What Investors Are Looking for in Online Retailers June 3, 2015

Eric Roth, Managing Director, Middle Market LLC Norm Colbert, Partner & Managing Director, Petsky Prunier LLC

0 Agenda

1 Speaker Introductions

2 The Convergence of Channel, Product, and Content

3 Brief Case Studies: What Investors Liked in Three Recent eCommerce Deals

4 Discussion Topics: Top‐line Versus Bottom‐line Growth and Bootstrap Versus Outside Capital

5 Four Things Any Company Can Do to Prepare for a Deal

6 Appendix: Market Data

1 Lazard: A Leading Independent Middle Market M&A Advisor

Advisory is our core business. We have closed more than 2,000 transactions under $1 billion in value since 2000. . Strong ecommerce and direct‐to‐consumer experience

2 Biography Eric Roth, Managing Director, Lazard Middle Market

Eric Roth is a Managing Director and head of the Retail and Consumer group at Lazard Middle Market. He has more than 15 years of experience advising public and private companies on all phases of , corporate finance and restructuring transactions, during which time he has worked on more than 40 completed assignments. Mr. Roth has broad experience in consumer and retail, with particular expertise in ecommerce and other direct‐to‐consumer models. Illustrative ecommerce transactions include advising Bluestem Brands on its sale to CapMark Financial; Chewy.com on its capital raise with Volition Partners; ComVest on its acquisition of DiscountMugs.com; The Mustang Group on its acquisition of Meridian Automotive; Power Equipment Direct on its sale to Ferguson/Build.com; Oriental Trading on its sale to Berkshire Hathaway; and Buy.com on its sale to Rakuten.

Prior to joining Lazard Middle Market, Mr. Roth was an associate in the Mergers and Acquisitions Group of Dewey Ballantine LLP, a New York based, international law firm. He is a member of the New York bar and the Illinois bar. Mr. Roth received a juris doctorate from Georgetown University Law Center and graduated magna cum laude with a bachelor of arts degree in economics‐ political science from Columbia University. In 2013, he was recognized as a 40 Under 40 Dealmaker by the M&A Advisor.

3 Petsky Prunier Ranked #1 by Bloomberg for Mid‐Market & Advertising Transactions 2014 Internet & Advertising 2011‐2014 Internet & Advertising Rank Advisor Deal Count Deal Count 1Petsky Prunier 21 65 2Goldman Sachs 17 50 3Morgan Stanley 15 43 4JP Morgan 14 31 5Nomura Holdings 12 39 5Ernst& Young 12 24 7 China Renaissance Partners 11 36 7 PwC 11 34 7 Deloitte 11 18 7AGC Partners 11 30 11 GCA Savvian 10 41

Based on number of deals announced in 2011 – 2014 valued at $500 million or less Nearly 90 total transactions across multiple sectors closed since 2011: . Ranging from strategic sales and divestitures to recaps to growth equity and late‐stage financings . Across a broad universe of industries, including digital advertising and marketing, eCommerce, digital media, technology, information, business services, and healthcare services

