BIENVILLE GLOBAL REVIEW

Disruptive Technologies Part 2: Technology-Enabled Business Models

September 2015

CONFIDENTIAL

TECHNOLOGY-ENABLED BUSINESS MODELS

BIENVILLE CAPITAL MANAGEMENT 2

Summary

Over the past several years, a proliferation of successful technology companies has changed the world we live in. This transformation is still in the early innings. Despite anecdotes suggesting a “bubble” in various stages of venture capital, recent technologies are inspiring new business models that stand to re-engineer outdated paradigms across a variety of industries, offering both long and short opportunities for investors…

• As outlined in Disruptive Technologies Part 1: Declining Startup Costs Accelerate Disruption, cloud computing, open source tools and third-party services have dramatically lowered startup costs for entrepreneurs, catalyzing the advancement of three new business models likely to define the way industries evolve over the coming years:

1. Enterprise Workflow Platforms: Software systems aimed at digitizing and automating repetitive tasks within a given industry, massively improving efficiency while also eliminating line items from corporate income statements

2. Data Architectures: Data companies that generate and structure proprietary datasets in order to better capitalize on available information

3. Connected Hardware: Connected “smart” devices that enable real-time monitoring of the physical world

• The emerging “Internet of Things” (IoT), a network of physical objects embedded with sensors and network connectivity to help collect and exchange data, is creating a need for additional software platforms

• Old-line industries such as healthcare, government, insurance, finance and education will all face competitive pressures to evolve and adapt to modern technologies, creating opportunities for entrepreneurs and early investors

Source: http://formation8.com/downloads/The_Coming_Transformation.pdf; See Disclosures. This is not an offer to buy or sell a particular security

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Today’s enterprise software can automate complicated processes—making businesses more efficient—while earning a portion of the cost savings…

Optimizing Efficiency

• The first wave of enterprise software focused on digitizing paper-based processes to make corporations more efficient (e.g., Oracle)

• The next wave will leverage available technologies to rewrite the workflows themselves, automating repetitive tasks while relying on human oversight for higher level conceptual work

• Software platforms that create transparency through open information sharing will foster new networks of collaboration

• Startups adopting “freemium” business models, whereby they provide baseline solutions for free but charge for other services, stand to undercut existing business models

• Those that cater to high-value transactions around Millennials and Baby Boomers should outperform

“If I had 8 hours to chop down a tree, I’d spend 6 hours sharpening my axe.”

- Abraham Lincoln

ENTERPRISE WORKFLOW PLATFORMS

Source: http://formation8.com/resources/the-smart-enterprise-wave/; http://olap.com/new-study-reveals-big-data-will-improve-patient-health-care/; See Disclosures. This is not an offer to buy or sell a particular security

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Real Estate: Industries such as real estate that involve multiple parties exchanging information around a single transaction will likely benefit from increased transparency, less fraud and more efficient communication channels through automated data entry and streamlined processes

Healthcare: Software platforms that restructure interactions with patients and improve access and ability to analyze electronic medical records will likely improve diagnostic accuracy and quality of care while reducing costs

Insurance: Insurance companies will have the means to better investigate fraud, adjust policies and evaluate risk dynamically through automated information sharing and analysis

Government: New workflow platforms will enable better tracking of spending, contracts and budgets across states, districts and municipalities

BIENVILLE CAPITAL MANAGEMENT 4 Source: http://formation8.com/resources/the-smart-enterprise-wave/; http://olap.com/new-study-reveals-big-data-will-improve-patient-health-care/; See Disclosures. This is not an offer to buy or sell a particular security

Full adoption of new enterprise software technologies is in the early stages. As the divide between legacy software and new software (that will ultimately prevail) continues to increase, so do opportunities for entrepreneurs and investors…

Industries Set to Evolve

“It is not the strongest or the most intelligent who will survive, but

those who can best manage change.”

