/530_Gridley_Guide_Digital_NY_2011w by Interbrand

September 2011 1 ÂŠ 2011 Gridley & Company LLC

Table of Contents I.

Introduction to the Report

II. Digital NY Overview III. Overview of NY Area Private Digital Companies IV. Venture Capital and Private Equity Firms with NY Area Digital Investments V. Overview of NY Area Public Digital Companies VI. Advice for the Audience

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Introduction to the Report

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Introduction WELCOME to Gridley’s Guide to Digital New York. While many of you were out at the beach or on the golf course this summer, we had a team toiling away on this project. We are very excited to share the results with you. Gridley’s Guide to Digital New York is a unique and comprehensive report for investors, buyers and entrepreneurs looking for one place to quickly get up to speed on New York’s exciting, explosive digital ecosystem. In addition to this report, we have designed an “easy to use” website that lays out the information in this report (and more) in a fun, creative way. You can access this website from our firm’s home page, www.gridleyco.com, or at www.gridleydigitalny.com. We decided to put together this report when we were out visiting companies and investors in May/June and people starting asking us about all of the “digital momentum” in NY. There was a feeling that lots was going on, but people didn’t really understand just what “it” was and how extensive “it” was. Well, four months later, we can tell you a few things about “it”: • There has been $4 billion of capital invested in Digital NY companies since 2006. • While the total number of Digital NY private companies probably is well over 500, we have identified approximately 280 to be included in this report. Companies in our report either have raised at least $5 million of outside capital or are prominent enough in the Digital NY scene to merit inclusion. The digital sectors we focused on are: Content, eCommerce, Marketing, Mobile, and Social. • There are approximately 120 investors with a focused interest in Digital NY. This includes all stages – Seed, Early Stage, Growth, and Buyout – and includes local firms as well as firms with little or no physical presence in NY. • There have been five private companies that have raised over $100MM of capital (Tremor Video, ZocDoc, Gilt Groupe, Tumblr, and Everyday Health) and 12 that have raised between $50MM and $100MM. • There have been eight $100MM sale transactions of private Digital NY companies since January 2008 (Mediamind, Admeld, Huffington Post, Webloyalty, Hotjobs, Register.com, Daily Candy, and Answers.com).

Introduction (cont’d) The Digital NY scene is still in its early formation days with lots of growth ahead. We believe that New York’s existing ecosystem with big traditional advertising and media companies as well as many large data and internet industry leaders all headquartered here sets the stage for the unique development of the next generation of disruptive digital companies. Nowhere else in the country is there such a blend of the “old guard” with the “new kids on the block” – all in the same city. So, whether you are looking to buy, sell, invest, or merely “browse”, we hope this report and our accompanying website will be of great use to you. Sincerely,

On Behalf of the Gridley Team Questions About This Report? Peg Jackson Managing Director peg.jackson@gridleyco.com 212-400-9709

Linda Gridley President & CEO linda.gridley@gridleyco.com 212-400-9710

Pratik Patel Director pratik.patel@gridleyco.com 212-400-9712

About Gridley and Company LLC Gridley is a boutique investment bank that provides financial advisory services to companies in the Information Services industry with a specific focus in the following sectors: Marketing Services, Internet Services, Financial Technology, Data Services, and Outsourcing Services. Our dedicated industry focus, thoughtful strategic insights and extensive relevant transaction experience differentiate us from other Wall Street firms and lead to successful results for our clients. Gridley & Company LLC was founded in 2001 and is headquartered in New York City. 5 © 2011 Gridley & Company LLC

Interested in Other Gridley Reports? • Visit www.gridleyco.com/what-we-think/resources/ to request other Gridley Reports and Presentations

II.

