EFTA Document EFTA02005667

CLEARS TONE ONLINE GAMING FUND PRIVATE AND CONFIDENTIAL EIFTA_R1,050.753 EFTA02005667 DISCLAIMER THESE MATERIALS ARE PROVIDED FOR CONVENIENCE ONLY AND MAY NOT BE RELIED UPON. PROSPECTIVE INVESTORS IN ANY FUTURE CLEARSTONE FUND MAY RELY ONLY UPON THAT FUND'S PRIVATE PLACEMENT MEMORANDUM OR AN OFFICIAL SUPPLEMENT THERETO. EXISTING INVESTORS MAY ONLY RELY ON EACH FUND'S OFFICIAL FINANCIAL REPORTS. AND ONLY TO THE EXTENT SPECIFIED IN THAT FUND'S LIMITED PARTNERSHIP AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, ANY PROJECTIONS OR OTHER FORWARD LOOKING STATEMENTS CONTAINED HEREIN ARE BASED UPON CLEARSTONE MANAGEMENT'S CURRENT BELIEFS AND EXPECTATIONS AND ARE NOT GUARANTEES OF FUTURE PERFORMANCE. PROSPECTIVE AND EXISTING INVESTORS MAY NOT RELY ON, AND CLEARSTONE MANAGEMENT UNDERTAKES NO OBLIGATION TO UPDATE ANY SUCH PROJECTIONS OR FORWARD LOOKING STATEMENTS. Copyright 2011 1 Private and Confidential 2 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504754 EFTA02005668 STATE OF VENTURE CAPITAL @Copyr,g1.2.011,1,...d.s.MIJ CLEARSTONE rUNn EIFIA,_0050.755 EFTA02005669 A DECADE AFTER THE DOT COM BUBBLE BURST, THE VENTURE CAPITAL MARKET IS NOW POISED FOR BREAKOUT PERFORMANCE CLEARSTONE EFFA,1_00504758 EFTA02005670 CONDITIONS HAVE IMPROVED CONSIDERABLY, HELPED BY A REDUCTION IN CAPITAL AND FIRMS... CLEARSTONE EFFA,1_00504757 EFTA02005671 VENTURE CAPITAL FUNDRAISING IS DOWN 67% IN 2010 VS 2007 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 » VC IT funding commitments back to 1996 levels (D Copyright 201 1 1 Private and Confidential 6 Source: DowJones VentureSource CLEARSTONE ONl INE GAMING FUND EFTA_R1_00504758 EFTA02005672 ONLY THE STRONGEST FIRMS SURVIVED THE POST BUBBLE SHAKE OUT Active Information Technology Investors # of Active Firms 1500 1000 • 500 0 Hum 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 ■ >3 Deals/yr ■ <=3 Deals » Active Investors Down - 712 active investors in 2000 versus 313 in 2009, a 56% decline » Average Fund Size Increased $165MM in 2000 versus $200MM in 2009 (D Copyright 201 1 1 Private and Confidential 7 Source: DowJones VentureSource CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504759 EFTA02005673 STRONG PUBLIC MARKET APPETITE FOR GROWTH STORIES No. of Venture-Backed OPO's 100 90 80 70 60 50 40 30 20 10 0 86 57 57 2005 2006 2007 12 ■ 2008 2009 80 2010 2011E A new generation of large market cap tech companies will increase the field of potential acquirers Source' NVCA and Clearstone analysis. Selected IPO's shown in 2011. Linkedln and CD Copyright 201 1 I Private and Confidential Skype have filed for IPO. Facebook, Zynga and GroupOn IPO are market speculation. 8 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504760 EFTA02005674 MORE SO THAN EARLIER TECH CYCLES, PRIVATE INVESTORS ARE BEING REWARDED FOR POTENTIAL BREAK OUT VALUE AT IPO CLEARSTONE EFFA,1_00504761 EFTA02005675 MORE VALUE ACCRUING TO VENTURE INVESTORS, NOT PUBLIC SHAREHOLDERS Pre-Money IPO Valuations $70 Public investors $50 participated in 99% of the $40 terminal value of these $30 companies $12 $10 $0.23 $0.44 $0.70 $70 Cisco Ammon M iansoft V M man Goode Factook Earlier Tech New Tech Cycles Cycle Copyright 2011 1 Private and Confidential Source: Facebook Pre-Money IPO valuation $70B per SharesPost private market exchange - February 2011 10 CLEARSTONE ONLINE GAMING FUND EFTA R1_00504782 EFTA02005676 WHY ARE EARLY STAGE COMPANIES CAPTURING MORE VALUE? CLEARSTONE EIFTA_R1_005WEI3 EFTA02005677 0 CAPITAL MARKETS ARE MUCH BETTER INFORMED Hedge Fund Industry Growth r. 6.>) q?' 4° 4° 6.;\ 00 45 C:5 e?' 4° C! 45 =Number of Hedge Funds SAUM 12,000 10,000 8,000 `) 6,000 4,000 2,000 Better informed investors driving efficiency in the pricing of growth stories CD Copyright 201 1 I Private and Confidential 12 Source: Hedge Fund Research CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504764 EFTA02005678 COMPANIES HITTING CRITICAL MASS FASTER DUE TO INTERNET GROWTH c1/0 Global 19.0% Users 1998 vs. 2008 Number of Internet Users (millions) China I 2.1 298.0 84.6 14.7% United States 230.6 16.9 6.1% Japan 96.0 Brazil 2. 5 4.6% 72.0 3.9% 8.1 Germany • 1998 I 1.4 India 62.0 51.8 3.3% • 2008 m 8.0 3.0% Britain 46.7 2.9% 1.2 Russia 1. 