Fundraising 101 for the Game Sector

Avista Partners

 Investment Banker based in London for 11 years  Strong game sector experience, knowledge and relationships  Advised on transactions in the game sector since 1999 with a total value of over $1 billion advising many companies including: Avista 2 Partners

Online Mobile Technology Social & Services Avista 3 Partners

 Quick sector overview  Why to raise money  Funding readiness  How much to raise  Types of potential investors  How to raise the funding Avista 4 Partners

$109.6 Billion: total public company market cap for global game sector Distribution/ Outsourcing, Payment, Accessories, $318 $3,280 $277 Online is worth approx. Online, PC/Console 65% of $21,951 w/o PC/Console Nintendo, $33,783 Retail, $3,924 Mobile, $8,360 Nintendo, $37,714 Note: USD$ millions and as at 31 May, 2010 Avista 5 Partners

Online Game/ Virtual Mail.ru Games Webzen World Universe has Realnetworks Games Tencent Games Viacom Online 260+ plus companies Yoyogames Wild Tangent Kongregate AOL Games EA Online with $13.4 billion+ in Zapak Spil Games Miniclip Yahoo Games Gungho iwin annual revenue King.com Playfirst Ourgame Duowan Duniu GGL 6 waves Roblox Games2win Cafe.com Ganymede Most Diverse Feerik Big Fish Oberon Microsoft Online Shanda Games Alawar Fettspielen MLG 51wan 9you Gala-net GameDuell Geewa Motion Twin Popcap Aeria Run Up Mgame Gamania Zynga Jagex Moli Group Netease Games Acclaim Bigpoint Sony Online (SOE) NcSoft Level Up Games rockyou Many Players Gameforge CJ Internet Viwawa Playdom Sky Union Liveplex Vector Macrowell Gamepot Prizee Redmoon Gamigo Hanbitsoft Portfolio Diversity Gigamedia Games The9 Cubinet ESL Vinagame Netdragon Guangyu Huaxia Weeworld Sing-Gium Softstar Chinese Gamer Gameon CIB Net Station Lizard Nexon Snail Game GameCyber WeMade Entertainment Perfect World Upjers Neowiz Games Sonokong Roc Works SGN Gonzo Rosso IP e-games IGS Online Games DMII High5 Asiasoft Burda Interactive China Cyber Port Userjoy Windysoft CDC Games Slide M-Etel Mycnx Linekong SZ Network Actoz Kingsoft Games Headlock Goorm GoodGame VTC Game Ferry Game Aruon K2/ GamersOutspark First Lyto Gravity Garena Valve Online Anipark Joymax Goa OnNet Ongame X-legend Innogames Artix Warner Bros. Online Games Beemoov JC EntertainmentWeilai Cubizone Barunson Ini3 GamesCampus Five Minutes Gameus Shiji Tiancheng Gamehi Travian Ndoors Giant Interactive Crowdstar Flowplay Unalis Storm Entertainment Logic Korea L&K C&C Media Ankama CyberstepImperia OnlineMygame.ph Dragonfly Ogplanet Games Masters Owlient GCREST Subagames Jumpstart Three Rings Kog Studios Ntreev Frogster Apaja CITVC Netempire IAHGames Redduck Software 100sea Object Exagame Wiseon EYA Interactive Dream Execution Gamasoft Ymir Galaxy Gate Hive7 Lager Network Northstar Imazic Barunson Interactive G10 Softnyx InixsoftH-win Codemasters Online Extralives Cipsoft Gamelabs Hi-win Dreamwork Power Challenge NetTimeSoft Min Communications Expotato Aramaru Taewool Digitalic Nowcom Games CaveCrspace Blizzard Sulake Young Internet Gameart Studio Allm CCR F4 YedangOnline Watagame Gaia Online Mediasite Radiance YNK Korea Entropia G-Bits Urban Rivals IMVU Cedar Online Digipark Ice Entertainment Apeha.ru Gnisoft Maiet ESTsoft games Funcom Seedc Wisecat Indy21 Entwell Changyou (Sohu) Stardoll Tri-d Second Life Atoonz Zwinky Wizard101 Rhaon On Soft Fusion Fall Softon Alt1 IMC Games CCP Mind Candy Combats.ru Ons Cartoon Doll Emporium eRepublik Club Penguin Webkinz Least Diverse Casual Casual to Hardcore Focus Hardcore Avista 6 Partners