Digital NY Overview

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The Past Four Years Have Shaped Much of NY’s Digital Media and Technology Landscape • Notable events in NY since 2007: Development of brand names across broad set of verticals

($275 million) Closes deal and announces HQ move to NY in September Raises series A round

($3.1 billion)

/ ($680 million)

January 2007

is founded

April

July

December

2007

opens a Googleplex in New York City June

Mayor Bloomberg starts up city-funded business incubator programs

2008

leads in tech VC funding and deal quantity

September January

2009

2011

September 2007

November 2007

August 2008

Raises series A Acquires round announces spin-offs of: October For $125 million 2007

Raises series A round

December 2009

September 2010

Announces acquisition of comes to New York

Raises Series B round

Raises Series A round

Raises series A round

for $30 billion

June 2011 Mayor Bloomberg offers $100 million and land to develop a top engineering school to encourage tech development, to bring New York City to the forefront of innovation. announces acquisition of

Raises series A round

Over 200 NY Digital Start-Ups Founded in the Last Few Years… 80

71 53

62 30

2007

2008

2009

Source: CapIQ, Gridley estimates

2010

YTD2011

NY’s Emergence as a Tech Hub • New York City has become a true digital media innovation center 1H2011 Internet VC Funding by Top Cities (in millions)

1H2011 Internet VC Deals by Top Cities (# of deals) Washington, D.C. Boston 1 Los Angeles 9 13

Los Angeles $114 Boston $208 Bay Area $1,534

Washington, D.C. $400

San Francisco $757

San Francisco 103

Palo Alto $361

New York 81

Chicago $571 New York $604

Redwood City $199 Mountain View $145 San Mateo $72

Source: CB Insights “Venture Capital Activity Report”

Bay Area 167

Chicago 18

Palo Alto 29 San Mateo 7 Redwood City Mountain View 19 9

NY’s Emergence as a Tech Hub • New York City has become a true digital media innovation center NY Tech Investments Over Time $1,000 $900 $775

$800 $700 $600

$642 $541

$525

$493

$500 $400 $300 $200 $100 $0 2007

2008

2009

2010

Source: PriceWaterhouse Coopers “MoneyTree Report 2011”, Media & Entertainment and Software investments

1H2011

NY is a Major Contender for Tech Dollars Now • New York City has gained much ground against Silicon Valley in the past 15 years VC Funded Deals

385

186

172

37 1995 NYC

2010 Silicon Valley

Source: PriceWaterhouse Coopers “MoneyTree Report 2011”, Media & Entertainment and Software deals

NY Ecosystem has Very Different Roots and Growth Opportunities than Silicon Valley

Internet Services

Operational Efficiencies

Leadership Talent

Key Customers

Data Services

Engineering Talent

Wall Street

Creative Talent

Strategic Acquirers

Strategic Partnerships

Advertising

Business Development

Fashion

Media 13

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Major Disruption is Happening Across All Sectors Advertising / Marketing

Commerce

Content

Finance

Social

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Top 25 Private Digital NY Sale Transactions

January 2007 â&#x20AC;&#x201C; September 2011 (Disclosed deals / rumored pricing available) ($M)

$1,000

$800

$400

$200

$0 2007

2008

Source: Capital IQ, TechCrunch, public filings, and press releases ÂŠ 2011 Gridley & Company LLC

2009

2010

2011YTD

III.

Overview of NY Area Private Digital Companies

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Digital Sector Categorizations (281) Digital Content (77) Content Enabling

Family & Education Finance & Professional

Digital Marketing (102) Audio & Video Advertising

eCommerce (46)

Mobile (31)

Social (30)

Brand Storefront

Content

Commerce

Daily Deals

eCommerce

Content Curation

eCommerce Infrastructure

Marketing

Dating

Social

Enterprise Social

Digital Agencies Display Advertising

Marketplace

Games

Funding

Email Advertising Private Sales

Health & Fitness

Local

Lead Generation

Lifestyle

Local Advertising

Third Party Retailer

Music

Search Advertising

Other

Tech

Social Marketing Management

Video & Images

Note: Several companies have distinct business units that place them in multiple categories