45.3 2.7% France 42.3 2.3% South Korea 3.1 36.8 Source: International Telecommunication Union. World TelecommunicationllCT Development Report ID Copyright 201 1 1 Private and Confidential 13 CLEARSTONE ONI.INE GANIING FUND EFTA_R1_00504765 EFTA02005679 GLOBAL GAINS ARE CAUSING COMPANIES TO GO GLOBAL EARLIER IN THEIR LIFECYCLE $5.7 $1.2 \\ ........1 ‘000 2010 •China GDP $0.0 $2.0 2000 2010 I/Brazil GDP 31L, $0.5 2000 2010 •India GDP » 2.5 year old GroupOn already has 35 international offices (di Copyright 201 1 1 Private and Confidential 14 ..rmrce: International Monetary Fund Amounts in (STrillions) CLEARSTONE EFTA_R1_00504706 EFTA02005680 CLEARSTONE WAS THE EARLIEST AND MOST SUCCESSFUL FUND TARGETING THE CONSUMER INTERNET SECTOR 15 CLEARSTONE 1•11'," "" EFFA,1_00504787 EFTA02005681 FORTUNE MAGAZINES TOP FIVE PERFORMING PRIVATE EQUITY FUNDS >> Fortune magazine produced an article on September 171h, 2010 presenting "The 5 best and 5 worst private equity funds" The source for the article was the California Public Employees Retirement System (CaIPERS) - CaIPERS is the nations largest private investor — Funds judged by net IRR Top 5 performing private equity funds — Clearstone Venture Partners 1-B (1999): 154.7% — T3 Partners II (2001): 95.6% — GCP California Fund (2003): 91.9% - WLR Recovery Fund II (2002): 79.5% - Permira Europe I (1997): 74.5% CD Copyright 201 1 I Private and Confidential 16 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504768 EFTA02005682 WHY WAS THE FIRST CLEARSTONE SECTOR FOCUSED FUND SO SUCCESSFUL? 17 CL EA RSTONE EFTA_R1_00504789 EFTA02005683 A DIFFERENT INVESTMENT APPROACH >> Conventional Fund Strategy — Invest across a range of sectors, with capital weightings for each sector determined ad hoc and post closing of the fund — Rely on a few mega hits to drive fund returns — Fund's investment focus heavily dependent on each partner's personal interests, network, and capacity to do more deals Clearstone Sector Fund Approach — Become `hub of the wheel' for all investments by positioning the entire fund's resources around one sector — Switch from `wild-catting' for big hits to funding numerous ideas within a known big hit market — Combine traditional venture capital investing with a highly successful incubation practice CD Copyright 201 1 I Private and Confidential 18 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504770 EFTA02005684 MANY BENEFITS ACCRUE TO SECTOR FOCUSED FUNDS >) >> >) First fund in the sector which caused the fund to become synonymous with the sector Always on the short list of the best entrepreneurs and fellow venture firms Sector focused meant sector smart - Assembled the nascent industry's best advisors and thinkers — Developed deep and comprehensive understanding of the industry eco- system — Anticipated the industry's future needs — and funded those opportunities early Knew the acquirers and their strategic priorities Nature of sector focused fund allows for stage agnostic investing providing a balanced portfolio with providing earlier liquidity — Seed (up to 10 year liquidity cycle), Series A/B (up to 7 year liquidity cycle), and Pre-IPO (under 24 months) © Copynght 201 1 1 Private and Confidential 19 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504771 EFTA02005685 THE CLEARSTONE ONLINE GAMING FUND IS APPLYING THE SAME STRATEGY FOR AN EQUALLY INTERESTING MARKET 20 CLEARSTONE EIFT,,0050.772 EFTA02005686 THE CLEARSTONE ONLINE GAMING FUND >) >7 Investment focus — Online gaming sector — Primarily private companies (15+ investments) — 3 year investment time frame Fund size - $150M cap — $50M first close (5+ investment opportunities identified) Key Terms - 2.5% management fee with 20% carried interest 2% general partner contribution — Key man provision — No fault divorce clause CD Copyright 201 1 I Private and Confidential 21 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504773 EFTA02005687 RATIONALE FOR A FUND TARGETING THE ONLINE GAMING MARKET Participate in the massive value creation — and value shifts — created by the explosive growth in online gaming Represents the biggest near term investment opportunity known to the fund's principals No gaming focused funds with few venture capitalists deeply familiar with the sector Global investment opportunities with robust exit options Ability to create a concentrated global stage agnostic portfolio designed to capture the value caused by the industry's growth while providing greater liquidity than typical venture funds - Clearstone has a presence in most major gaming markets allowing us to invest globally (Southern California, Northern California, Europe, Middle East, Asia and India) CD Copyright 201 1 I Private and Confidential 22 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504774 EFTA02005688 CLEARSTONE ONLINE GAMING FUND PRINCIPALS >) William Quigley (Los Angeles) — Managing Director — 14 years experience as venture capitalist and board member — co-founder of Clearstone Venture Partners (successor firm to idealab Capital Partners) — Invested in numerous seed and early stage companies. IPOs include eMachines, eMusic, Meru Networks, MP3.com, PeopleSupport, Tickets.com — USC, Disney, HBS, Kauffman Fellow, Mid Atlantic VC Brock Pierce (Los Angeles) — Managing Director - 13 years experience as an entrepreneur raising more than $200m - Founded