STC Venture CAPITAL FUND Status Report

STC Venture CAPITAL FUND Status Report

Potential Initiatives by Private Sector to Support SMEs STC Ventures Dr. Fahad Mushayt Vice President, Corporate Strategy STC Group February 7, 2012 1 Overview STC Group Overview STCs Strategic Motivation for a VC fund Venture Capital Fund in MENA Challenges in MENA and KSA Venture Capital Overview STC Ventures Fund Questions 2 STC Group Overview 2 In a 10 Year Period Saudi Telecom has become the leading and most profitable telecommunications company in the Middle East Turkey

Kuwait Bahrain Saudi Arabia Malaysia India ...A Promising Reality South Africa Customer Base of more than 160.2 Million Customers Revenues Exceeding SR 56 Billions A Market Value Exceeding SR 68 Billions Indonesia 4 STC Major Historical Milestones Milestones 1998

Transformation of STC to operate on commercial basis under its current name 2002 Sending 30% of STC shares into IPO 2005 Launching the new identity of STC (We work together for a brighter future) Competitor Mobily launched operations in May 2005 2006 Launching of STC internal and external expansion strategies. 2007 Launching of (FORWARD) Strategy Expanding the scope of strategic investments to include Malaysia, Indonesia, and India). STC won 3rd mobile license in Kuwait 2008 STC continues to expand its strategic investments including Turkey and South Africa Launching the new identity of STC Group

2009 STC won 3rd mobile license in Bahrain STC implemented changes to the organizational structure 2010 Launching of (LEAD) Strategy 5 As leader in a world of constant change , we strive to exceed our customers expectations so that , together we reach new horizons STC LEAD Strategy VC Fund Driver NextGen Broadba nd Lead in Next-Gen Broadband Differentiate through Integrated Customer Experience Become the broadband operator of choice offering

ubiquitous access and innovative content and applications to all customers Delight customers with an integrated experience, tailored and high-quality services, effective marketing and sales, and next-generation customer service Consolidate International Leadership Optimize international investment portfolio, further expand in the MENA region, drive products, technology and supply chain synergies, and build-up international management capabilities Invest in People Capital Invest in leadership and talent development, increase employee engagement, and build a winning corporate culture Drive Financial Performance and Agility Provide shareholders with above average returns by streamlining financial controls and embedding financial agility that ensures long-term profitable growth Be recognized as the catalyst for technological, economic

Promote Leading and social development by effectively communicating Reputation and Brand strategic objectives and achievements 5 STCs Strategic Motivation for a VC Fund 7 For STC, VC Fund is not only Investment Innovation is important aspect in Lead Strategy Large companies typically only see innovation when it is profitable, reaches a tipping point, or in the news Seed and early stage VCs see it every day Regional Lead Fund will provide to STC antenna function to new local and international partnerships to drive its growth strategy domestically and internationally Profitability Any venture fund, even in-house corporate venture funds, need to generate returns to be a viable and long-term addition to corporate strategy STC chose to outsource 100% of the fund to an experienced and top-tier fund manager (Iris Capital Management) Economic & Social Contribution to KSA Promote entrepreneurship and innovation in KSA and the region Support the building of infrastructure and platforms for the knowledge based economy in KSA and the region

Attract entrepreneurs and innovators to the KSA and region 8 Since 2010 there has been a surge of regional activity related to entrepreneurship, VC investment and economic diversity Within KSA The creation of the BADIR program by KACST and various regional startup groups (e.g. Riyadh Geeks, Jeddah Geeks, etc.) The country has also been establishing all-encompassing technology parks in the main regions of the country Jeddah, Riyadh and Dhahran. These parks are referred to as Techno Valleys. Tuqnia Global Technology Fund Various private and corporate VC funds launching Across the MENA and Levant regions Organizations like Oasis 500 (Jordan) supporting entrepreneurship and Inovent (Turkey) seeding the innovation pipeline Considerable social network activity related to the ecosystem Internationally towards the region Arabic entrepreneurs studying abroad are starting to seek capital from the region to come back or to expand into the region Top-tier foreign VCs are seeking access to KSA and the region 9 VC Fund Growth in MENA Number of VC Transaction in MENA

