Enginekites E245 Final Presentation

Interviewed: 100 • End Users 50+ • Manufacturers 3 • Partners 25 Domain Experts: 22Surveyed: 115 FINAL PRESENTATION March 6, 2011

Our TeamWe are passionate kiters and realized we could make the sport more accessible to others. Oliver Riihiluoma •  M.S. ME Woods Buckley •  B.S. ME, minor C.S. •  M.S. MS&E •  Sponsored Kitesurfer, •  B.S. Earth 2yrs Systems •  Surfer, 10yrs Megan Lin •  M.S. MS&E Coleman Buckley •  B.S. Applied-Mathematics •  M.S. Biology & Economics •  B.S. Biology •  Prospective Kitesurfer •  Sponsored Kitesurfer, 3yrs

Introducing ENGINE KITES

Our Original Idea 0Retailers 0 Kite design & manufacture 4 •  High 10 •  Vendor 0 Professional KiteOnline performance assisted SurfersBrick mortarKite Instructors Branding at low cost •  Instructor assisted “Joe” Kite SurferManufacturers Professional •  Ease of •  Pro assistedTechnologyDistributors sponsors travel •  Direct Prospective Kite SurferIndustry Media 0 0 Retailers Relationship with Online Retailers Brick & Mortar Media Pros Peer to Peer Brand Direct online Technology People 0 0 Manufacturing IP Kite sales Marketing & Sales + related gear Insurance

Business OverviewProblem - Product - Solution

The Problem•  A kiter needs multiple kites for different wind conditions•  Kites are $1000+ = significant financial barrier to entry •  Solution is the The Origami System!

Our Product: An Adjustable KiteA light wind kite would be folded to decrease surface areaand serve as a high wind kite. The kite adjustment would bequick and done prior to entering the water.

Our Product: An Adjustable Kite A light wind kite would be folded to decrease surface area•  and serve as a high wind kite. The kite adjustment would be quick and done prior a low-cost/niche entrant in a re- Engine Kites is to entering the water.segmented kite market. We make kite surfing financially and physically accessible for any extreme sports enthusiast.

The Journey•  Defining Our Scope Canvas #1: Finding the Right Customer •  Canvas #2: Understanding the Industry •  Canvas #3: Building the Company • 

The Journey•  Defining Our Scope •  Market Sizing •  Market Opportunity •  Canvas #1: Finding the Right Customer •  Canvas #2: Understanding the Industry •  Canvas #3: Building the Company

The Proxies Brands associated with: equipment, accessories, clothing, sports gear, etc. 1995: "Hurley and his group •  realized that the modern surfer also loved fashion, skate, snow, music and art." Revenue 1993: $25 M •  1998: $70 M • 

The Opportunity We compared this to the U.S. Surf Industry: Serviceable $6.24b in retail $12.1b Extreme sales in 2010 Sports Retail Sales Addressable $567m (est current # kiters) <15% of sales $2.6b Extreme from equipment Sports Equipment *not to scalePhase 1: Gain industry credibility, sell quality, niche productPhase 2: Build the brand, launch new product lines and offerings

The JourneyDefining Our Scope•  Canvas #1: Finding the Right Customer•  Understanding our customer•  Testing the value proposition•  Canvas #2: Understanding the Industry•  Canvas #3: Building the Company

Our Original Idea 0Retailers 0 Kite design & manufacture 4 •  High 10 •  Vendor 0 Professional KiteOnline performane assisted SurfersBrick mortarKite Instructors Branding at low cost •  Instructor assisted “Joe” Kite SurferManufacturers Professional •  Ease of •  Pro assistedTechnologyDistributors sponsors travel •  Direct Prospective Kite SurferIndustry Media 0 0 Retailers Relationship with Online Retailers Brick & Mortar Media Pros Peer to Peer Brand Direct online Technology People 0 0 Manufacturing IP Kite sales Marketing & Sales + related gear Insurance

Hypothesis: Our Customers •  Professional Kite Surfers •  Solely concerned with performance •  Average Kite Surfer •  Performance and cost sensitive •  “One less thing to carry” effect •  Prospective Kite Surfer •  Cost sensitive •  Learning barrier

Testing:Who kitesurfs? 45 Interviews & 115 SurveysMale Dominated>50% skateboard or snowboard regularly$68,000 is the average income>50% active gamers60% College Grad Most people try Kite Surfing at the recommendation of a friend.