Affinity Media, IGE, ZAM, Titan Gaming, EverTune, RevenueAPEX, Digital Entertainment Network, myTaste — Acquired more than 30 companies including Xfire, IMI, SkyHi, Thottbot, Wowhead, Allakhazam, Player Auctions, Mysupersales - Advisor to the China Youth League CD Copyright 201 1 I Private and Confidential 23 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504775 EFTA02005689 CLEARSTONE ONLINE GAMING POTENTIAL FUND PRINCIPALS Keith McCurdy (Bay Area) — Managing Director 23 years experience in the game business as a senior executive EA, board member of game companies (both public and private), and CEO of multiple game startups 12 years at industry leader Electronic Arts as VP Online, VP Technology, VP Product Development, and Director of Advanced Technology Group Direct operating experience in console, PC, MMO, mobile, casual, and social games Raised venture capital from five venture funds as CEO and several more as a board member (all gaming based startups) Michael Robertson (San Diego) — Venture Partner Raised more than $100M and orchestrated transactions with a combined value of nearly a billion dollars in public and private markets Founded MP3.com (sold to UMG), DAR.fm, Linspire (sold to Xandros), Gizmo5 (sold to Google) CD Copyright 201 1 I Private and Confidential 24 CLEARSTONE ONLINE GAMING FUND EFT&.R1_00504778 EFTA02005690 CLEARSTONE ONLINE GAMING POTENTIAL FUND PRINCIPALS Rachid Sefrioui (Paris) — Venture Partner 12 years experience as venture capitalist and board member — founder of Fina Ventures Invested in New.net, RF Magic, asip, Reef, Entropic, Apogee, CyOptics, Atrenta, General Photonics, OEwaves, Sequoia Communications University of Cleveland, McKinsey, Bowco Investment Management, Wafabank Louis Hsieh (Beijing) — Venture Partner 20 years experience as private equity investor, investment banker, CFO, and board member President of New Oriental Education (NYSE: EDU) Former UBS MD and Head of TMT Asia Pacific, board member of Perfect World (NASQAD: PWRD) MBA HBS, JD Berkeley, Stanford, JP Morgan, Credit Suisse First Boston, White & Case ›, Jim Armstrong (Los Angeles) — Member of the Investment Committee A O CD Copyright 201 1 1 Private and Confidential 25 CLE RST NE ONLINE GANIING I EFTA_R1_00504777 EFTA02005691 POTENTIAL VENTURE ADVISORS John Pleasants — President of Disney Interactive, Former CEO of Playdom, COO of Electronic Arts John Schappert— COO of Electronic Arts Sean Ryan — Head of Facebook Games Steve Chang — President of Zynga Game Studio Neil Young — President of Ngmoco/DeNA John Batter— Co-President of Dreamworks Interactive David Wallerstein— EVP International of Tencent Ed Fries — Founder of Xbox Howard Marks — Founder of Activision, Acclaim, Former SVP for Playdom Nolan Bushnell — Founder of Atari and Chuck E Cheese Jeffrey Pollack — Former Commissioner of the World Series of Poker © Copyright 201 I 1 Private and Confidential 26 EFTA_R1_0050477$ EFTA02005692 POTENTIAL VENTURE ADVISORS Wade Davis — Chief Strategic Officer of Viacom, Co-Founder of Think Equity, Lazard Jack Kennedy— EVP of Digital Media for News Corp Steve Eskenazi — Former Managing General Partner of Walden Ventures Shawn Fanning — Founder of Napster, Snowcap, Path Brad Serwin — COO of Playdom, Former General Counsel of Sands Resorts Karl Meta — Founder of Playspan Shervin Pishevar— Founder of SGN and prominent angel investor John Borthwick— Founder of Betaworks, EVP of Time Warner Mike Huskins — Executive Recruiter for Facebook, Zynga, Glam Ross Levinsohn — EVP of Yahoo Americas © Copyright 201 I 1 Private and Confidential 27 ( 1 \ EFTA_R1_00504779 EFTA02005693 TRENDS DRIVING GROWTH IN THE ONLINE GAMING MARKET Copy,51.1011 28 CLEARSTONE rUN. EIFIA,1_0050.780 EFTA02005694 GLOBAL GAMING MARKET IS EXPECTED TO HIT $87 BILLION BY 2014 Global Video Games Sector Revenue ($B) 100 90 80 70 60 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010E 2011F 2012F 2013F 2014F Clearstone "-- Online Gaming Fund focus area ■ Console games ■ Online games ■ Mobile games 0 PC games ■ In-game Advertising The console gaming market is flat, with overall market growth being driven by online and mobile games CD Copyright 201 1 I Private and Confidential 29 Source: Digi-Capital CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504781 EFTA02005695 ONLINE GAMING IS CREATING MASSIVE VALUE, FASTER THAN EVER IN HISTORY facebook. Valued at $67B 40% Traffic Game-related (Social Network) Tencentaill $55B Market Cap $3.2B 2010 Run-rate (Social Gaming Network) Copyri.10Il l Pivate and co men. zynga Valued at VIM 275M Monthly Actives (Social Game Publisher) MEXCIN Valued at $10B (est.) Revenue 2010: $860M (est.) (Game Publisher) 30 STEAM B in Game Sales 30M Users (Etailer of Games) DeNA® Valued at $5.5B $1.50 2010 Run-rate (Mobile Game Publisher) CLEARSTONE ONLINE GAMING FUND EIFIA_.31_0050.782 EFTA02005696 DISTRIBUTION AND BUSINESS MODEL UNDERGOING MAJOR TRANSITION The Old Model (1980+) Played On Consoles Retail Packaged Software The NEW Model (2010+) Played On Internet Free-to-Play Virtual Goods Copyright 201 I 1 Private and Confidential (Ni tido) SPA Console/PC 4 zynga 0:1 e"'N ..,14.44). • -roc 72 SONY Ze rliMpe 9INARE ENIX AtItYir4o•4 umartrz- ekt4-... 