20 18 16 14 12 10 8 6 4 2 0 VC Fund Raising in MENA 350 300 250 200 150 100 50 0 2006 2007 2008

2009 2010 2006 2007 2008 2009 2010 Source: Zawya PV, 2011 10 Example of Venture Capital Firms in MENA Firm Region Stage Investment Size USM Sector STC Ventures MENA & International Seed/Early/

growth 0.1 -7 ICT/TMT Accelerator Technology MENA Early Stage 0.5M-5M ICT/TMT Catalyst PE MENA Early Stage 1-7M Energy and Technology

Dubai Silicon Oasis Fund MENA Seed & Early 100K-5M Hi-tech twofour54 Ibtikar Abu Dhabi Seed/Early/ growth 500K-5M Media and entertainment Malaz Capital MENA Round B/C 1-2M

TMT Riyada Enterprise MENA + Turky/ Pakistan Growth 0.5-15 Various Source: Zawya PV, 2011 11 VC Fund Challenges in MENA 12 Specific challenges to KSA . Access to contiguous risk capital funding Regional entrepreneurs must have access to risk capital from Seed stage through to growth stage There is currently very little risk capital available at the Seed and early stages Mentorship & Coaching

To become a viable company, KSA entrepreneurs need access to mentorship, coaching and experienced advisors in building out their companies Legal Structure Legal/Regulatory need to be improved to stimulate VC Fund investments Access to Highly Qualified People As good new technology companies grow, sourcing and hiring experienced technolgy resources will be a challenge Access to External Markets KSA companies must have access to external and international markets 13 STC Ventures lead a 2010 study that made specific recommendations to the Council of Ministers to improve the VC investment environment in KSA Overarching goal is to encourage continued innovation in the Kingdom of Saudi Arabia Offer the Kingdom a modern, attractive, marketable, workable and efficient legal and tax infrastructure for the financing of knowledge-based industries Through improvement of legal/regulatory and tax regimes and structures that will: Stimulate VC and private equity investment Facilitate early stage company formation

In the context of the existing Saudi Arabian investment infrastructure, policy and laws 14 Venture Capital Fund Overview 15 Key stages in the innovation life cycle and average VC deal sizes* Research (Invention) $250K $1M Big Idea (Innovation) Prototype Product (Entrepreneurship) (Business Model) Cashflow+

M&A /IPO (Business Model) (Management) Seed Investors (Founders, Family, Angels, Seed VCs) Common Shares $2 $4M Early Stage VC (Series A, Series B) Preferred Equity $5 $8M * Deal size figures will typically be higher for deals in the materials, energy and cleantech sectors, particularly those involving extensive R&D facilities and specialized equipment and highly qualified R&D personnel Late Stage VC (Series C, Series D, etc) Preferred Equity, Debt

> $10M Growth, Buyout, Mezzanine (Equity, Debt, Bonds, etc) Image Sources: zcreationszs, pixomar, filomina scalese, simon howden, jennifer renee 16 STC Ventures Focus: seed, early-stage and later-stage deals in emerging and established innovation ecosystems Governments and Regional Innovation Ecosystems Education + Research Post Grad University Research Private Sector Investors Seed & Early Stage Later Stage Pre-Seed Seed

Early Stage Cashflow + Technology Transfer Offices Seed Investors 5-7 years to liquidity Early Stage VC IP Commercialization 3-5 years to liquidity Later Stage VC 1-3 years to liquidity 17 STC has outsourced fund management to a highly experienced and connected VC fund manager Research (Invention) Big Idea