Testing: Pain Points 45 Interviews & 115 Surveys Existing Kitesurfer Prospective Kitesurfer Cost of Equipment ✓ ✓ Cost of Lessons ✓ Equipment Mobility ✓ ✓ Infrequency of Sessions ✓ (dependent on wind conditions) Safety Concerns ✓

Results: Our Customers •  Professional Kite Surfers •  Solely concerned with performance •  Average Kite Surfer •  Performance and cost sensitive •  “One less thing to carry” effect •  Prospective Kite Surfer •  Cost sensitive •  Learning barrier

Customer Archetype: Joe “Dude” Marrama •  Loves to ski, surf, rock climb •  Salary ~100K/year •  Looking for something to do when the surf’s blown out •  Intimidated by cost and learning curve of kiting “Companies need to offer more entry level packages." Matt Sexton Founder Collegiate Kiteboarding Association

Customer Archetype: Joe “Dude” Marrama •  Loves to ski, surf, rock climb •  Salary ~100K/year •  Looking for something to do when the surf’s blown out •  Intimidated by cost and learning curve of kiting He bought our Kite! “Companies need to offer more entry level packages." Matt Sexton Founder Collegiate Kiteboarding Association

The Journey•  Defining Our Scope •  Canvas #1: Finding the Right Customer •  Canvas #2: Understanding the Industry •  Building the kites •  Understanding our channels, How do people buy kites? •  Partner strategy •  Canvas #3: Building the Company

Canvas #2 0 4 0 45 Kite design 45 •  VendorVARs & manufacture •  High assisted Professional KiteOnlineBrick mortar performance •  Instructor SurfersKite Instructors Branding and quality assisted “Joe” Kite SurferManufacturers Expos at low cost •  Pro assisted • TechnologyOEMDistributors Professional sponsors •  Ease of travel •  Partner? Direct Prospective Kite SurferIndustry Media 0 0Partner Retailers Other boarders Partner? Online (snow, skate Relationship with Brick & Mortar and surf) Retailers Peer to Peer Media Pros Direct online Brand & OEM Referrals? Technology People 0 45 Manufacturing IP Kite sales Marketing & Sales + related gear Warranty, replacement parts Insurance

Channel Flow$400-$500 w/ bar and lines(20 kite production run) 3 days $42/year $70 Direct Contracted 70% margin Website manufacturer 35% mar $25 gin 2+ weeks Design product Build & Deliver Build Brand Kites Create Demand Direct Sales Distributor Deliver Orders ~$7,000 Software Program Retailers & Partners 35-45% markup Merchandize Articulate Value

Unit Economics For Each Kite Sold Gross Revenue 1,000 Cost of Goods Sold Manufacturing 500 Distribution 25 Customer Acquisition 60 Total COGS 585 Gross Profit $415

Unit EconomicsHow did we For Each Kite Soldcalculate Customer Gross Revenue 1,000Acquisition? Cost of Goods SoldDependent on Manufacturing 500Sales Channel: Distribution 25 •  commission Customer Acquisition 60 •  retail space •  website Total COGS 585 Gross Profit $415Dependent onMarketing Strategy: •  advertisement •  free lessons

Hypothesis: Exploring Channels & Partners

Results:Direct - Referrals - Retail, 30 interviews •  Most kite companies now sell direct •  Kiters rely on brand and industry reviews •  New consumers use instructor recommendations •  Typical channel margin is 20-45% •  Manufacturer/Retailer relationship is key, highly political

Hypothesis: Customer Reach Through Hotels Insight: on vacation, individuals typically not considered part of the "Extreme Sports crowd" are still likely to try out extreme sports

Results: Customer Reach Through Hotels Many hotels/resorts already offer kitesurfing vacations and partner with kitesurfing equipment companies or kitesurfing lesson providers. Receptive response to our pitch: free lessons & commission on sales.

Hypothesis: Customer Reach Through Major Label Idea: Partnering with a major label would give our product immediate credibility

Results: Customer Reach Through Major Label Reality check: Major labels arent willing to take the risk of partnering with an unproven brand and product.

The Competition

Hypothesis:The Kitesurfing marketplace is crowded.Hypothesis:No single company with significant (>20%) market share = lowcost to entry

Results:The Kitesurfing marketplace is crowded.Hypothesis:No single company with significant (>20%) market share = lowcost of entryYes, but...The market is saturated and more people are making kites thanselling them and it is a monoculture.