1+4, rtf.t.t T • wont :r GAM( (C) play f ish 0 DeNA 0 il,, Ill MIXON 0 facebook P e ar spilgames NW is. the,:w-ff. M.MIIIMI ‘e -.. C'`'`Nk : — - "lexHca? O mayoral ( . rencrot Mt G O1 ... Z Nrritaga 31 Web/Mobile 0 JAOC: 131 W,rack JOY PORT Source: OFC Intelligence & iGaming Business CLEARSTONE ONI.INE GAMING 11:ND EFTA_R1_00504783 EFTA02005697 THE MARKET HAS REALIZED THE VALUE SHIFT FROM RETAIL TO FREEMIUM 0 Tencentaill zynga Year Founded 1982 1998 2007 Value $7B Market Cap $55B Market Cap Valued at $10B Revenue $3.7B $3B $1.8B* Copynght 2011 1 Private and Confidential Source. CrunchBase, Goo& Finance. Forbes, company filings, equity research Forecast 2011 Revenue 32 CLEARSTONE [)MANE GAMING FUND EFTA_R1_00504784 EFTA02005698 SOCIAL NETWORKING AND ONLINE GAMING NOW ACCOUNT FOR 33% OF TIME ONLINE Share of Time Online Classified/ Auction 3% Multi-category Entertainment 3% Software Manufacturers 3% Search 4% ideos/Movies 4% E-mail 8% Portals 4% Instant Messaging 4% » Social networks and online games grew 31% in 2010 and now account for 33% of all time online (D Copyright 201 1 1 Private and Confidential 33 Source: Nielsen as of June 2010 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504785 EFTA02005699 SOCIAL NETWORKING DRIVING MASS MARKET ADOPTION OF ONLINE GAMES Rank Name Category Monthly Active Users (MAUs) 1 City Ville 2 Farm Ville 3 Badoo 4 Texas Hold'Em Poker 5 Causes 6 BandPage 7 FrontierVille Games Games Dating Games Philanthropy Utility Games » Facebook's userbase is 662MM 93M 50M 46M 38M 22M 19M 19M » 4 of the top 7 and half of the top 40 Facebook applications are games CD Copyright 201 1 I Private and Confidential 34 Source: AppData, March 2011 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504786 EFTA02005700 MOBILE GAMING IS THE FASTEST GROWING SEGMENT OF THE ONLINE GAMING INDUSTRY 500 (1) 400 .O 300 200 100 Cumulative Units Shipped: Apple's iOS & Google's Android iOS Android Total cz,c; „, O co 0 2' co° e .O° coe' Smart-phone proliferation is putting a "game console" in millions of consumers' pockets Apple has generated over 10 billion app downloads; over 70% of all mobile consumer applications downloaded are mobile games Source: Gartner CD Copyright 201 1 I Private and Confidential 35 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504787 EFTA02005701 CONNECTED TVs - GROWING OPPORTUNITY FOR ONLINE GAMING 70% 60% 50% 40% 30% 20% 10% 0% 2009 2010 2011 2012 2013 2014 2015 1.6 5.0 » One third of US households are expected to have connected TVs by 2015 opening up a large potential market for online gaming US connected TV households (millions) 40% 35% 30% 25% 20% 15% 10% 5% 0% Connected TVs as a percent of HDTVs sold each year —Percent of total US households with connected TVs (cumulative) © Copyright 201 I 1 Private and Confidential 9.9 16.0 23.3 36 32.2 43.2 Source: Forrester CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504788 EFTA02005702 REPRESENTS A WORLDWIDE PHENOMENON •••,• • ••• iff zynga. GameStop Microsoft facebook FULL 744 ) PakerStars oPiaYlech TriQ PartvGANiim; lernios. viottoifirrnov_z_._ CD Copyright 201 1 I Private and Confidential O UBISOFT. cki4com 37 5173.COM 7wx1412' f-O.G PIIVWCT .11091.0 SHAMA GAMES OA NrrEase ww••1113•co• ILN. EXCIN NHN SONY (Nintendo) DeNA. Tencent Nig CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504789 EFTA02005703 CHINESE FIRMS BECOME MORE ACQUISITIVE DUE TO GOVERNMENT'S 5-YEAR PLAN >> )) >) )) China recently released its 12th 5-year plan covering 2011 to 2015 The new plan contains a huge push towards globalization, with a provision for 500,000 Chinese companies to have international offices by 2015 Government wants creative companies (including gaming firms) to increase share of GDP from less than 2% today to 5% by 2015 Chinese gaming companies likely enter global markets via acquisition - This trend has already begun with Tencent's $472M acquisition of Riot Games CD Copyright 201 1 I Private and Confidential 38 Creative Industries Share of GDP 5% 2% I II 2011 2015 Source: China Daily CLEARSTONE ONLINE GANIING FUND EFTA_R1_00504790 EFTA02005704 TARGET RICH ENVIRONMENT WITH A DIVERSE GROUP OF ACQUIRERS Company Acquired By Category Acquisition Price Playdom Disney Casual Gaming $763.2M Riot Games Tencent Free-to-Play Developer $472M ngmoco DeNA Mobile Gaming Platform $400M Playfish EA Casual Gaming $300M Playspan