4 Biography Norm Colbert, Partner & Managing Director, Petsky Prunier

Norm Colbert focuses on mergers and acquisitions, capital markets, and private placement transactions for Petsky Prunier. He is active in all the firm’s industry practice areas and has substantial experience in structuring and selling a wide variety of securities, including preferred and common stock, convertible debt, senior and subordinate notes, and bank debt. Over his career, Norm has raised in excess of $30 billion in transactions ranging in size from $10 million toover$1 billion. Prior to joining Petsky Prunier, Norm was a managing director in the M&A group and the global head of JP Morgan’s Private Placement Group from 1999 to 2008. At JP Morgan, Norm managed the largest dedicated private placement practice on Wall Street with offices in , New York, and London and raised in excess of $25 billion in capital across all industries. Prior to JP Morgan, Norm was the head of Hambrecht & Quist’s Private Placement Group, focused primarily on raising capital for companies in the growth areas of the economy, including technology, media, telecommunication, business and information services, and healthcare companies. Norm holds a B.A. in economics (with distinction and Phi Beta Kappa) from Northwestern University and an M.B.A. (with distinction and Beta Gamma Sigma) from the Kellogg Graduate School of Management at Northwestern University. Representative Transactions . Envelopes.com's significant from TZP Group . Sale of Hydra to Adknowledge . $65MM Sale of DoctorDirectory to Everyday Health . Raised $12MM in Preferred Stock for SpotXchange . Inspire’s growth investment from Tenfore Holdings . Refinancing of Story Worldwide’s Debt Facilities . Simpli.fi’s $16MM Series B growth financing led by Frontier Capital . Raised $25MM in Convertible Preferred Stock for Waterfront Media . BrightTag’s $27MM investment from Yahoo! JAPAN . Raised Common Stock for Forbes . Sale of mediaFORGE to Rakuten LinkShare . Raised $415MM in Preferred and Common Stock for Setanta Sports . Show Media’s mezzanine debt investment from BNY Mellon‐Alcentra . Raised $48MM in Senior Subordinated Convertible Notes and Mezzanine Partners Common Stock for Movida . XL Marketing’s $70MM investment from GCP Capital Partners and . Raised $325MM in Convertible Subordinated Notes for E*TRADE Madison Capital Funding . Merger of Flexcar with Zipcar . LifeStreet Media’s $66MM investment from Nautic Partners . Raised $65MM in Preferred Stock for Boingo Wireless . BrightTag’s $15MM growth financing led by Baird Capital . Raised $1.15BN in Class A Stock for Och‐Ziff . Sale of Show Media's Taxi Top Media division to VeriFone Systems, Inc. . Raised $40MM in Common Stock for Altairnano . Majority investment in CLEARLINK Technologies from . Raised $53MM in Preferred Stock for TTM . Sale of Group DCA to PDI . Raised $32MM in Common Stock for Barrier Therapeutics . Merger of Outcast Media with PumpTop TV and Health Club Media Network . Raised $300MM in Common Units for Ocwen . Sale of ClearSaleing to GSI Commerce . Raised $60MM in Convertible Preferred Stock for The Princeton Review

5 Agenda

1 Speaker Introductions

2 The Convergence of Channel, Product, and Content

3 Brief Case Studies: What Investors Liked in Three Recent eCommerce Deals

4 Discussion Topics: Top‐line Versus Bottom‐line Growth and Bootstrap Versus Outside Capital

5 Four Things Any Company Can Do to Prepare for a Deal

6 Appendix: Market Data

6 The Convergence of Channel, Product, and Content

Old Retail Paradigm ‐ Silos Products and Channels –Own one or the other

Product

Channel

7 The Convergence of Channel, Product, and Content

New Retail Paradigm ‐ Convergence Own the product and the channel

“The Merge”

8 The Convergence of Channel, Product, and Content

The Digital Twist ‐ Content Content layered into the convergence of product and channel . Content as a weapon . Owned and third‐party blended to be more effective

Product

9 The Convergence of Channel, Product, and Content

The Digital Heresy –Multi‐channel Many digital commerce companies shifting from pure‐play to multi‐channel . 2000’s: Anything other than pure‐play online was heretical . 2010’s: Multi‐channel is in . Paid search is expensive and risky . Organic search is cheap but more risky

MULTI‐CHANNEL

STORES PRINT TV/RADIO

 Warby Parker  Balsam Hill  Wayfair

 The Tie Bar  VitaCost  Bluestem

 HM Wallace  YDesign  NewEgg

10 Agenda

1 Speaker Introductions

2 The Convergence of Channel, Product, and Content

3 Brief Case Studies: What Investors Liked in Three Recent eCommerce Deals

4 Discussion Topics: Top‐line Versus Bottom‐line Growth and Bootstrap Versus Outside Capital

5 Four Things Any Company Can Do to Prepare for a Deal

6 Appendix: Market Data

11 An Outside Investor Can Help an eCommerce Business Grow More Aggressively While Decreasing Risk with Partial Liquidity