A Lack of Diversity

Technology Sets Us Apart Our Competitive Advantage

The Journey•  Defining Our Scope •  Canvas #1: Finding the Right Customer •  Canvas #2: Understanding the Industry •  Canvas #3: Building the Company •  Lessons learned •  Next steps

Canvas #3 50+ 2 5 13VARs Kite design •  High •  Vendor Professional Kite 5 assisted •  Instructor & manufactureOnline performance SurfersBrick mortar Branding and quality assistedKite Instructors at low cost •  Direct “Joe” Kite Surfer 13Manufacturers Expos •  •  Website •  Partner Prospective Kite •  Ease of travel SurferIndustry Media 3 Up to date 30 wind RetailersPartner Partner •  conditions Industry Relationships Direct onlineOEM ReducedDistributors Brand environmental Technology Partner impact Website 7 People Marketing & Sales 45+ Manufacturing IP Kite sales Warranty, replacement parts + related gear Accessories Insurance Website Maintenance

Introducing Engine Kites

Hypothesis: Demand Generation • Website •  Wind conditions + news and social • Effective Channel Management • Website, direct • Retailer & Partners (later) • Build credibility, educate users • Free Beach lessons • Kite Expos • Pro Riders + Online Media • Ads and reviews in industry journals + presence on online forums

Testing: Price and Bundling•  Validated Hook! People want Kitesurfing lessons! •  100 email addresses for those interested in kite lessons •  Instructors tells us paid lesson conversion rate to purchase: ~75%•  Validated Price Point! $1000 • However, people expect deals • Bundling with free lessons, repairs or other equipment is added benefit

Results: Prospective Kiters We sold some kites! 5 commitments to purchase •  For those that did not buy...there was a high demand to demo the product Goal: •  Sell 20 kites first, before building them

Testing: Experienced Kiters Performance takes priority. "Looks interesting. I could see this marketed as a one kite quiver which would be really nice for travel. Price, it could go for the equivalent of a kite and a half I would think. Performance an durability would be key" "Rad idea for your kite I like the idea of having the ability to change kites without having to walk to your car and pump up another kite. as long as the kite performance was the same I would say it would be worth at least 50% more" "If this kite rocked it - just flew amazingly, and the price was significantly less than the cost of two kites - I could see it being appealing. If the kite flew at a mediocre level, the cost was only minimally different than the cost of two kites...Id definitely go for the 9m and 7m kites (more range and no alteration necessary)"

Keeping Customers Engaged

Hypothesis:This was our plan... •  Focus on building awareness and user base in Bay Area before expanding. Main goal: build brand loyalty •  Contact earlyvangelists •  Explore partnerships

Free wind conditions brought to you by:Please share your email to access to free windconditions and latest product developments Email: CLICK TO DEMO TODAY!

CLICK TODEMO TODAY!

Site Value Prop:•  Bay Area Kitesurfers want current wind conditions (100% of those interviewed)•  Install approval granted for 3 pilot sites•  Users must share email to access site data•  Users can easily demo, purchase and register for lessons via site CLICK TO DEMO TODAY!

Results: Unanticipated Challenges Don Montague – “Godfather of kiting” •  •  Designed the software most kite companies use, set-up the first kite factory in China, hold multiple kite related patents, knows everybody and everything about the kite industry. Dons Insights: •  •  Shared some interesting numbers •  ~100,000 kites sold/year, no company sells more than 20,000 units/year •  Materials costs have tripled in the last 5 years, pushing down margin •  Most companies just treading water, not making much profit. •  High risk – lawsuits, recalls, etc. •  Even if we get a toe-hold locally, difficult to expand

Moving Forward •  At this time committing to building a company doesnt seem like a good idea. •  Value prop remains valid, new strategy is to license to existing brands, let them fight it out.Pivot:•  Patent and license kite design to other manufacturers•  Offer Don a percentage of revenue from profits and have him go to bat for us getting licenses sold.