Visa Payment System $190M Slide Google Casual Gaming $182M Wagerworks IGT Online Casino Gaming $90M Mochi Media Shanda Casual Gaming Network $80M Jambool Google Payment System $70M $2B in M&A and financing in the trailing 12 months with activity accelerating CD Copyright 201 1 I Private and Confidential 39 Source; TheFunded CLEARSTONE ONLINE GANIING FUND EFT&.R1_00504791 EFTA02005705 HISTORY OF CLEARSTONE Copy,51.1011 40 CLEARSTONE EIFTA,1_00506792 EFTA02005706 SOME OF OUR NOTEWORTHY INVESTMENTS Pa,yPal rubcori Apture? B i I I Desk idealab ALPTX vast EINETZERO O -1 Kazeon Cigihetr. . frame • ibrzr 60 PEOPLE SUPPORT ©Copyright 201 1 I Private and Confidential CIO emachines 41 S A * ov erture ve Wedding $9 NOVARIANT. COMPOSITE sui eToys GM MiStiihIl Meru CLEARSTONE GAMING 1TND EFTA_R1_00504783 EFTA02005707 THE CLEARSTONE TEAM Team of 13 investment professionals with significant venture, operating and technical experience - William Quigley— Fund I, II, Ill, Online Gaming Fund - Jim Armstrong — Fund I, II, Ill, Online Gaming Fund — 15 yrs VC exp, UCLA, U of Texas MBA, Austin VC — Bill Elkus — Fund I, II, Ill — 28 yrs PE/VC exp, Harvard JD, MIT Sloan MBA, BCG - Brock Pierce — Online Gaming Fund - Sumant Mandal — Fund II, Ill - 10 yrs VC exp, 7 yrs operating exp in India, Kellogg MBA - Keith McCurdy — Online Gaming Fund - Michael Robertson — Online Gaming Fund - Rachid Sefrioui— Online Gaming Fund - Louis Hsieh — Online Gaming Fund — Vish Mishra — Fund II, Ill President of TiE - David Stern — Fund III — 4 yrs VC exp, Idealab, Universal, various Bay Area startups © Copyright 2011 1 Private and Confidential 42 LEARSTONE ONLINE GAMING POND EFTA_R1_00504794 EFTA02005708 HISTORICAL PERFORMANCE OF THE CLEARSTONE FUNDS Portfolio Investments Made 83 Number of Exits 36 Aggregate Cost of Exits $ 217M Aggregate Proceeds on Exits $ 942M Portfolio Companies Today 20 Aggregate Cost of All Investments $628M Value/Cost $ 1.233B / $ 628M IRR (Gross) Greater than 100% CD Copyright 201 1 I Private and Confidential 43 Source: Overall fund performance as of December 2010 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504795 EFTA02005709 RECENT CLEARSTONE EXITS AND PORTFOLIO COMPANY EVENTS N I e R\u P/ f 1W0PKS Ib Internet Brands P MIMOSA I SYSTEMS INTEGRIEN Kazeon © Copyright 2010 I Private and Confidential Clearstone led Series A investment in Meru Networks, a wireless equipment company, went public in 2010 with a $300M market cap Clearstone public company Internet Brands taken private by Hellman and Friedman for $640M Clearstone digital content archiving company acquired by Iron Mountain for A IRONMOUNTAIN' $110M Clearstone real time predictive analytics company acquired by VMWare for $100M Clearstone incubated eDiscovery software company acquired by EMC for $100M 44 vmwa re E MC2 where information lorry CLEARSTONE ONLINE GAMING FUND EFT&.R1_00504796 EFTA02005710 RECENT CLEARSTONE EXITS AND PORTFOLIO COMPANY EVENTS )nokeena,,,„ rubcori Al e Copyright 1010 I Private and Confidential Clearstone online media delivery company Juniper acquired by Juniper Networks for $70M Clearstone incubated ad network acquired Newscorp's Fox Audience Network (FAN) Multi-year agreement with Alcatel Lucent to be exclusive provider of next generation cellular backhaul technology for major US wireless networks 45 CLEARSTONE ONI.INI; GAMING 11:ND EFTA_R1_00564797 EFTA02005711 PROPRIETARY INVESTMENT OPPORTUNITIES AVAILABLE TO THE CLEARSTONE ONLINE GAMING FUND 46 CLEARSTONE EFTA,,WMGM EFTA02005712 INVESTMENTS OPPORTUNITIES: oe xffiwE XFIRE >> >> Xfire - Acquired Xfire from Viacom in August 2010 (Viacom paid $110M in 2006) Xfire is the leading social gaming platform for hardcore garners - 18m registered users with $40M invested in the Xfire infrastructure — Growing organically at 225,000 new users per month — Game recommendation engine and monetization platform — Focus on the Free-to-Play games market ($7B market by 2015) — Growing list of network partners including: Riot Games, GamersFirst, Funcom, SGlnteractive — Eric Schmidt and many other prolific angel investors Opportunity to lead the Series A - Spun out of Viacom by Brock Pierce and William Quigley Brock Pierce, William Quigley, and John Maffei have assigned their Pro Rata rights to the fund CD Copyright 201 1 I Private and Confidential 47 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504799 EFTA02005713 INVESTMENTS OPPORTUNITIES: TITAN GAMING Titan Gaming Titan Gaming is a skill based casual game publisher Skill gaming is the most lucrative business model in the video game industry Skill gaming monetizes game play by powering tournaments for cash and virtual currency Games may integrate and leverage the Titan Platform within 1 day Over 150,000 hours in platform development Over 500,000 tournament