IDCEE 2013: Emerging themes and trends in technology and digital media - Alan Patricof (Founder & MD @ Greycroft Partners)

Emerging Themes and Trends in
Technology and Digital Media
October 10, 2013

Agenda

• Greycroft overview
• Investment thesis
• Areas of focus today
-Mobile
-Mobile payments
-Video
-Native Advertising
-Connected devices
NYC 131010 - IDCEE presentation vf

2

Quick history of Greycroft
Fund I
(April 2006)

Fund II
(April 2010)

Fund I Annex
(Feb 2012)

•Greycroft I - $75MM

•Greycroft II - $131MM

•34 investments

•56 investments

•Greycroft I Annex $12MM

Fund I themes:

Fund II themes:

•4 investments to
date

•Adtech, primarily paid
media

•Adtech, primarily owned
media

•Social media (B2B, B2C)

•eCommerce (B2B, B2C)

•Analytics

•Gaming

•Online Publishing

•Online Video
•Small seed portfolio

2006

Twitter

2007

iPhone

2008

2009

Facebook hits
100M users

2010

iPad

Instagram

2011

Pinterest

2012

2013

Facebook hits
800M users


3

And our newest fund
Fund III
(January 2013)
•Greycroft III - $175MM
•6 investments to date
Fund III themes:
•Marketing SaaS
•Cloud enablement
•Small seed portfolio

2013

iPhone

Facebook hits
100M users

iPad

Instagram

Pinterest

Facebook hits
800M users


4

Agenda

-Mobile
-Mobile payments
-Video
-Native Advertising
-Connected devices

5

Investment thesis
• Offices in LA and NYC – both emerging tech leaders
• Small Funds – $400 Million under management
-Investments range from $100,000 - $5 Million

• Recent addition of a Seed Fund
• Focus on early stage digital media and Internet startups
• Investing in Teams
-Repeat entrepreneurs
-Repeat experts in the space

6

More than 90% of reported VC exits have been M&A
Venture-Backed Liquidity Events – Total
number of exits
600

Venture-backed IPOs
Venture-backed M&A deals

400

200

19
8
19 5
8
19 6
87
19
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
0
20 7
0
20 8
0
20 9
1
20 0
1
20 1
12

0

Note: IPO totals include all companies with at least one U.S. VC investor that trade on U.S. exchanges;
regardless of domicile M&A totals only accounts for VC backed deals with disclosed values
Source: Thompson Reuters; 2012 NVCA Yearbook


7

Average transaction value has held steady
Average exit size for venture backed
M&A transactions
$500M
Average M&A dealsize
400

300

200

100

19
8
19 5
8
19 6
8
19 7
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
0
20 7
0
20 8
0
20 9
1
20 0
1
20 1
12

0

Note: M&A totals only accounts for VC backed deals with disclosed values
Source: Thompson Reuters; 2012 NVCA Yearbook; BLS


8

The Greycroft approach to investing is different

Lead every deal

No syndication

Board seats

20% ownership

$1B expectations

$5M minimum

Largest possible
fund

IPO expectations

9

Agenda

-Mobile
-Mobile payments
-Video
-Native Advertising
-Connected devices

10

Mobile
• Shift to mobile is accelerating
-Last year, nearly 12% of time spent with media by an
adult was consumed via a mobile device

• Digital ad-spend is going to migrate rapidly onto mobile
-$8.8B in 2012 is forecast to become nearly $63B in 2017


11

Mobile and tablet sales have grown rapidly
Global internet device sales (M)

CAGR

CAGR

(06-12) (12-15)

3,000M

Tablet

N/A

50%

Smartphone

26.2% 24.3%

51%

27%

PC

8%

6%

2,000

1,000

0

2006

2007

2008

2009

2010

2011

Source: Gartner, IDC, Strategy Analytics, company filings, BI Intelligence

2012

2013F

2014F

2015F


12

Globally, more than one third of digital ad spend will
be on mobile by 2017
Mobile ad spending share
of total digital ad spend worldwide
40%
36.3
31.0