. Strategic buyers often look to acquire larger companies that will have a material impact on their own businesses

 Growing a business more aggressively may require additional capital

. Investors can provide for a business and/or partial shareholder liquidity as a minority or majority investor, mitigating risk

 As the business scales and is eventually acquired by either a strategic buyer or another investor, goal is for the shareholders’ remaining stake to be worth significantly more than when the original investment was made

has been sold to has received a significant investment on its sale to from

12 Case Study: Petsky Prunier Advises WineAccess on its Sale to Norwest Venture Partners

Situation . Direct‐to‐consumer wine eCommerce company focusing on unique niche and fine wines . Wines sourced from direct relationships with +250 small and medium‐sized global wine suppliers and importers . Innovative distribution model solves market access limitations resulting from the highly regulated a leading direct‐to‐consumer wine three‐tier U.S. alcohol distribution model (importer, distributor, and retailer) eCommerce company

has been sold to Investors Liked . A clearly differentiated product and sales strategy that had built a unique brand identity . Strong customer metrics: affluent and knowledgeable consumer base of +500K; proven customer acquisition formula; high repeat purchase rates; increasing customer LTV –all tracked by an internal database that monitored customer purchases back for +10 years . +30% revenue growth, high margins and strong unit economics, with increasing profitability due to ongoing operational improvements . A well‐defined growth strategy that leverages new technologies and captures upside in the business, including several in process and identified future initiatives, such as speedier, year‐round delivery with multipoint distribution, lower fulfillment and shipping costs, expanded private label wine sales, and increased DTC shipping access in key geographic regions

Results . Transaction closed with ‐based Norwest Venture Partners in April 2015 . Founder chose to retain a meaningful stake in the company

13 Case Study: Petsky Prunier Advises Envelopes.com on its Significant investment from TZP Growth

Situation . Envelopes.com is the dominant pure‐play eCommerce retailer of envelopes and complementary products, including invitations and social stationery, with a powerful brand name . Sells products to nearly 100,000 B2B and B2C customers, with 65 percent returning for repeat purchases the dominant, pure‐play . Management believed a combination with a financial or strategic partner would help the company achieve eCommerce retailer of envelopes its next stage of growth while also enabling shareholders to achieve partial liquidity and complementary products

has received a significant investment Investors Liked from . Efficient and highly profitable, vertically integrated manufacturer that produces nearly 50 percent of its products (+3K SKUS) in‐house, with 95 percent of orders shipping the same‐day . Recognized brand name and domain drives high‐levels of organic traffic and repeat purchase . Advanced eCommerce and tech platform built internally from the ground‐up drives efficient workflow, accurate order fulfillment and fast shipping, and strong KPIs (traffic levels, order conversion, average order value, etc. . Consistent growth at flagship site complemented by expanding presence on top partner sites –Amazon, Staples, OfficeMax/OffficeDepot – growing both brand presence and customer reach . Business performed strongly during the transaction process, further motivating potential investors

Results . Transaction completed in March 2015 with New York City‐based TZP Growth . Envelopes.com’s shareholders received a substantial payment at deal closing and will continue to receive additional future deal consideration . Management also retained a meaningful stake in the company, providing for significant upside potential

14 Case Study: Lazard Advises Bluestem Brands on its Sale to Capmark Financial Group

Transaction Overview . Online retailer of a broad assortment of everyday items with the flexibility to pay over time . Serves credit constrained customers (typically FICO 500‐700), which make up ~40% of population . Key merchandise categories . Entertainment (45% of sales) – electronics, infants, sports/recreation, toys, video games . Home (39% of sales) –domestics, home improvement, home furnishings, housewares on its sale to . Fashion (16% of sales) – apparel, cosmetics/fragrance, footwear, jewelry . Range of financing options available . Traditional revolving credit (94% of sales) –from Prime+11.65% to Prime + 21.65% . Revolving credit with down payment (5% of sales) –down payment ($30+); Prime+21.65% . Payroll deduction (1% of sales) –non‐credit product offered to facilitate larger purchases