matches since launching Dec. 2nd, 2010 Growing list of AAA network launch partners (Playdom, Lockerz, Xfire, ZAM) Raised $1M in 2010 from Eric Schmidt and many other prolific angel investors Opportunity to lead the Series A Acquired by Brock Pierce and William Quigley Brock Pierce, William Quigley, and John Maffei have assigned their Pro Rata rights to the fund e . Copyright 201 1 I Private and Confidential 48 CLEARSTONE ONLINE GAMING ; EFTA_R1_00504800 EFTA02005714 INVESTMENTS OPPORTUNITIES: ITEMBAY Itembay — Itembay is the second largest secondary market trading platform for virtual goods South Korea — Itembay has systemwide revenues north of $400M annually - Itembay is about to merge with IMI (a subsidiary of IMI Exchange) in Korea - Combining the businesses will substantially increase the operating profits of both businesses by rationalizing pricing in line with other industries >> Stage: Pre-IPO Opportunity: Term sheet signed to buy 6% of the company well below market pricing Relationship: Brock Pierce has orchestrated the merger and is close friends with the founder CD Copyright 201 1 I Private and Confidential 49 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504801 EFTA02005715 INVESTMENTS OPPORTUNITIES: IMI EXCHANGE >> IMI Exchange — IMI Exchange is the largest global secondary market trading platform for virtual goods with operations in South Korea (Itemmania)and China (SkyHi) — IMI Exchange has systemwide revenues north of $500M annually — Industries most experienced management team Current Investors: Oak Investment Partners and Goldman Sachs Stage: Pre-IPO Opportunity: Invest in upcoming round and secondary positions Relationship: Brock Pierce is the founder and board member © Copyright 201 I 1 Private and Confidential 50 EFTA_R1_00504802 EFTA02005716 INVESTMENTS OPPORTUNITIES: ) REVENUE APEX RevenueAPEX )) Revenue APEX — Financing the Internet Media and Gaming Properties - Specialty finance business focused on a large sector that lacks access to traditional bank financing — Market: Internet Advertising, Gaming, Mobile Apps, and Direct Response Marketing Industries - Market size: $50B — Financing mechanism: Asset based lending, invoice discounting / factoring, business cash advance - Double-digit IRRs available at scale — Proprietary underwriting and origination processes developed Opportunity to lead the Series A - Brock Pierce and William Quigley are founders Brock Pierce, William Quigley, and John Maffei have assigned their Pro Rata rights to the fund CD Copyright 201 1 I Private and Confidential 51 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504803 EFTA02005717 INVESTMENTS OPPORTUNITIES: LATE STAGE DEALS » Opportunity to buy secondary market shares in: OSP' NEXDN Piker Stars. Copyright 2011 1 Private and Confidential 52 GAMES 517aCOM CLEARSTONS ONI.INI; GAMING FUND EFTA_R1_00504804 EFTA02005718 PLEASE CONTACT WILLIAM QUIGLEY FOR MORE INFORMATION c .1011 ,Pinte•nd conaema 53 CLEARSTONE EIFTA_R1_00504805 EFTA02005719 APPENDIX © Copyright 201 I 1 Private and Confidential 54 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504806 EFTA02005720 ONLINE GAMING VERTICALS Copy,51.1011 56 CLEARSTONE rUNn EIFIA_R1_00504907 EFTA02005721 ONLINE GAMES: $30B MARKET BY 2014 6 5 4 3 2 0 Estimated Worldwide Market Size of Social Games $B z'o' s$1 ss © Copyright 201 1 I Private and Confidential Video game distribution has shifted from console to online and mobile Shift has created opportunities throughout the value chain, from game developers, to middleware, to distribution platforms Companies are experiencing 2O1O profitable growth with 20% - 50% 2015 margins and YoY revenue growth rates of 100%+ 56 Market size expected to be $30.6B by 2014 (21.3% CAGR) CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504808 EFTA02005722 ONLINE GAMES: SOCIAL NETWORKING DRIVING MASS MARKET ADOPTION >) Casual gaming has become one of the world's fastest growing phenomena Zynga has 258M MAUs — Zynga's CityVille acquired 100MM MAUs in 41 days 40% of Facebook users playing games Four of the top ten Facebook applications are games Development costs of less than $500K are significantly lower than console game development costs CD Copyright 2011 I Private and Confidential 57 Source: AppData CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504809 EFTA02005723 MOBILE GAMES: $13B MARKET BY 2014 12 10 8 6 4 2 0 Mobile Games Revenue ($B) c' 44 \ 86 O ‘7,O „zpi O (22 ‘2,O „1,O qp qp Copyright 201 1 I Prwa ce and Confidential >> >> >> >> >> 58 Apple alone has generated over 10 billion app downloads from its app store Apps = Games. 