Total Deal Value (USD$ millions) Total # of Deals 2500.0 140 119 120 1910.7 2000.0 109 100 1563.1 1500.0 80 1223.0 69 60 1000.0 48 40 40 476.6 500.0 379.5 2010 is on 305.9 304.2 298.6 20 track for 18 23 167.7 136.8 12 $900m+ 7 5 47.6 21.2 4 3 0.0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Avista Source: Capital IQ as at 31 May 2010 Note: All in USD millions except where noted 7 Partners

Total Deal Value (USD$ millions) Total # of Deals 800.0 25 700.0 682.6 22 19 20 600.0 17 500.0 15 13 2010 is on 400.0 12 13 357.9 11 track for 324.6 over $1.2bn 10 10 300.0 in deals 8 200.0 6 156.8 5 87.1 99.6 100.0 68.0 43.4 10.8 20.5 0.0 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Year Avista Source: Capital IQ as at 31 May 2010 Note: All in USD millions except where noted 8 Partners

EV/Revenue EV/EBITDA P/E Stock Price Price as % Price as Market Enterprise (local currency) of LTM % of LTM Cap Value (5/31/10) High Low (USDm) (USDm) CY 2008 CY 2009E CY 2010E CY 2011E CY 2008 CY 2009E CY 2010E CY 2011E CY 2008 CY 2009E CY 2010E CY 2011E Online Game Companies Netease.com Inc. 30.36 62.6% 120.3% 3,932.3 2,808.2 9.3x 6.2x 5.2x 3.6x 15.7x 9.6x 8.8x 7.0x 16.8x 15.0x 12.5x 10.3x NCSoft 193,500.00 96.0% 173.5% 3,190.7 2,742.4 7.8x 10.0x 7.1x 5.8x 37.1x 49.8x 16.2x 12.5x NM 23.7x 19.4x 15.9x Shanda Games Limited 5.48 42.2% 104.4% 1,578.5 1,235.0 3.9x 2.5x 1.8x 1.6x 11.5x 6.4x 4.3x 4.1x 11.0x 7.1x 7.3x 6.6x Changyou.com Limited 26.56 54.9% 101.1% 1,369.6 1,104.2 26.2x 5.5x 4.1x 3.5x 180.4x 9.4x 6.4x 5.4x 11.7x 9.3x 8.2x 6.6x Perfect World Co., Ltd. 26.48 52.4% 124.6% 1,325.6 1,053.5 11.2x 5.0x 3.4x 2.8x 21.5x 9.2x 5.9x 5.2x 16.6x 9.0x 8.0x 6.9x Shanda Interactive Entertainment Lt 41.01 63.1% 107.7% 2,435.1 912.4 2.7x 1.7x 1.2x 1.0x 5.5x 3.7x 2.7x 2.2x 16.5x 12.1x 12.5x 10.9x Giant Interactive Group, Inc. 7.09 74.1% 113.6% 1,609.9 874.5 4.2x 3.7x 4.6x 4.2x 5.8x 5.9x 6.9x 6.4x 10.8x 13.5x 12.7x 10.6x Chinese Gamer International 331.00 63.8% 113.9% 888.9 802.8 21.5x 16.9x 12.5x 10.4x 43.2x 33.4x 18.8x 15.8x 44.5x 23.4x 18.0x 13.5x NEOWIZ Games Corporation 41,300.00 92.0% 147.0% 729.2 716.3 3.7x 3.7x 3.0x 2.2x 13.8x 13.6x 9.9x 7.6x 40.1x 16.0x 12.4x 10.1x Kingsoft Corporation Limited 4.40 46.5% 108.9% 629.0 444.5 5.8x 3.7x 3.1x 2.7x 23.8x 9.5x 7.0x 5.6x 13.9x 10.8x 9.5x 7.6x UserJoy Technology Co. Ltd. 463.00 91.3% 263.0% 431.8 413.3 35.1x 27.0x 21.3x 8.6x 92.3x 83.3x 53.1x 18.0x NM 65.7x 19.3x 13.9x China Communication Telecom Serv 2.10 85.4% 355.9% 322.2 350.9 127.0x 7.3x NA NA 633.3x NM NA NA NM NA NA NA Shenzhen Zhongqingbaowang Netw 24.04 68.4% 112.3% 457.3 338.1 149.4x 43.0x NA NA 276.0x 64.0x NA NA 63.7x NA NA NA Wemade Entertainment Co., Ltd. 42,500.00 63.5% 110.8% 271.3 271.3 6.3x 4.3x NA NA 17.0x 9.9x NA NA 1.6x NA NA NA GameHi Co.,Ltd. 1,590.00 67.9% 161.4% 217.9 263.2 NA 7.4x NA NA NA 17.1x NA NA NM NA NA NA Gamania Digital Entertainment Co., 58.20 84.6% 133.8% 281.5 253.5 2.3x 2.2x 1.9x 1.9x 13.8x 14.5x NA NA 35.4x 24.2x 23.5x 18.1x CJ Internet Corp. 10,700.00 56.8% 109.2% 204.1 204.1 1.2x 1.2x 1.1x 1.0x 3.9x 5.2x 4.0x 3.4x 