionable and stigmatising.•  Zag invented ila security – the first stylish security brand. And designed a revolutionary alarm with a human scream for help.•  Zag formed a JV with Locca Ltd, and listings were secured at M&S. The product sold out.•  Today, ila has multiple retailers in the UK and footholds in North America and Europe. There are now 5 products in market and a pipeline full of NPD.•  Ila was listed on the AIM index in 2010 and currently has a market cap of £10m.

The combined team.Thomas Teichman Kiko Duffy Neil Munn Adam Arnold Chairman Investment Director Chief Executive Officer Managing Director Spark Ventures Spark Ventures Zag, Global Zag, LondonFounder and Chairman of NewMedia Kiko was part of SPARK’s founding Neil founded Zag with BBH in 2006. Adam runs Zag’s London office,Investors, in 1996 – which merged team in 1999. Prior SPARK, Kiko He currently runs the brand invention taking responsibility for the brandinto NewMedia SPARK in 2000. spent two years with NewMedia operation globally, as well as sitting invention, brand partnering and brand Investors assisting clients such as on the BBH Group Board. evaluation dovisions of business.Tom has over 30 years of venture Lastminute.com, and System Ccapital and investment banking Healthcare in raising more than Formerly, Neil spent 16 years at As well as managing the team, heexperience with firms including £30m. Unilever running some of its biggest leads the relationships with Zag’sBankers Trust, Credit Suisse and brands. In his last role, Neil was media, retail and manufacturingNesbitt Burns. Kiko specialises in the digital media Global Brand Director on Axe – partners.He has raised over £5bn for sector and represents investments in Unilever’s fastest growing brand, withcompanies and has backed many Firebox, Workshare, Academia and sales of over $1bn. Prior to Zag, he was a Businesssuccessful early stage businesses, Cluster 7. Kiko was responsible for Director at BBH – working on themany from start up, all the way to SPARKs investment in Touch Clarity Throughout his career, Neil has communications for brands includingflotation (London and NASDAQ). He (sold to Omniture), and the sale of worked in various parts of the world, Audi, ITV, and Vodafone. He remainswas on the Boards of most of these Secerno (to Trend Micro). Kiko holds helping the group establish its China a Partner of BBH.for several years including ARC, an MBA in Finance (ESADE 2005) operation and leading thelastminute.com, Argonaut, Dialog, and a BA in Philosophy (Manchester development of its European Adam holds a first class MA inSystem C Healthcare, Wellington Pub University). beverages business out of Paris. Geography from CambridgeCompany and Libertas Capital. University.

Managing investments: Creating & defending value Sold to Pearson £120m World’s largest indie music Super fast growing World’s first female publisher consumer marketplace security brand •  Main board •  Chairman of board •  Main board •  Main boardGovernance& Control •  Member of Audit •  Member of Audit •  Member of Audit •  Remuneration Committee Committee Committee Committee •  Member of Remuneration •  Member of Remuneration •  Member of Remuneration •  Operational matters Committee Committee Committee require NED approval •  Operational matters •  Operational matters •  Operational matters •  Information rights require NED approval require NED approval require NED approval •  Information rights •  Information rights •  Information rights •  Preference shares with •  Ordinary shares •  Preference shares with •  Ordinary sharesEconomicProtections participation rights on sale, •  > 25% of shares so can participation rights on •  Pre-emption rights liquidation or IPO prevent sale or further sale, liquidation or IPO •  Drag / Tag along •  Drag / Tag along fundraising •  Drag / Tag along •  Anti-dilution rights •  Pre-emption rights •  Drag / Tag along •  Pre-emption rights •  Anti dilution rights •  Pre-emption rights •  Anti dilution rights •  Seed Investor •  Seed Investor •  Seed Investor •  Brand inventionKey •  Introduced Series A •  Founded by SPARK •  Introduced Series A •  Marketing supportcontributions investor incubator investor •  Media partnersby SPARK •  Helped US expansion •  Introduced Balderton •  Provided loan at key time •  Retailer pitchesor BBH •  M&A planning and $10m investor •  CEO mentoring •  Strategic planning execution for £120m sale to •  Provided loans at key •  Strategic planning Pearson time •  CEO mentoring

A brand new fund concept: Early-stage expertise Global brand expertiseExperience assessing opportunities Source of creativity & innovation Effective management systems Marketing & media firepower Strong deal flow from both networks Unique due diligence process to analyse opportunities ‘Creative Capital’ Skills and resources to accelerate businesses to exit

Fund focus. Brands Consumer Technology Content DataHigh growth potential, Disruptive business models, Addressing market gaps, Non-capital intensive business models, Inspiring entrepreneurs.