30
25.6
19.8

20
14.2

10

8.5
4.6

0

2011

2012

2013

2014

2015

2016

2017

482

503

517

543

567

593

616

Digital ad spend ($B)

86

104

118

133

146

160

173

Mobile ad spend ($B)

4.0

8.8

16.7

26.3

37.5

49.6

62.8

Total ad spend ($B)

Note: Excludes SMS, MMS and P2P messaging based advertising
Source: eMarketer


13

The shift to mobile media is accelerating – growing at
53% p.a.
Share of media time spent per day
on mobile (US adults)

Note: Time spent multi-tasking is counted for each medium
Source: eMarketer; Needham & Co.


14

Agenda

-Mobile
-Mobile payments
-Video
-Native Advertising
-Connected devices

15

Highlighted trends in payments
• Though early, mobile payments represent strong area of growth,
with ~40% CAGR expected in transaction value through 2017
-The majority of this growth is being driven by mobile commerce and
money transfers

• Consumers are increasingly seeking convenience and a simplified
and unified mode of both online and offline payments
-Google, Facebook, Apple, payment platforms, and retailers are all working
to provide solutions that help to bridge the “digital divide”


16

Mobile payments expected to grow dramatically
Global mobile payments ($B)
$800B
721

’11-’17F CAGR = 38%

600

400

235

200

163
106

0

Mobile payment
users (MM)

2011

2012

2013P

2017F

161

201

246

450

Note: Includes bill payments, merchandise purchases, money transfers, and NFC transactions
Source: Gartner


17

Global smartphone users’ mCommerce activities
mComm activities of smartphone users, 2012 (% resp)
60%
51

Italy
UK

40

43

Russia
US
South Korea

38

38

33
30
24

20

22

18
15
11

12

14

28

26

15

17

3 3 4

0

NFC/
Mobile Wallet

Note: Select ‘developed’ countries selected
Source: Nielsen; Gartner

Barcode/
QR Scanning

Mobile
Shopping

Mobile
Banking


18

Companies innovating in online and mobile payments
Payment
platforms

P2P
payments

Mobile POS

Retailer
closed apps

Mobile
Wallets

19

Key takeaways on mobile commerce

• Mobile banking and commerce increasingly common
among smartphone users
• NFC growth expected to be limited over next few years,
with challenges on both the consumer and merchant
adoption front
-There is no incentive for consumer to tap rather than swipe a
credit card and the interface can be less reliable

• Banking and payment networks are established. There is
room for innovation in ancillary services surrounding
the payments infrastructure


20

Agenda

-Mobile
-Mobile payments
-Video
-Native Advertising
-Connected devices

21

Video
Strong Trends
•60% of US network traffic is devoted to online video streaming
•50% of all mobile traffic is video
•89 million people in the US are going to watch 1.2 billion online
videos today
•YouTube attracts 1 billion unique visitors who watch over 6 billion
hours of video each month - this is estimated to be 1/3 of all online
video traffic and grows to almost 60% when you exclude porn
-Maker Studios is responsible for 4B video views per month

Imbalance with advertising dollars
•Online advertising only accounts for less than $100B of the $800B
in total global ad spend (<12%)
-Of which, online video advertising is only 7-10% of all online ad spend

•24% of US brands are advertising against online video today (of
approximately 4,300 national brands)


22

Digital video ad spend forecast to grow rapidly
US Digital Video Ad Spending
$10B
9.1
8.0

8
7.0
5.8

6
4.1

4
2.9

2

0

2.0

2011

2012

2013

2014

2015

2016

2017

Note: Includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets
Source: eMarketer; IAB; PWC


23

Consumer behavior shows increased time allocated
Online video – daily minutes spent
30
Average YouTube
video is 4:21 minutes
24