10.4x 8.6x 6.9x 5.5x GungHo Online Entertainment, Inc. 193,000.00 61.3% 139.9% 244.0 203.3 3.0x 1.6x 1.6x NA 105.0x 9.2x NA NA NM 19.1x NA NA Dragonfly GF Co., Ltd 16,900.00 70.1% 169.5% 173.3 174.3 NA 6.4x NA NA NA 10.6x NA NA 8.1x NA NA NA GigaMedia Ltd. 2.52 36.7% 126.0% 137.4 102.4 0.7x 0.5x 0.7x 1.3x 2.3x 2.1x 11.1x 8.1x 4.3x NM 2.3x 9.0x YD Online Corp. 4,860.00 44.4% 120.0% 61.1 69.9 1.0x 1.1x 1.3x 1.0x 4.4x 5.4x NA NA 6.8x 9.6x 5.5x 4.3x Mgame Corp. 7,200.00 40.3% 112.5% 68.7 68.6 1.1x 1.4x 1.4x 1.2x 4.3x 5.9x 6.8x 3.8x 5.7x 16.0x 8.2x 7.0x Barunson Games Corporation. 1,710.00 87.9% 161.3% 39.7 64.4 7.6x 10.6x NA NA NM NM NA NA NM NA NA NA HanbitSoft, Inc. 3,800.00 67.6% 122.2% 69.7 57.3 0.9x 1.0x NA NA NM NM NA NA NM NA NA NA Frogster Interactive Pictures AG 17.32 77.5% 240.5% 54.7 51.4 8.9x 15.7x 2.7x 1.5x NM NM 9.6x 4.6x NM 21.0x 10.3x 5.2x Webzen Inc. 12,100.00 59.6% 123.3% 120.0 46.7 1.6x 2.1x 2.0x 1.5x NM NM 10.1x 4.3x NM 34.2x 13.8x 8.5x Gala Incorporated 46,000.00 40.4% 129.4% 53.8 45.7 1.8x 1.1x NA NA 22.7x 6.1x NA NA 25.4x NA NA NA ESTsoft Corp. 13,300.00 49.2% 110.8% 52.9 43.6 3.2x 2.2x 1.8x NA 10.3x 4.9x 4.3x NA 8.0x 7.8x NA NA NetDragon WebSoft, Inc. 3.36 47.0% 103.1% 227.1 42.8 0.5x 0.5x 0.5x 0.5x 0.7x 1.2x 3.5x 2.5x 6.6x 18.9x 12.6x 16.4x Softstar Entertainment Inc. 42.00 84.0% 168.3% 33.6 40.8 4.2x 6.1x NA NA NM NM NA NA NM NA NA NA Joymax Company Ltd. 18,800.00 29.7% 129.7% 104.9 36.7 1.8x 1.4x NA NA 3.0x 2.3x NA NA 5.9x NA NA NA Asiasoft Corporation Public Compan 7.05 94.0% 127.0% 64.8 35.8 0.7x 0.8x 0.8x 0.7x 2.7x 4.0x 3.4x 2.8x 11.3x 13.5x 11.0x 9.6x Liveplex Co. Ltd. 2,585.00 79.8% 174.7% 48.4 35.4 2.8x 3.4x NA NA NM NM NA NA NM NA NA NA Cave Co. Ltd. 135,000.00 57.5% 221.3% 30.6 29.2 1.2x 0.8x 0.8x NA 11.2x 3.6x NA NA 5.6x 14.3x NA NA Actoz Soft Co., Ltd. 10,050.00 27.9% 112.4% 74.6 26.5 0.5x 0.4x 0.2x 0.2x 3.5x 1.8x 1.1x 0.9x 11.3x 9.3x 7.8x 6.7x JCEntertainment Corporation 4,860.00 82.4% 169.7% 40.9 26.1 0.9x 2.1x NA NA NA NM NA NA NM NA NA NA Ynk Korea Inc. 2,715.00 34.4% 108.6% 18.1 17.2 0.8x 1.5x NA NA NM 14.5x NA NA NM NA NA NA GameOn Co Ltd. 79,000.00 59.4% 131.4% 86.7 16.6 NM 0.2x 0.2x NA NM NM NA NA 7.9x 9.7x NA NA Funcom N.V. 5.00 67.2% 156.2% 40.8 10.9 NA NA NA NA NM NM NA NA NM NM NM 5.7x M-etel Co., Ltd 9.00 57.6% 900.1% 4.6 10.0 2.0x 1.7x NA NA 22.9x 6.2x NA NA 17.0x NA NA NA CyberStep, Inc. 55,100.00 55.0% 266.1% 12.0 8.6 1.0x 1.0x NA NA 2.9x NM NA NA NM NA NA NA Star Vault AB 2.44 54.2% 125.1% 6.2 5.7 NA NA NA NA NM NM NA NA NM NA NA NA Gravity Co., Ltd 1.84 70.0% 227.2% 51.1 (10.8) NA NA NA NA NM NA NA NA NM NA NA NA The9 Limited 4.41 36.6% 106.0% 112.5 (132.5) NM NM NM NM NM NM NM NM 8.6x NM NM NM Min 0.5x 0.2x 0.2x 0.2x 0.7x 1.2x 1.1x 0.9x 1.6x 7.1x 2.3x 4.3x Max 149.4x 43.0x 21.3x 10.4x 633.3x 83.3x 53.1x 18.0x 63.7x 65.7x 23.5x 18.1x Average 12.2x 5.3x 3.4x 2.7x 53.8x 14.3x 9.7x 6.3x 16.3x 17.2x 11.5x 9.5x Median 2.8x 2.2x 1.8x 1.6x 13.8x 9.2x 6.8x 5.2x 11.1x 13.9x 11.0x 8.8x Avista Source: Capital IQ as at 31 May 2010 Note: All in USD millions except where noted 9 Partners