- Leon C. Megginson on Darwinism

THE EXTINCT, FLIGHTLESS DODO BIRD

ENTERPRISE WORKFLOW PLATFORMS

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• Zenefits provides cloud-based human resource software to businesses for free (providing a better service for much less)

• Instead of charging customers a fixed price for their software (i.e, licensing), Zenefits takes a brokerage fee anytime a company changes its health insurance

• This orthogonal revenue model has enabled Zenefits to become one of the fastest growing companies ever. In the 24 months since its founding in May of 2013, Zenefits has been adopted by over 10,000 companies

• By the end of their first year, Zenefits had reached $1mm of run-rate revenue. And the end of their second year, they reached $20mm and are expected to reach $100mm by the end of 2015

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Many SaaS (Software as a Service) companies can quickly gain market share by providing baseline solutions for free, but charge for premium services (i.e., “freemium”)…

Case Study: Zenefits

Source: http://formation8.com/resources/the-smart-enterprise-wave/; http://olap.com/new-study-reveals-big-data-will-improve-patient-health-care/; See Disclosures. This is not an offer to buy or sell a particular security; See Disclosures. This is not an offer to buy or sell a particular security

ENTERPRISE WORKFLOW PLATFORMS

CONFIDENTIAL

• “Big data”, an often times misused colloquialism, is most useful when you have some conception of how the data can be structured and understood. Otherwise, it can be a complex, distracting and misleading “black hole”

• Companies like Palantir help structure and unlock meaning within proprietary government data. Embracing man-machine symbiosis, computers crunch numbers while analysts spend their time with higher-level thinking

• Those able to generate proprietary datasets that capture user behavior and preferences are likely to be highly defensible (e.g., Wish.com)

• Third-parties will have to build on top of, and pay for access to, these infrastructures because the data is not available anywhere else (e.g., LinkedIn procures job seekers’ information that recruiters seek access to)

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Data companies able to generate unique datasets will enjoy monopolies over other companies dependent upon access to those datasets, resulting in immense profitability. Businesses leveraging technology to structure and uncover meaning within overwhelmingly large datasets will also be in high demand…

Highly-Defensible Business Models

Source: http://olap.com/forget-big-data-lets-talk-about-all-data/; See Disclosures. This is not an offer to buy or sell a particular security

DATA ARCHITECTURES

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Healthcare: Many medical professionals waste too much time manually entering data. New companies like Oscar help automate this process, while uncovering insights across multiple networks, enabling medical professionals to spend more time on higher-level thinking and allow patients to manage less paper work

Finance: Manual data entry also plagues the financial sector as analysts spend their time on data entry and categorization in Excel that could be automated by computers. Companies like Addepar help increase transparency across a portfolio of assets by streamlining data entry and analysis

Government: Governments now have access to more information than ever before with arguably less capacity to make sense of it. Companies such as Palantir can help structure government data to improve law enforcement’s ability to monitor fraudulent financial transactions and terrorism

BIENVILLE CAPITAL MANAGEMENT 7 Source: Formation 8, Oscar, Addepar , Palantir; See Disclosures. This is not an offer to buy or sell a particular security

Industries In Need of Adaptation

Companies built on publicly available datasets are rarely defensible. Because the barriers-to-entry are low, the moment they succeed, the incentives for new entrants to imitate and compete are high…

DATA ARCHITECTURES

CONFIDENTIAL

• Wish.com applies Machine Learning (ML) algorithms to improve online advertising and content discovery

• The company collects data on every user interaction and transaction, from scroll speed to the amount of time a user hovers their mouse over an image before clicking

• By tracking user behavior, Wish.com’s platform becomes your own “personal shopper”, presenting only items you are most likely to purchase

• Wish.com has been remarkably successful, recently raising over $500 million in a round of financing setting their valuation at $3 billion as of year-end 2014. It has been rumored that daily user growth has been explosive since then

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The success of a company such as Wish.com is a function of its ability to create a unique data architecture, then apply analytics to structure this data in such a way that enables highly-successful marketing campaigns…