20
17

10

0

10

2010

Note: Ages 13-64
Source: eMarketer; IAB; GfK; One Productions

2011

2012


24

Nearly three quarters of US internet users view video
Online video viewers (US)
300M

200
172

183

201

205

191

197

100

0

% of internet
users

2012

2013

2014

2015

2016

2017

72.2

75.0

76.6

77.3

77.8

78.1

Source: eMarketer; comScore; Nielsen


25

Agenda

-Mobile
-Mobile payments
-Video
-Native Advertising
-Connected devices

26

Native Advertising
• The concept of Native advertising isn’t new,
-it’s just being ‘discovered’ in the online business and advertisers are
finding clever new uses

• 73% of online publishers offer native advertising
• Over half of all display ads are never in view (below the fold)
• Native advertising in the context of social media alone was $1.63B > expected to climb to $4.57B in 2017
• 41% of Facebook’s Ad Revenue came from native mobile ads in
2013 Q2
• Twitter ads (all native) are projected to generate nearly $1B next
year
• Native advertising can be controversial or risky because it
allows advertising to appear in the same format as editorial content


27

Native advertising is becoming increasingly important
US Social media ad spend
$13B
11.0
Native

10

9.7

Display
8.4
7.2

8
6.1

5

4.6

3

0

Native as a %
of total spend

2012

2013

2014

2015

2016

2017

35.2%

38.9%

39.9%

40.5%

41.1%

41.7%

Note: Native defined as branded content integrated directly within social network experience
Source: eMarketer; BIA/Kelsey


28

Sponsorship dollars are flowing into native advertising
US Digital sponsorship ad spending
$4B

3.1

3

2.9
2.6
2.3

2

1.9
1.5
1.1

1

0

2011

2012

2013

2014

2015

2016

2017

Note: Includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets
Source: eMarketer


29

Agenda

-Mobile
-Mobile payments
-Video
-Native Advertising
-Connected devices

30

Connected devices
• Connected devices and the Internet of Things is a rapidly emerging
sector with nearly 25B new devices coming online over the next
five years
-These include your phone, embedded and wearable health devices,
smart watches, new control interfaces, smart appliances, tracking tags
for your possessions, and even your car

• The volume of data these devices will create unrivaled volumes of
data and that data presents opportunities for entrepreneurs


31

Connected devices expected to grow rapidly, but will
not become ubiquitous over the next 5-7 years
Connected devices, worldwide
60B
50.1
42.1

40
34.8
28.4
22.9

20

18.2
14.4
11.2
8.7

0

Penetration of
connected
devices (%)
Source: Cisco

2012

2013

2014

2015

2016

2017

2018

2019

2020

0.60

0.72

0.87

1.05

1.27

1.54

1.85

2.24

2.70

32

Internet of things data traffic expected to grow 89%
p.a. over the next five years
Volume of data created by
connected devices (monthly)
600PB

563

1PB = 1,073,741,824 MB

400
300

200

159
85
24

0

Source: Cisco

2012

45

2013

2014

2015

2016

2017


33

A few big ideas to consider
• Offline data gathering/analytics
-Tremendous amounts of data are being created through the connected
device revolution – harness it

• Quantified self
-We are moving to a world where every part of ones self can be studied
and quantified – find solutions to our biggest health problems

• Over the top TV
-Content is everywhere and at low cost – disrupt incumbents in the
delivery market

• Sharing economies
-Bike shares, home shares, car shares, even private jet shares – make
our society more efficient in our use of resources

• Prize driven innovation
-Competition for prizes is helping to solve some of our toughest
problems and driving innovation – these are more important than
creating the next social network

34

IDCEE 2013: Emerging themes and trends in technology and digital media - Alan Patricof (Founder & MD @ Greycroft Partners)

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IDCEE 2013: Emerging themes and trends in technology and digital media - Alan Patricof (Founder & MD @ Greycroft Partners)