Investors Liked . Large non‐prime demographic migrating rapidly online; a market that few retailers are equipped to serve Key Retail Brands . Differentiated model that integrates sophisticated credit and direct marketing disciplines . Credit is a competitive moat – proprietary database (100 million consumers and 1.5 million active customers) . High customer satisfaction –ASCI scores of 85+ and repeat purchase rates of 65%+ . Drop‐ship has enabled significant assortment expansion – 63.5k SKUs @ 12/31/12 150k+ @ 8/01/14 . Consistent increases in Average Order Value from $180 in 2012 to $223 LTM 08/01/14 . Revenue and EBITDA CAGRs of 18.4% and 20.9%, respectively, from 2010 to LTM 08/01/14 . Consistent Free Cash Flow (EBITDA – Maintenance Capex) of 85%‐90%

Results . Bluestem Brands was acquired by Capmark Financial Group in November 2014 for $565 million

15 Agenda

1 Speaker Introductions

2 The Convergence of Channel, Product, and Content

3 Brief Case Studies: What Investors Liked in Three Recent eCommerce Deals

4 Discussion Topics: Top‐line Versus Bottom‐line Growth and Bootstrap Versus Outside Capital

5 Four Things Any Company Can Do to Prepare for a Deal

6 Appendix: Market Data

16 Discussion Topic: Top‐line Versus Bottom‐Line Growth

CASE 1 CASE 2

12 Revenue 12 10 10

8 8

6 6 Revenue 4 4

Rev 2 2 Profit 0 0 12345678 Profit ‐2 ‐2

‐4 ‐4 Profit ‐6 ‐6

‐8 ‐8

‐10 ‐10

‐12 ‐12

17 Discussion Topic: Bootstrap Versus Outside Capital

CASE 1 ‐ BOOTSTRAP CASE 2 – INSTITUTIONAL MONEY

Horatio Alger Lt Col. Custer Monopoly Guy MC Hammer

18 Agenda

1 Speaker Introductions

2 The Convergence of Channel, Product, and Content

3 Brief Case Studies: What Investors Liked in Three Recent eCommerce Deals

4 Discussion Topics: Top‐line Versus Bottom‐line Growth and Bootstrap Versus Outside Capital

5 Four Things Any Company Can Do to Prepare for a Deal

6 Appendix: Market Data

19 Four Things Any Company Can Do to Prepare for a Deal: Investing in a Handful of Areas Can Drive Huge Value

. Have a CFO

. Get audits

. Perform a quality of earnings check

. Gather data –it’s your friend

20 Agenda

1 Speaker Introductions

2 The Convergence of Channel, Product, and Content

3 Brief Case Studies: What Investors Liked in Three Recent eCommerce Deals

4 Discussion Topics: Top‐line Versus Bottom‐line Growth and Bootstrap Versus Outside Capital

5 Top Three Business Sales Issues That Could be Prevented

6 Appendix: Market Data

21 eCommerce and Multichannel Marketing Deal Activity (Last Twelve Months as of 5/31/2015)

Marketers 2015 LTM BUYER/INVESTOR BREAKDOWN Transactions Reported Value ($MM) Strategic Venture/Growth Capital #% $ % # $ # $ # $ eCommerce 360 95% 20,398.3 95% 100 10,390.7 8 103.6 252 9,904.0 Other* 17 5% 1,079.6 5% 3 164.6 1 130.0 13 785.0 Total 377 100% 21,477.9 100% 103 10,555.3 9 233.6 265 10,689.0

Transaction Value by Segment ($MM) Transaction Volume by Segment ($MM) Last Twelve Months as of 5/31/15: Last Twelve Months as of 5/31/15:

* Other includes Catalog, Classifieds/Auctions/P‐to‐P, Comparison Shopping, Digital Promotion/Coupon, Local Search, and Vertical Search