Investment criteria.•  1st institutional investor Seed (£50k - £500k) Pre-revenue businesses Proof of concept stage Early Stage (£250k -£1m) Pre-revenue or revenue generating Product at least in Beta stage•  Debt or equity depending on company needs and risk•  Exit timeframe 3 years plus

The time is right to plant seeds. 1 2 3 Significant funding High growth sector Attractive point in the challenges for SMEs fundamentals economic cycleExisting VCs focused at > £2m. High penetration and usage of Growth forecasts suggest new media. recovery under way“Financing gap for early stage capital”. 2nd & 3rd time digital media Best VC returns achieved just Rowlands report, Nov 2009. post recession entrepreneurs.Banking finance expected to be Capital efficiency is highly in short supply. Strong underlying demand for mobile & internet. valued by all partiesLimited Institutional appetite for Signs of strengthening M&A VC asset class. New technologies disrupting market in the sector traditional business models.

1. Significant funding challenges for SMEs£bnEarly stage investment has halved.•  Total UK investment fell from £10.2bn in 2006 to £8.6bn in 2008.•  Investment in early stage halved in this period•  Limited institutional appetite for VC asset class•  Most VC’s focussed on later stage dealsSource: BVCA Private Equity and Venture Captal Report on Investment Activity 2008

Start-ups lack specialised institutional backing. . 67-" . 8,+9:"*7--;" <=>?" .•  50% of external finance for SME’s from banks•  Bank finance expected to be in short supply -anecdotal evidence from our portfolio supports this•  Seed stage investments dominated by business angels / grants / bank lending•  Start-ups lacking specialised helpSource: Provision of Growth Capital to UK SMEs; Chris Rowland

2. High growth sector fundamentals“The dynamic of our society,and our new economy,will increasingly obeythe logic of networks. !"#"$%&We are connectingeverything toeverything.”Kevin Kelly, New Rules for the New Economy

2. High growth sector fundamentals Mobile Internet Penetration Strong European Online Media consumption Increasing Retail Growth continues to move to digital Video Search Proportion of total Web Display advertising market P2P/Games Classifieds Voice VideoSource: Morgan Stanley: Mobile Internet Report 2009 Source: Forrester Research: Western European Online Retail Forecast 2009 Source: PwC: Global entertainment and media outlook: 2009-2013"  3G handset penetration to hit 43% by 2014 "  Online retail sales in Europe reached "  European online advertising returning to"  Mobile data traffic to show exponential Euro 68bn in 2009 strong growth growth "  Projected to grow to Euro 114bn by "  Online advertising to account for 40% of "  Video to account 60% mobile data 2014 total advertising market by 2013 traffic by 2014 "  CAGR 11% over next five years "  Paid search and new media formats such "  72% of social network pages viewed "  High growth categories include fashion, as video and mobile main growth drivers on mobile home, personalised gifts "  Rich media and video to account"  iPhone driving behaviour change for 50% of display ad spend by "  Cloud computing to increase viability of "  2 billion iphone apps downloaded online selling to many SMEs 2013. Social networks now"  New business models will arise – music, account for a quarter of UK display "  Marketing techniques such as ads games, broadcast behavioural targetting drive growth

3. An attractive point in the economic cycle Dot com bust 01 - 041990s recession 91- 94 Median Source: BVCA Private Equity and Venture Capital Performance measurement Survey 2008

Summary.•  A unique fund concept.•  Combining investment expertise with creative firepower.•  Access to the most exciting start up ideas.•  Accelerating the commercial power of brands.•  The right focus – on the digital media sector.•  The right time – as we emerge from recession.•  The advantage of being the first mover at early stage.•  All the technical back up and management skills of Spark.

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Black sheep fund introduction

by Mel Exon on Mar 29, 2011

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