Total Implied Implied Implied Implied Transaction Enterprise Enterprise Enterprise Enterprise Date Target/Issuer Value ($mm) Buyers/Investors Value ($mm) Value/ Revenues Value/ EBITDA Value/ EBIT 05/27/2010 Gamehi (29.3%) 59.8 Nexon 204.1 6.0x - 21.0x 05/27/2010 Infocomm Asia Holdings (52%) 23.0 Gigamedia 44.2 4.9x - - 05/20/2010 XPD Media - Zynga - - - - 05/20/2010 Cyber Revolutionary Space Co. (48.94%) 10.7 NEOWIZ Games Corporation 21.8 - - - 05/18/2010 Acclaim Games - Playdom - - - - 05/18/2010 Runic Games (increase to majority stake) 8.4 Perfect World - - - - 05/17/2010 Perfect Storm Network Technology 8.8 Dokomo Network Technology - - - - 05/14/2010 Stunlock Studios (minority stake) - Funcom - - - - 05/11/2010 Nextplay (65%) - NCSoft - - - - 05/04/2010 Ndoors (67%) - Nexon - - - - 04/30/2010 Chengdu Ye Net Science and Technology - Perfect World - - - - Development Co. (increase from 30% to 80%) 04/26/2010 Merscom - Playdom - - - - 04/26/2010 LabPixies - Google - - - - 04/21/2010 Irata Labs - News Corp - - - - 04/21/2010 Shenzhen Domain Computer Network Co. (29%) 20.8 Shenzhen Tencent Computer System Co. 46.5 - - - 04/20/2010 Turbine Inc. - Warner Bros. - - - - 04/15/2010 NHN Games 214.4 Webzen 214.4 - - - 04/12/2010 CIB Development Sdn Bhd 11.9 CIB Interactive Sdn Bhd 11.9 - - - 04/09/2010 Qian Wan Technology Co. Ltd. (80%) 0.1 Long Shapiro Core Information Services Limited 0.1 - - - 03/31/2010 Three Melons - Playdom - - - - 03/30/2010 Cyber Planet Interactive Company Limited (6.82%) 0.7 Hansathan Piyachatwongs 10.9 - - - 03/26/2010 C&C Media Co., Ltd. 21.0 Perfect World Co., Ltd. 21.0 - - - 03/22/2010 Red 5 Studios (majority stake) 20.0 The9 Limited - - - - 03/03/2010 northworks Software - Travian Games - - - - 03/03.2010 Mindjolt - Platform G - - - - 03/03/2010 Offbeat Creations - Playdom - - - - 02/24/2010 Big Six Games - Hi5 Networks - - - - 02/23/2010 Game Advertising Online 8.0 UBM TechWeb Game Network 8.0 - - - 02/22/2010 Raxco Assets Corp. 7.3 High Amuse Limited 7.3 - - - 02/18/2010 YNK Japan (31.6%) 3.9 Wemade Entertainment 12.5 02/11/2010 FileFront 2.0 Break Media 2.0 - - - 02/11/2010 Serious Business - Zynga - - - - 02/03/2010 Alawar (23%) 3.0 Almaz Capital Partners 13.0 - - - 02/03/2010 Seed9 Entertainment (56.33%) 6.5 CJ Internet 11.5 - - - 02/02/2010 YNK Japan (35%) 4.3 Wemade Entertainment 12.3 01/29/2010 Enemy Unknown AB - Linden Research - - - - 01/21/2010 Professional Interactive Entertainment (GGL) - PrismOne Group - - - - 01/13/2010 Thriller New Media - iEntertainment Network - - - - 01/11/2010 Mochi Media 80.0 Shanda Games 80.0 - - - 01/11/2010 Linden Research (undisclosed stake) - Saints Capital - - - - Source: Capital IQ as at 31 May 2010 01/08/2010 Shanghai Hongli Digital Technology (Goldcool Games) - Shanda Games - - - - Avista Note: All in USD millions except where noted 10 Partners