(Innovation) Prototype Product (Entrepreneurship ) (Business Model) Cashflow+ (Managemen t) M&A / IPO (Business Model) Seed Investors Early Stage VCs 1. Effective Sourcing 2. Effective Due Diligence Direct and trusted relations with a

broad range of funding organizations, investors and professional advisors Efficient screening of deal flow and get to no efficiently Proactive approach to sourcing deals in key sectors and regions of interest to the fund Can spot teams that can be helped to build a good business and those that cant Maintains a strong advisory network with direct access to deep domain expertise 3. Proper Funding Structures win-win-win deals (Founders-Seed Investor-VC) with alignment of the parties Later Stage VCs 4. Effective Portfolio Management Rigorous commitment to spending regular and structured time with

portfolio companies Proactive problem resolution skills Maintains deep networks for building out teams, product-market strategies and business model development Good network for follow-on financings and exits Strong co-investment network 18 Funds goal is to properly fund portfolio companies and to actively monitor and mentor their achievement of specific milestones Portfolio Development Goals Seed Early Stage Fully-fund to reach each of these goals: Management Team Typically Founder or Founder +1

Gaps in senior team Properly staffed team with hiring plan for next round Business Strategy Napkin or envelope Initial business plan Validated business model & detailed development plan Often unprotected IP or in-licensed IP, unprotected concepts or know-how IP exists and may be partially protected Actively managed and protected IP Strategy Conceptual or limited product-market analysis

Product specification may exist, incomplete or unqualified demand creation assumptions No customers Beta customers may be using a prototype Technology & IP Product-Markets Customers Product in use with compelling product-market value proposition and clear competitive positioning Referenceable customers that validate business model and its assumptions 19 18

STC Ventures Fund 20 Linking an untapped large market with the proper fund Large Untapped Market Critical Hurdles The Concept Limited experienced entrepreneurs and startup initiatives Link local entrepreneurs with an international network of entrepreneurs and ventures Limited ecosystem for quality deal flow Start with exclusive access to incubation and venture initiatives Growing $ for regional/local investment

opportunities Limited support platforms for entrepreneurs and ventures Largest technology company in ME as anchor investor of the fund Limited VC industry No experienced VC managers Strong governments drive for innovation and entrepreneurship Internationally experienced VC to manage the fund Long time to ROI for young ventures in region Fund will also invest in later stage deals for faster ROI Large consumer market Growing ICT/TMT spend 20% of global exported

investments from GCC 21 The fund's key characteristics Large investment pool Fund target size of $250M; largest ICT/TMT VC fund in the region. Initial drawdown of $50M Experienced fund manager Fund managed by a successful and experienced VC focused on ICT/TMT investments with a proven financial record and multi-regional presence Viable anchor investor Anchored by STC, a strong leader in the market, with large scale cash positioning and committing to a large share of the fund (50%) Industry focus Fund is specialized in the ICT/TMT sector which has large current demand and potential growth in the region Geographic

coverage Value-adding Mix Contribution to the Knowledge Based Economy of the region Fund will invest in KSA, MENA region and internationally Fund manager will strategically add value to the fund through: Active opportunity sourcing Providing expertise to portfolio companies Helping companies access MENA market for faster portfolio development and growth Fund will promote the knowledge based industry of the region by: Promoting entrepreneurship Promoting innovation Developing the ICT/TMT sector, a pillar in building the KBEs of the region Create employment opportunities for skilled and unskilled 22 Questions ? 23 Thank you

Saudi Arabias National Companies & Venture Capital STC Ventures Dr. Fahad Mushayt Vice President, Corporate Strategy Saudi Telecom Company [email protected] 24 For the first three quarters of 2011, U.S. based VCs invested 20% more dollars in 3% more deals than the same period in 2010. True VC investment in MENA is at its earliest stages Source: PwC MoneyTree Report (Q3 2011) 25 Investment by U.S. VCs by sector. Software at its highest levels since 2001, followed by biotech. Internet deals declined. In the MENA and KSA regions, most deals are Internet and softwarebased. Source: PwC MoneyTree Report (Q3 2011) 26 Investment by U.S. VCs by stage of deal. The MENA and KSA ecosystems are just beginning to populate angel groups and VC funds at each stage of growth

Source: PwC MoneyTree Report (Q3 2011) 27 Investments by U.S. VCs by region. Many Silicon Valley and Route 128 entrepreneurs from MENA and KSA are seeking regional co-investors Source: PwC MoneyTree Report (Q3 2011) 28

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