Lessons Learned •  A good product doesn’t make a good business •  Passion for your product AND customers is key •  Team culture is critical •  Value of getting out of the building •  Accessibility of getting through to large businesses

Appendix: Canvases 1-7

The Canvas #1 Kite designRetailers & manufacture •  High •  Vendor Professional Kite•  Online assisted Surfers•  Brick mortar performance •  Instructor•  Kite Instructors Branding at low cost assisted “Joe” Kite SurferManufacturers•  Technology Professional •  Ease of •  Pro assisted Prospective KiteDistributors sponsors travel •  Direct SurferIndustry Media Retailers Relationship with •  •  Online •  Retailers •  Brick & Mortar •  Media Pros •  Peer to Peer Brand Direct online Technology People Manufacturing IP Kite sales Marketing & Sales + related gear Insurance

The Canvas #2 Kite design VendorVARs & manufacture High assisted Professional KiteOnline performance SurfersBrick mortar InstructorKite Instructors Branding and quality at assisted Expos “Joe” Kite SurferManufacturers low cost Pro assistedTechnology Professional Partner? Prospective KiteOEM Ease of travel sponsors Direct SurferDistributorsIndustry MediaPartner? Retailers Other boarders Partner? Online (snow, skate Relationship with Brick & Mortar and surf) Retailers Peer to Peer Media Pros Direct online Brand & OEM Referrals? Technology People Manufacturing IP Kite sales Marketing & Sales + related gear Warranty, replacement parts Insurance

Canvas # 3 Retailer Partner Product Marketing Engine Kites Customer High Vendor Assisted “Joe” KitesurferVARS BrandingWebsite Kite Expos performanceonline Pro sponsors and quality Website Prospective Kite at low cost SurferPartners Kite design & Partner Ease of travel ManufactureManufacturers Other boardersOEMs? Up to date (snow, skate wind and surf) Website conditions RetailersIndustry Industry RelationshipsMedia Reduced Direct Brand People environmental impact Partners TechnologyDistributors IP People Manufacturing Marketing Kite sales + related gear Accessories Warranty, Website Insurance replacement Maintenance

Canvas # 4 Retailer Partner Product Marketing Engine Kites Customer Vendor Assisted “Joe” KitesurferVARS BrandingWebsite Kite Expos Highonline Pro sponsors performance Direct Prospective Kite and quality SurferPartners at low cost Kite design & Partner ManufactureManufacturers Ease of travel Other boardersOEMs? (snow, skate Reduced and surf) environmental RetailersIndustry Industry Relationships impactMedia Direct Brand People Technology PartnersDistributors IP People Manufacturing Marketing Kite sales + related gear Accessories Warranty, Insurance replacement

The Canvas #5 0 2 0 13 Kite design •  Vendor 13 Professional KiteVARs & manufacture High assistedOnlineBrick mortar performance •  Instructor Surfers Branding and quality at assistedKite Instructors low cost •  Direct “Joe” Kite SurferManufacturers Expos •  Website Ease of travel •  Partner Prospective Kite SurferIndustry Media 0 Up to date wind 0 conditions RetailersPartner Partner Industry Relationships Reduced Direct onlineOEM environmentalDistributors Brand impact Technology Partner Website 1 People Marketing & Sales 30+ Manufacturing IP Kite sales Warranty, replacement parts + related gear Accessories Insurance Website Maintenance

Canvas #6 45 50+ 20 5VARs Kite design High •  Vendor Professional Kite 5 assisted •  Instructor & manufactureOnline performance SurfersBrick mortar Branding and quality at assistedKite Instructors low cost •  Direct “Joe” Kite Surfer 45+Manufacturers Expos •  WebsiteIndustry Media Ease of travel •  Partner Prospective Kite Surfer 3 Up to date wind 30 conditions RetailersPartner Partner Industry Relationships Reduced Direct onlineOEM environmentalDistributors Brand impact Technology Partner Website 7 People Marketing & Sales 45+ Manufacturing IP Kite sales Warranty, replacement parts + related gear Accessories Insurance Website Maintenance

Canvas #7 50+ 7 20 6 45 45 Kite design VendorVARs & manufacture High assisted Professional KiteOnline performance SurfersBrick mortar InstructorKite Instructors Branding and quality at assisted “Joe” Kite Surfer low cost DirectManufacturers Expos Website Prospective Kite Ease of travel SurferIndustry Media 3 Up to date wind 30 conditions Retailers Industry Relationships Reduced Direct online Brand environmental Technology impact Website 8 People Marketing & Sales 5 1 Licensing? Manufacturing IP Kite sales Warranty, replacement parts + related gear Accessories Insurance Website Maintenance

Questions?

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Enginekites E245 Final Presentation

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