Implied Implied Implied Implied Enterprise Enterprise Enterprise Enterprise Value/ Value/ Value/ Date Target/Issuer Buyers/Investors Value ($mm) Revenues EBITDA EBIT 05/27/2010 Gamehi (29.3%) Nexon 204.1 6.0 - 21.0 05/27/2010 Infocomm Asia Holdings (52%) Gigamedia 44.2 4.9 - - 11/18/2009 Shanda Games (5.4%) GIC 3013.2 5.9 15.1 - 06/26/2009 Fueps S.p.A (51%) DADA SpA 3.8 4.2 - - 06/06/2009 Dreamwork net co. ltd. Chengdu B-ray Media Co. Ltd. 64.5 4.6 - 4.9 12/09/2008 Cryptic Studios, Inc. Infogrames Entertainment SA 74.8 4.4 - - 09/03/2008 Webzen Inc. (23.7%) NHN Games Co., Ltd. 163.7 7.1 - - 02/28/2008 Gamepot Inc. (SPSE:3792) So-net Entertainment Corporation 85.7 2.4 7.8 11.3 12/01/2007 Blizzard Activision 8100.0 7.4 - 15.6 11/08/2007 Gameon Co. Ltd. (41.3%) NEOWIZ Games & TStone Corp. 141.4 2.4 8.9 9.2 06/22/2007 Fun Technologies (47%) Liberty Media $99.3m 4.8 05/30/2007 Optisp CDC Games $10-12m 1 05/21/2007 The9 Electronic Arts $167m (15%) 8.4 18.3 03/19/2007 Neowiz Electronic Arts $105m (19%) 4 15 08/24/2006 CDM Fantasy Sports Fun Technologies $10m 1.3 06/13/2006 Jeuxvideo.com (88%) Hi-Media €22.9m 12.8 03/20/2006 WorldWinner Fun Technologies $23m 2.2 02/07/2006 Zylom Realnetworks $21m 2.6 11/22/2005 Fun Technologies (51%) Liberty Media $144m 5.6 09/08/2005 IGN Entertainment News Corp $650m 15.2 08/31/2005 Gravity (52.4%) Softbank related funds $389.9m 11.2 17.9x 06/13/2005 Fanball Interactive Fun Technologies $22m 4.8 06/01/2005 Cheatplanet Future plc $8.7m 9.7 11/29/2004 Actoz (29%) Shanda $91.7m 8.1 34.7 07/02/2004 Skilljam Fun Technologies $8m 2.2 01/26/2004 Gamehouse Realnetworks $35.6m 3.6 08/28/2003 IGN Entertainment Mgmt & Great Hill Partners $34.9m 3.1 06/02/2001 Uproar Vivendi Universal Games $140m 1.2 Average 5.4 16.6 12.4 Source: Capital IQ as at 31 May 2010 Avista Note: All in USD millions except where noted 11 Partners