70% to 80% of all mobile consumer applications downloaded are mobile games, and 60% to 70% of these downloaded games are free Mobile gaming revenues are being driven by micro-payments, advertising and download fees Mobile gaming to reach $13.1 B by 2014 (12.3% CAGR) In Japan 53% of 2009 spending occurred on a mobile phone Source. Gartner & Digi-Capital CL EARS TONE ONLINE GAMING FUND EFTA_R1_00504810 EFTA02005724 MOBILE GAMES: FASTEST GROWING SEGMENT OF THE ONLINE GAMING INDUSTRY )) >) )) >> Developed world mobile broadband penetration via 3G and 4G networks is increasing rapidly, from 5% in 2005 to 51% in 2010 Globally nearly 500M people were accessing the internet through mobile devices in 2009, up from only 100M in 2005, projected to be 1.4B by 2014 101.2M smart-phones shipped during Q4 2010 which represented an 89% growth Y/Y Smart-phone users spending 47% of their time accessing maps, games, social networks, utilities, and more Seven out of the top ten paid apps are games CD Copyright 201 1 I Private and Confidential 59 Sources: AppsFire. Canalys. International Telecommunication Union. PwC CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504811 EFTA02005725 MMOS: 20 MILLION GLOBAL SUBSCRIBERS MMO Subscribers (M) Copyright 2011 l Private and Confidential 60 MMOs have over 20M global subscribers, and numbers are expected to reach 30M by 2012 Slower growing historical MMO market relied on subscription revenues Market is shifting to browser-based games with "freemiunn" models, a business model that allows majority of users free play, while the minority pay for virtual goods with micro-payments Market size $8B in 2010 $3.6B in revenues generated by companies serving the South America, North America, and European markets in 2010 Source: Digi-Capital, MMOData.net CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504812 EFTA02005726 MMOS: GROWTH MARKET WITH HEAVY USAGE MMOs are video games with thousands of simultaneous players MMO gamers are the most hardcore garners, with each player spending an average of 5.5 hours a week playing massively multiplayer online games, compared to 4.9 hours for console players and 4.8 for casual garners Hardcore garners tend to be 35+ years old and highly monetizable Fantasy MMOs such as World of Warcraft dominate the market, but the recent success of other genres suggest a large greenfield opportunity CD Copyright 201 1 I Private and Confidential 61 Source: Digi-Capital, Gamesindustry.com CLEARSTONE ONLINE GAMING ITIND EFTA_R1_00504813 EFTA02005727 CONSOLE & PC GAMING: RETAIL BUSINESS TRANSITIONING ONLINE 40 ta 30 7N zo a) 10 62 CD Copyright 201 1 I Private and Confidential The console game market is mature, and undergoing change as more games are being distributed online and via PCs Games are coming unbundled from traditional gaming consoles such as Nintendo's Wii and Microsoft's Xbox. Nevertheless, the market is expected to grow as manufactures release their 8'" generation platforms in 2014 The console market size is $28.2B in 2009 growing to $36.8B by 2014 (5.5% CAGR) PC gaming market size $3.8 billion in 2009 CLEARSTONL ONLINE GAMING FUND EFTA_R1_00504814 EFTA02005728 CONSOLE & PC GAMING: RETAIL BUSINESS TRANSITIONING ONLINE >> 54% of US households own a console or handheld system Nintendo's Wii currently dominates the 7th generation market with 46% unit volume market share, followed by Microsoft's Xbox at 28% Next, 8th, generation of consoles to release in 2014 Concern exists about 9th generation consoles due to rise of downloadable content via providers such as OnLive PC gaming market expected to shrink due to the meteoric rise of online games and wireless games CD Copyright 201 1 I Private and Confidential 63 Source: Nielsen & Digi-Capital CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504815 EFTA02005729 FREE 2 PLAY (F2P) GAMES: FREEMIUM TREND EXPECTED TP BECOME DOMINANT 2 1.5 1 0.5 0 Free to Play Market ($B) 2015 2009 CD Copyright 201 1 I Private and Confidential 64 Market grew 89% to $250 million in 2009, up from $132 million in 2008 Revenue growth being driven by willingness of consumers to buy virtual goods and ease of payment options (e.g. Visa's PlaySpan or Facebook's Credits) Converting free players to paying ones is a key business model driver Profitable conversion rates can be as low as 9% or as high as 40% English based F2P games: $250 million in 2009, expected to reach $2 billion by 2015 (34.1% CAGR) Source: DFC Digi•CaPtal. CLEARSTONE ONLINE GAMING l'UND EFTA_R1_00504816 EFTA02005730 FREE 2 PLAY (F2P) GAMES: FREEMIUM TREND EXPECTED TO BECOME DOMINANT F2P games defined as games that require a downloadable client Video gaming is quickly evolving to "freemium" - Bring players in the front door with zero friction then monetize them with models such as virtual goods, offers, ads and subscriptions A growing young gamer population who are familiar with F2P games Increased number of major AAA titles and brands switching to F2P CD Copyright 