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Social Network Other

NY Area Private Digital Companies by Sector Digital Content

Digital Marketing

eCommerce

Mobile

Social

FashionStake

SpotOn

Electric Sheep

Note: More companies illustrated on the following sector breakdown pages ÂŠ 2011 Gridley & Company LLC

NY Area Private Digital Content Companies Content 13 Enabling

Family & 4 Education

Finance & 9 Professional

Games 6

Electric Sheep

Health & 4 Fitness

Music

Tech

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Video & 13 Images

(77)

Lifestyle 24

NY Area Private Digital Marketing Companies (102) Audio & 4 Video Advertising

Digital 30 Agencies

Display 26 Advertising

Local 8 Advertising

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Email 4 Advertising

Lead 6 Generation

Search 10 Advertising

Social 14 Marketing Management

NY Area Private eCommerce Companies Brand 2 Storefront

Third Party Retailer 10

Daily Deals 12

E-Com 3 Infrastructure

Other

FashionStake

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Marketplace 10

(46) Private Sales 6

NY Area Private Mobile Companies Content 10

eCommerce

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Marketing 14

(31) Social

NY Area Private Social Companies Commerce 2

Funding

Content Curation

Dating 2

Enterprise Social

Local

Social 10 Network

Other

SpotOn

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(30) 2

NY Area Private Digital Companies by Equity Raised (133) $5M-$10M

$10M-$20M 32

$20M-$30M 22

$30M-$50M $30-$50 20

$50M-$100M $50-$100 12

Electric Sheep

>$100M

FashionStake

Source: Capital IQ and TechCrunch, as of 9/14/2011 ÂŠ 2011 Gridley & Company LLC

Top 10 Private Digital NY Sale Transactions

January 2008 â&#x20AC;&#x201C; September 2011 (Disclosed deals / rumored pricing available) Date

Acquirer/Target

Transaction Value (in $M)

06/15/2011

$524

06/13/2011

400*

02/06/2011

315

01/19/2011

296

02/03/2010

225

06/17/2010

135

08/05/2008

125

09/07/2010

120

10/20/2008

10)

01/20/2011

Source: Capital IQ, TechCrunch, public filings, and press releases *rumored value ÂŠ 2011 Gridley & Company LLC

(Humor Rainbow)

IV.

Venture Capital and Private Equity Firms With NY Area Digital Investments

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“The Locals” - Digital Focused VC/PE Firms Headquartered in NY Area (60) Seed (<$2M)

Early Stage 26 ($1M-$10M)

Growth Equity 20 ($10M-$50M)

Buyout

“The Locals” - Digital Focused VC/PE Firms Headquartered in NY Area By Number of NY Area Digital Investments January 2008 – September 2011 1-3 1-3

4-10 4-10

Seed

Early Stage

Growth

Buyout

>10 >10

“The Satellites” - Digital Focused VC/PE Firms With a NY Office (23) Seed (<$2M)

Early Stage ($1M-$10M)

Growth Equity 11 ($10M-$50M)

Buyout

“The Satellites” - Digital Focused VC/PE Firms With a NY Area Office By Number of NY Area Digital Investments January 2008 – September 2011 1-3 1-3

4-10 4-10

Seed

Early Stage

Growth

>10 >10

“The Outsiders” - Digital Focused Non-NY VC/PE Firms (35) Seed (<$2M)

Early Stage 24 ($1M-$10M)

Growth Equity 20 ($10M-$50M)

“The Outsiders” - Digital Focused Non-NY VC/PE Firms

By Number of NY Area Digital Investments January 2008 – September 2011 1-3 1-3

4-10 4-10

Seed

Early Stage

Growth

Source: Capital IQ, TechCrunch, public filings, and press releases

>10 >10

“The All-Stars” - VC/PE Firms with at Least 5 NY Area Digital Investments January 2008 – September 2011 “The Locals”

“The Satellites”

Seed

Early Stage

Growth

Source: Capital IQ, TechCrunch, public filings, and press releases

“The Outsiders” 8

Overview of NY Area Public Digital Companies

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Public Companies with a NY Area Presence by Industry (47) Data