 Wrong answer: ▪ buy a Ferrari  Interesting answers: ▪ to hire people/ management team ▪ to start a company ▪ to acquire a company ▪ to make a great game  Best Answers: ▪ to support the fast growth of my company ▪ want an investor whom can bring money and value add ▪ to finish development of the disruptive technology that we are working on that will revolutionize the sector/ the world. ▪ building the best game publishing platform ever and want great partners Avista 12 Partners

 Good uses: ▪ Build out management, marketing & development teams ▪ Accelerate growth with marketing campaigns & customer acquisition ▪ Be able to offer compensation packages that are competitive ▪ Working capital ▪ Build a diversified game portfolio and more content for current games ▪ Take some risks without worrying about cash flow constantly  Bad uses: ▪ Pay off mortgage or debt ▪ Tired of low salary ▪ Build a single game Avista 13 Partners

 Your company should have most if not all of the following: Content Already developed one great game or more? Diversified More than one game now or in your future pipeline? Portfolio Financials Growing revenues? Profitable now or within 12 months? Cash flow positive now or within 12 months? Mgmt team in place now or how soon? Strong track record? Management Customers/ Signed deals with strategic customers or partners? How many strategic deals in Partners pipeline Business Is business model unique yet scalable? Model Avista 14 Partners

 Round size and purpose will determine potential investor to approach  < 2m euros then angel investors, strategic investors, govt. funding and VC’s (a few will invest in seed rounds)  2m- 20m euros than vc’s & strategic investors  > 20m euros plus profitable than private equity, strategic investors & hedge funds Avista 15 Partners

 Most important: do not lose your focus on running and growing the company ▪ Great execution will strengthen story and build comfort for investors ▪ Poor execution will scare investors and could destroy the company if run out of cash ▪ Cash is always king; do everything you can to generate cash flow ▪ Work for hire at the beginning to pay the bills is not unusual but don’t get addicted to it  Be realistic on round size; very unlikely for an early stage startup to raise more than 3m euros ▪ If you raise too much too early then dilution will be brutal on founders  Raise enough to run company for next 18-24 months or to cash flow positive/ profitability ▪ Very time consuming to raise money Avista 16 Partners

