Session by Tim Chang, Norwest Venture Partners. Description: The Healthy Games opportunity, as a product, destination, network and community, is growing. This opens the door to professional venture investors to partner with entrepreneurs to explore business models that can ensure the sustainability and long-term impact of healthy game developers. Venture firms Norwest Venture Partners and FirstMark Capital invested $3m in Lumos Labs in June 2008, making it their first investment in the healthy games category. Tim will outline their business rationale and evaluation process, addressing why Norwest decided to play in the space, why they selected Lumos Labs, and the opportunities and challenges to build a sustainable healthy games company.

1. Tim Chang
Principal
Norwest Venture Partners
www.nvp.com
tchang@nvp.com
+1-650-321-8000

2. Norwest Venture Partners (NVP) - Introduction
 Inception in 1961
- 45 year investment history
- Funded more than 400 companies
- >60 active global portfolio companies
 Managing >$2.5B in venture capital
- Current fund of $650M raised in 2006
- 12 investment professionals
 Global VC firm
- Based in Palo Alto, CA
- Office in India; Investing in India for more than five years
- Office in Israel
- Active investments in US, India, Israel, and China
 Consistently ranked in top quartile of venture capital firms
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3. NVP Investment Focus
 Software
 Infrastructure
SOFTWARE
 Applications
 Services
 Business SYSTEMS
 Communications
 Infrastructure
 Outsourcing
SERVICES
 Internet, Media & Consumer
 Mobile
SEMICONDUCTORS
 Gaming & COMPONENTS
 Social Media / Web 2.0
 Advertising / Ecommerce
INTERNET,
 Systems MEDIA &
CONSUMER
 Communications
 Enterprise
 Semiconductors & Components
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4. NVP Past Successes
Software
Services
Consumer/Internet
Technologies
Systems
Semiconductors
& Components
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5. Gaming-related Investments
 Neuroscience-based online brain-
training & healthy casual games
 Next-gen iPhone/smartphone
ngmoco:) games publisher & platform
 In-game/around-game advertising
 Social gaming network for Teens
 Enterprise Virtual World / Hosted
Events & Spaces
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6. What I’m Playing These Days…
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7. Topics for Today
 Some topics I'd like you to address
 why Norwest was looking for opportunities in the space
 why you chose Lumos
 since the investment, how has your thinking evolved?
 what are the 5-year opportunities and challenges to build a
sustainable company (both in terms of Lumos and general
advice for researchers/ entrepreneurs in the audience)
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8. The Crystal Ball: 1-2 years out…
 The Short-term View:
- 2002 all over again? Or more systemic nuclear winter?
- Dance (Collision?) of the Elephants?
- “Survival is the New Growth” & the Barbell Response
- VC = “Vulture Capitalists”?
 Key themes:
- Re-invention of Media: “Participatory & Social Media” (e.g.
Gaming)
- Ad model = fast track to recycle bin…how else to make $??
- Growth areas: International, Cleantech/Green, Healthcare
- Shift towards capital efficiency…and smaller-scale
outcomes? Never a better time to start a lifestyle business?
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9. Why Gaming will Rescue Us All
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10. Why Gaming will Rescue Us All
 Media as interactive experience vs. packaged, static
“content” (ex: GuitarHero)
 Formalization of key human behaviors & addictions
(leveling, collecting, badging)
 Alternative business models: freemium, free-to-play +
microtranscations, virtual currencies, hybrid subscriptions
(Nightclub model)
 User-interface breakthroughs
 Orthogonal growth in gaming: music, health, education
 Better Simulation & Modeling
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11. Lessons from Web 2.0 / Social Media
 Facebook is the new Marketing/Trailerware Channel
 Celeb is the new PR
 Twitter is “Push Digg of the 5 Ps”
 The new split-screen experience: “Social/Media”
- Editorial / Premium / Featured on the Right…
- …voice of the audience / UGC on the Left
 Social media = 2-way feedback channel from the
audience…but do you have a thick skin to listen to a
“dialogue” about your brand/product/service?
 “Social is a Fabric, not a Market”
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12. How Do You Drive Adoption / Addiction?
What Makes Someone Buy a Virtual Good?
Idealized Framework… …and Practical View
Examples:
Pride Envy Gluttony Lust Anger
…etc

13. Case Study: Lumos Labs
 Background:
- Stanford Neuroscience PhDs + Disney Corp Dev/Private Equity exec
- Founded late 2006; Seed-funded by friends/family/angels for $400k
- Lumosity.com went live as a general beta in 5/07, ramped to 6M monthly
page views and 180k registered users by 12/07
- Already generating healthy subscription revenue prior to VC funding
 Thesis points:
- Growth of Healthy Gaming category
- Careful balance of Science + Fun
- Lightweight interface: browser-based Flash games
- Broad-based demographic appeal
- Cross-platform product: web, social network app, iPhone/mobile
- Multiple revenue streams: subscription, virtual goods, ad, lead-gen, data
- Multiple markets: consumer, healthcare, enterprise
- Proprietary data business long term?
- Capital-efficiency!
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14. Opportunities & Challenges: 5-year Scope
 Oppportunities:
- Aging of Digital Immigrants; Rise of Digital Natives
- Gaming as mainstream media and engagement/money-making vehicle
- Healthcare Crisis in US:
- Subsidies? Flight to overseas solutions and markets?
- New emphasis on accountability & measurement?
- Preventative Tools?
- UGC/DIY/Social healthcare?
 Challenges:
- Assembling the Right Team
- Fundraising Environment
- Multi-platform backend: “Cloud-based Services”
- Distribution Channels & Marketing
- Exit Opportunities: Lifestyle business? Small M&A “flip”? IPO?
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15. Evolution Path of Web 1.0 to Web 3.0
Web 1.0 Web 2.0 Web 3.0
• Persistent Persona &
• Static destination • Dynamic sites / Locker in the Cloud
sites / “Decks” SocNet pages • Dynamic Mix of Editorial &
• “Authored” / • Mashable / User- UGC, Socially Filtered
• Integration of web +
Produced Content Gen Content
mobile + STB + etc.
• PC-centric • PC-centric / Mobile • Key enablers: Real-time
• Key enablers: • Key enablers: Transcode, Rich Media
HTTP, Browser, AJAX, Widgets, ADN/CDN, Personal
Dial-up, CDN RSS, Flash Video Portable Identity, Virtual
World, Contextual UI, etc.
Connected Connected Connected
Nodes & Profiles & Devices &
Pages… Widgets… Data Sets…
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16. The Crystal Ball: 5-10 years out…
 The Long-term View:
- Approaching the Singularity?
- Creation of entire new industries and value
chains = creation of new $1B+ industry leaders
 Key themes: (see TED.com, X-Prize)
- Human 2.0: bionics, cybernetics, genomics
- Robotics: connected and adaptive
- Sustainability
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17. www.nvp.com
Tim Chang
tchang@nvp.com
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