Case Study: Wish.com

Source: Wish.com; http://www.forbes.com/sites/ryanmac/2015/05/07/mobile-shopping-wish-raised-500-million-valued-at-3-billion/See Disclosures. This is not an offer to buy or sell a particular security

DATA ARCHITECTURES

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Connected hardware companies will enable consumer and enterprise clients to monitor and control remote assets in real time. Connected devices will lead to companies being built on top of these unique, valuable datasets…

Shedding Light on New Software Needs

• We expect that the most successful connected hardware companies will use physical objects to generate unique datasets, allowing software services to contextualize the relevant information

• In other words, the hardware itself is being “open sourced”, but the software and data are kept proprietary

• Networks of connected sensors enable real-time evaluation of risk. This could create a new class of insurance products, for example

• Developed hardware companies have begun exchanging their excess capacity for equity in connected hardware startups in order to keep up with new technologies

CONNECTED HARDWARE

Source: Google, Forbes; See Disclosures. This is not an offer to buy or sell a particular security

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Manufacturing: Low-cost prototyping tools such as 3D printers and Arduino (open source micro-computer) have enabled companies to build prototypes for a fraction of the cost. Companies like Shapeways allow consumers to upload 3D designs to be printed and delivered to their doorsteps

Healthcare: Humans are no longer needed to collect, analyze and store certain healthcare information (e.g., Fitbit, Owlet), reducing overall costs. Software platforms will be built on top of these devices to improve diagnostics and solve problems like patient data security

Entertainment/Education: The success of virtual reality (reduction in latency) has allowed for new ways consumers enjoy entertainment. Oculus (acquired by Facebook for $2bn) recently announced that they will begin selling movies, video games and streaming services through their headsets. The prospects for educational services are also extraordinary

BIENVILLE CAPITAL MANAGEMENT 10 Source: Formation 8, Oscar, Addepar , Palantir, “Big Data Cure” (March 2014), Oculus; See Disclosures. This is not an offer to buy or sell a particular security

Industries Ripe for Disruption

CONNECTED HARDWARE The Internet of Things (IoT) connects simple hardware devices to the internet, allowing for real-time data collection, monitoring and analysis. Many physical products will be replaced by their ‘smart’ equivalent…

OCULUS RIFT

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• Owlet is a cloud-connected sock for infants, allowing parents to remotely monitor their child’s basic vitals such as oxygen levels and heart rate

• Cloud computing and open source software allow for the analysis of large datasets, making it easy for devices such as Owlet to become mass-market tools

• Nearly 70% of costly hospital visits for babies are unwarranted. Owlet can help decrease these frequencies, reducing costs for families, hospitals and insurance providers

• At the same time, Sudden Infant Death Syndrome (SIDS) is one of the leading causes of death in babies, which Owlet seeks to help identify at onset

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Owlet exemplifies the types of connected hardware devices that will come to shape the Internet of Things…

Case Study: Owlet

Source: http://www.cdc.gov/nchs/data/nvsr/nvsr61/nvsr61_06.pdf; See Disclosures. This is not an offer to buy or sell a particular security

CONNECTED HARDWARE

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Companies Exit Sector Valuation

Acquired by Facebook Software $22.0bn

IPO Software $5.4bn

IPO Hardware $4.4bn

Acquired by Google Hardware $3.2bn

IPO Hardware $3.1bn

IPO Hardware $2.7bn

IPO Software $2.0bn

Acquired by Facebook Hardware $2.0bn

IPO Biotech $1.9bn

Acquired by Johnson & Johnson Biotech $1.7bn

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After a decade of Venture Capitalists investing heavily in software, the trend may be reversing. 20% of Y-Combinator’s 2015 batch of startups have been hardware companies, more than double their historical rate. And many of the most valuable exists in 2014 were hardware companies…

2014’s 10 Biggest Venture Capital Acquisitions or IPOs

TECHNOLOGY-ENABLED BUSINESS MODELS

Source: F8 Hardware Strategy as published by Buzzfeed (May 29, 2015) ; See Disclosures. This is not an offer to buy or sell a particular security

CONFIDENTIAL

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