 Network!; start with whom you know and their network direct & Linkedin ▪ Try friends, family, ex-colleagues, lawyers, etc. ▪ Dial for dollars  Many countries have some angel networks that invest as a group or individuals  Venturehacks – growing list of top angel investors  Seedcamp, Y Combinator and others are great ways to raise a little funding with lots of value add plus build your profile  David Gardner – invested in Playfish, Unity Technologies & Playfire Avista 17 Partners

 Some countries do have: ▪ Federal programs to invest in companies in technology or provide grants ▪ Regional programs to invest in local companies or provide grants  Time consuming to apply for and can be restrictive  But in some cases it’s the best initial money as no dilution Avista 18 Partners

 Look up the venture capital association for your country for a list of firms  Also try EVCA – European Venture Capital Association  Some firms who have been recent investors in the sector: ▪ Balderton – Codemasters, Wooga, Naturalmotion, Sulake ▪ Insight Venture Partners – 6waves, Jagex & In-Fusio ▪ Sequoia Capital – Unity Technologies, Challenge Games, RockYou, Baitianinfo, Gameground ▪ Accel Partners – Playfish, Tiny Speck, watagame, Mind Candy, Booyah, Gameforge ▪ Index Ventures – Playfish, Mind Candy, Stardoll, King.com Avista 19 Partners

 Speak to local firms in your country  Also try EVCA  Some firms who have invested in the sector: ▪ Providence Equity – Zenimax Media ▪ Elevation Partners – Bioware/Pandemic ▪ TA Associates – Mythic ▪ GMT Partners – Bigpoint ▪ DST – Zynga, Mail.ru (Astrum Online) Avista 20 Partners

 Many Hedge Funds have invested in the game sector in public companies via shares or convertible bonds  Some are open to investments in private companies and considering investments in game portfolios  Some firms who have invested in the sector: ▪ Bluebay – Atari/Infogrames ▪ GLG – Atari/Infogrames ▪ Trafalgar –Digital Illusions (acquired by EA) ▪ Deutsche Bank –Big Ben ▪ Tiger Global – Zynga ▪ Maverick Capital – Realtime Worlds, OnLive Avista 21 Partners

 Consider any firm which can bring value add including ▪ Publishers, Content/ IP Owners, Licensees/ Distribution Partners  Some firms who have been active in the game sector recently: ▪ Playdom - MetroGames ▪ Tencent – Riot Games & Outspark ▪ Miniclip – PlayDo ▪ Time Warner – Six Degrees Games, Turbine, OnLive, Trion ▪ Peacock (NBC/GE) – Bigpoint, Greystripe ▪ BT - OnLive ▪ Holtzbrinck Ventures – Wooga, Playnik, Young Internet  Share options can be used to secure content or publishing deals Avista 22 Partners

 Key issues are likely to be: ▪Choice of financial & legal advisors ▪Timing ▪Pre-money Valuation ▪Terms ▪Management of the transaction process vis-à-vis ongoing business/commercial milestones ▪ Staff communication  A successful outcome will be enhanced by ▪ Anticipation and consideration of major issues prior to start of process ▪ The creation of a disciplined and empowered fundraising team ▪ Proper use of advisors Avista 23 Partners

 Raising money for game companies is as much an art as a science where relevant experience is invaluable Very important ▪ Relevant transaction experience ▪ Relationship with potential investors ▪ Strong industry knowledge Avista 24 Partners

Week of Task Responsibility 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Updating of IM due diligence (legal, financial and business) AP/L/AC drafting of teaser AP finalise teaser AP/CL drafting of Info Memo (IM) AP/CL interim review of IM AP/CL/L finalise IM AP/CL/L Acquirors review & confirm list to approach AP/CL contact acquirors AP Despatch of teaser AP Despatch and signing of NDA AP Despatch IMs AP Deadline for non-binding offers Select Short list for second round acquirors AP/CL Prepare Data Room AP/CL/L/AC Management presentations AP/CL drafting of presentation AP/CL finalise presentation AP/CL practise presentations AP/CL acquiror presentations AP/CL Acquiror Due diligence AP/CL Second Round Binding offers AP/CL Review of binding offers AP/CL Select preferred bidder(s) AP/CL Enter final negotiations with preferred bidder(s) AP/CL/L Prepare Sale and Purchase Agreement (SPA) AP/CL/L Signing of SPA and closing of transaction AP/CL/L Key: AP Avista Partners Plan for 6 months; can be longer or shorter depending on demand CL Client L Lawyers AC Accountants Avista 25 Partners