201 1 I Private and Confidential 65 GAME S turbine Source: Digi-Capital CLEARSTONE ONLINE GAMING I I EFTA_R1_00504817 EFTA02005731 VIRTUAL GOODS: DOMINANT BUSINESS MODEL FOR F2P GAMES 2.5 2 1.5 1 0.5 0 US Virtual Goods Market ($B) ■ 2008 2009 2010 20 CD Copyright 201 1 I Private and Confidential 66 The worldwide virtual goods market is several times larger than the $1.6 billion number in the U.S. for 2010 The virtual goods market started earlier in Asia and has continued to skyrocket in that region US virtual good revenues $500MM in 2008 growing to $2.1 BB in 2011 Secondary market trading for virtual goods is a $2.7B market in 2010, growing to $4B by 2012 18% CAGR globally, 30% CAGR in China Source: Inside Network. CLEARSTONE ONLINE GAMING FUND EFT&.R1_00504818 EFTA02005732 VIRTUAL GOODS: DOMINANT BUSINESS MODEL FOR F2P GAMES >) Virtual goods is the dominant model for the F2P market 58% of F2P players purchase in-game digital goods The median F2P expenditure on virtual goods is $75 per person In-game currency, virtual gifts, weapons, and wearables are the most popular types of virtual goods North American women over the age of 25 are spending the most money on virtual goods CD Copyright 201 1 I Private and Confidential 67 O playspan 5173.COM Source: VGMarket, PlaySpan CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504819 EFTA02005733 SKILL GAMING: REAL MONEY WAGERING IS A GROWING TREND 1200 1000 800 600 400 200 0 Online Skill Gaming Market ($B) 2009 CD Copyright 201 1 I Private and Confidential 2010 2014 68 >> )) >) Skill games are competitive online games, where winning is determined by skill rather than chance Skill games are by definition not games of chance, enabling them to operate in U.S., European and Asia-Pacific markets Skill based market targets women 35+ years old Online skill gaming market generating $382M globally in 2009, expected to rise to $472M in 2010, and $957M by 2014 CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504820 EFTA02005734 SKILL GAMING: RESEMBLANCE TO SUCCESSFUL ONLINE GAMBLING BUT LEGAL >> >> >> Online skill games include a variety of business models: scaled commission fee (rake), entry fees for tournaments, interest on players fund invested and micro-transactions Skill-based gaming fits perfectly in these over arching industry trends and has an extremely high ARPU Wagering between friends is already prevalent — but inconvenient Fastest emerging business model in Asia - 20% of video game revenue in Taiwan generated by skill gaming — 10% of video game revenue in China generated by skill gaming CD Copyright 201 1 I Private and Confidential 69 n , f *441 -ntrt9scorn A / 0,, v 1 0,1 I An," rio ell I= OP OW a V R CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504821 EFTA02005735 ONLINE GAMBLING: ENORMOUS MARKET POISED FOR LONG TERM GROWTH $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 Global Online Gaming Yield ($B) 2005 2006 2007 2008 2009 2010E 2011E 2012E CD Copyright 201 1 I Private and Confidential 70 The U.S. outlawed online gambling in 2006, making Europe the largest legal online gambling market Regardless of legality, 2008 Internet gambling revenue for offshore companies was estimated to be $5.9B from players in the U.S. and $21 B from players worldwide » The global legal online and offline gambling market totaled $335B in 2009 Online gambling's share of the total gaming market to reach 9% penetration and increase to $34 billion by 2012 (11% CAGR between 2008 and 2012) CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504822 EFTA02005736 ONLINE GAMBLING: ENORMOUS MARKET POISED FOR LONG TERM GROWTH >) >) )) Online gambling uses the Internet and mobile devices to enable wagering, casino games, poker, lotteries, and bingo Continues to cannibalize offline gambling and surpassed offline in terms of growth Currently legal in many parts of the world today and legislation in the US likely to open some or all of the largest gambling market in the world Live online casino and inplay sports betting has increased at a CAGR of over 172% since 2006 CD Copyright 201 1 I Private and Confidential 71 Piker Stars. CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504823 EFTA02005737 GAMIFICATION: INCORPORATING GAMING MECHANICS INTO BUSINESS MODELS >> )) >) New industries emerging utilizing gaming as a business model rather than a product Gaming is one of the most lucrative business models and can be applied to other industries Game mechanics are being incorporated into many products to increase engagement Facebook is interesting because of games Lottery mechanics being combined with e-commerce with companies like Bidfire, Swoopo, and Big Deals CD Copyright 201 1 I Private and Confidential 72 D BigDeal CLEARSTONE ONLINE GAMING FUND EFTA_R1_00504824 EFTA02005738