22 Most Active Buyers and Investors (Last Twelve Months as of 5/31/2015)

Number of Buyer Representative Targets Transactions 5 Click Delivery, PedidosYa, Pizza.de, Subdelivery, .com 4 Delivery Club, EatOye, Grupo Yamm, Koziness.com Expedia 3 Orbitz, Travelocity.com, Wotif.com Just‐Eat 3 eatcity.ie, SinDelantel.MX, Rocket Internet 3 Pizzabo, .com, Volo Ctri p.com 2 eLong, Travelfusion Priceline 2 OpenTable.com, RocketMiles Shutterstock 2 Premium Beat, Rex Features Square 2 Caviar, Fastbite

Number of Investor Representative Transactions Sequoia Ca pi ta l 10 1MG Technologies, Craftsvilla.com, DoorDash, Ele.me, Fashionandyou.com Rocket Internet 9 Bonativo, Borro, Jumia, Lazada, ShopWings, Take East Easy New Enterpris e Associates 7 Casper Sleep, Green Chef, Hello Alfred, Jet, Naaptol Online, Spring Accel Partners 6 , Lyst, SeatGeek, UrbanClap Technologies, ZopNow.com General Ca ta l ys t Partners 5 Brit + Co., chloe + isabele, ClassPass, Outdoor Voices, RealtyShares Tiger Global Management 5 Caratlane.com, .com, , LimeRoad.com, LocalOye.com Andreesson Horowitz 4 , Enjoy, Teespring, BloomNation Index Partners 4 Drivy.com, Good Eggs, Nasty Gal, navabi Insight Venture Partners 4 DaWanda, Delivery Hero, HelloFresh, SpareFoot SoftBank Capital 4 Dealoka, Kabbage, Origami, RedMart Greycroft Partners 3 Blitsy, DineInFresh, Eloquii

23 eCommerce and Multichannel Marketing Largest Transactions (Deals with Terms Announced for the Last Twelve Months as of 5/31/2015)

Date Target Country Buyer/Investor EV ($MM) eCommerce Acquisitions Values Disclosed 06/13/14 OpenTable.com United States The Priceline Group $2,613.00 02/12/15 Orbitz Worldwide United States Expedia 1,689.9 12/15/14 Fotolia United States Adobe Systems 806.8 03/31/15 Net‐A‐Porter United Kingdom YOOX Group 775.0 05/08/15 Menulog Australia Just‐Eat 687.3 07/07/14 Wotif.com United States Expedia 606.2 05/05/15 Yemeksepeti.com Delivery Hero 589.0 09/29/14 Bluestem Brands United States Capmark Financial Group 565.0 07/30/14 Provide Commerce United States FTD Compa ni es 430.0 03/19/15 OverDri ve Uni ted States Rakuten 410.0 05/29/15 Orchard Brands United States Bluestem Brands 410.0 07/31/14 Trunk Cl ub Uni ted States Nordstrom.com 350.0 01/22/15 Travelocity.com United States Expedia 280.0 07/02/14 Vitacost.com United States Kroger Compa ny 272.4 06/16/14 M and M Direct United Kingdom BESTSELLER 237.4

Date Target Country Buyer/Investor TV ($MM) eCommerce Investments Values Disclosed 07/29/14 Flipkart.com India Tiger Global Management $1,000.0 01/20/15 .com China Private Investors 700.0 12/22/14 Flipkart.com India T. Rowe Price Group 700.0 10/28/14 .com India SoftBank Corpora ti on 627.0 11/25/14 Flipkart.com India Tiger Global Management 600.0 02/06/15 Delivery Hero Germany Rocket Internet 568.0 01/27/15 Ele.me China Sequoia Ca pi ta l 350.0 09/03/14 Delivery Hero Germany Insight Venture Partners 350.0 12/01/14 Lazada Malaysia Rocket Internet 250.0 01/05/15 Instacart United States Kleiner Perkins Caufield & Byers 220.0 01/05/15 Wanda China Tencent Holdings 162.0 11/26/14 Jumia Nigeria Rocket Internet 150.0 02/12/15 Jet.com United States Bain Ca pi ta l Ventures 140.0 02/06/15 HelloFresh United States Rocket Internet 126.0 04/30/15 Warby Parker United States T. Rowe Price Group 100.0

24