 Leakage  Loss of key team member(s)  Delay in future pipeline  Monthly financial projections/ milestones not being met during process  Economic downturn Avista 26 Partners

 < 5 pages  Key sections: ▪ Business Description ▪ Background ▪ Management & Board Member Bios ▪ Products/Services ▪ Proprietary Technologies ▪ Market Opportunity ▪ Distribution Channels ▪ Competition ▪ Awards/ Recognition ▪ Financials ▪ Use of Proceeds Avista 27 Partners

 Plan on 1 hour for an initial presentation  Key sections: ▪ Mission Statement ▪ Team ▪ Problem you are addressing & Your solution ▪ Demo of Product/Service ▪ Market Opportunity ▪ Business Model ▪ Proprietary Technology/ Advantage ▪ Competition ▪ Marketing Plan ▪ Metrics to date ▪ Key Financials ▪ Use of Proceeds ▪ Exit Strategy  Leave 15 min at end for Q&A  Discuss next steps Avista 28 Partners

 Negotiation is imperative at this critical stage  Strong financial & legal advisors will make a difference here  Key terms for negotiation ▪ Pre & post money valuation ▪ Size of fund round ▪ Structure of deal ▪ Conversion ▪ Liquidation Preference ▪ Voting rights ▪ Structure of Board/ Observers ▪ Right of First Refusal and Co-Sale Right ▪ Down Round Protection – Say no! ▪ Warranties ▪ 20-30% dilution – if more than 30% then walk away unless you are desperate ▪ Exclusivity Period Avista 29 Partners

 Transparency is key; failure to do so will ensure a failed deal  Investor due diligence is to ensure: ▪ Everything that you have stated to date is true ▪ There are no surprises ▪ No big debts not already disclosed ▪ No lawsuits not already disclosed ▪ Key mgmt do not have criminal records ▪ Key contracts are solid legally ▪ Financial assumptions are realistic Avista 30 Partners

 Can be very long ▪ Work with a lawyer experienced in VC funding  An extension of the term sheet  Additional key sections ▪ Matters requiring consent ▪ Indemnity ▪ Management restrictive covenants ▪ Share option plan for current and future employees Avista 31 Partners

 Push for closing ASAP after term sheet is signed  Once shareholders agreement is signed then: ▪ Deal is done ▪ Cash in the bank ▪ Celebrate!  Then start executing on the plan you sold investors on  Agree with investors on content and timing for press release ▪ Will be one of the biggest events in a company’s history ▪ Great time to build the profile of the company ▪ May lead to interest from new partners wanting to work with you Avista 32 Partners

Paul Heydon Managing Director Avista Partners Email: paul.heydon@avistapartners.com Web: www.avistapartners.com Twitter: @pheydon Presentation is posted at: http://bit.ly/pheydon Avista 33 Partners

 This presentation was prepared by Avista Partners exclusively for the benefit and internal use of Recipient(s) in order to provide some thoughts on fundraising in the game sector. This presentation is incomplete without reference to, and should be viewed solely in conjunction with oral briefing provided by Avista Partners. The presentation is proprietary to Avista Partners and may not be used for any other purpose without the prior written consent of Avista Partners.  The information in this presentation reflects prevailing conditions and our views as of this date, which are accordingly subject to change. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all the information available from public sources or which was otherwise reviewed by us. Avista Partners LLP is authorised and regulated by the Financial Services Authority. Avista 34 Partners

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Fundraising 101 for the Game Sector

by Paul Heydon

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Fundraising 101 for the Game Sector Presentation Transcript