Digital Media

eCommerce 6

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Marketing

Traditional Media

Public Companies with a NY Area Presence by Market Cap <$500M 15

$500M-$2B

Note: Market cap calculated on 9/14/11 Source: Capital IQ and public filings ÂŠ 2011 Gridley & Company LLC

$2B-$5B 7

$5B-$15B

>$15B

Public Companies <$1 Billion Valuation ($ in millions)

$1,000 900 800

Enterprise Value

700 600

500 400 300 200 100 0.0x

1.0x

Note: Enterprise value calculated on 9/14/11 Source: Capital IQ and public filings ÂŠ 2011 Gridley & Company LLC

2.0x

3.0x 4.0x LTM Revenue Multiple 37

5.0x

16.0x

18.0x

Public Companies >$1 Billion Valuation ($ in billions)

$250 $200

Enterprise Value

$150

$100 $50 $40 $30 $20 $10 0.0x

1.0x

Note: Enterprise value calculated on 9/14/11 Source: Capital IQ and public filings ÂŠ 2011 Gridley & Company LLC

2.0x

3.0x 4.0x LTM Revenue Multiple 38

5.0x

6.0x

7.0x

Public Acquirers with a NY Area Presence By Number of Acquisitions January 2008 – September 2011 Acquirer

# of Acquisitions

Select Acquisitions (in $M Enterprise Value) Pangea3 – $95 – 11/18/2010

Hugin Group – $60* – 09/21/2009 ITA Software – $700 – 06/01/2010

AdMob – $675 – 11/09/2009

Admeld – $400* – 06/13/2011 Invite Media - $75 – 06/02/2010 Rosetta – $575 – 05/17/2011

Razorfish – $530 – 09/09/2009

Big Fuel Communications – NA – 07/18/2011 Netezza – $1,730 – 09/20/2010

Sterling Commerce – $1,400 – 05/24/2010

SPSS – $1,122 – 07/28/2009 Coremetrics – NA – 06/15/2010

Clemenger – $138 – 09/01/2010

Communispace – $100*– 02/07/2011

VI.

Advice for the Audience

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General Advice • LOTS of exciting stuff is happening in Digital NY right now. Ignore it at your peril! • Opportunities come in all shapes and sizes. • The Digital NY entrepreneur network is tight – get connected. • There is an increasing depth of NY engineering talent – tap into it.

Advice for the Entrepreneur • Digital NY is getting crowded with lots of startups. Be sure of your objectives and how to achieve them. • There is a quality group of NY-based technology focused lawyers, accountants and recruiters – network into them. • Not everyone will be able to sell for $100MM+ valuations. Be realistic about where you stand on your chances. • The scope of what is "strategic" to a buyer is constantly expanding. Make sure to keep as many lines of communication open to large organizations. • There are LOTS of outside capital. Think through what is the right amount for you. • Choosing a VC is as important as choosing a co-founder. It could be a 5+ year relationship, so get as much outside perspective on them as possible.

 Focus on the partner involved, not the firm overall.

Advice for the Investors • Digital NY is getting crowded with lots of startups. Make sure your deal filter is clearly understood.

• Not everyone will be able to sell for $100MM+ valuations. Keep the cap table in check. • Leading VCs have common characteristics today – honesty, preparedness, respect and insight. Make sure to understand an entrepreneur’s expectations before investing your time or theirs. • The "West Coast is coming". They are aggressive and highly persuasive to entrepreneurs. Be prepared.

Advice for the Public Companies • Tremendous value being created, competitive dynamics are changing.

• There is a new generation of "Digital Leaders" among the emerging CEOs in the NY startup scene. Make sure you know who they are. • Market leadership is a fungible thing these days. The traditional leaders today won't stay that way if they don't pursue digital growth strategies.

• If some of the "new billion dollar babies" (i.e. Facebook, Zynga, LinkedIn, Groupon, etc.) enter the M&A game in a meaningful way, you can forget about "winning" hot companies that are being sold.

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