Case Document 194 Filed 03/18/10 Page 16 of 41 To: Investors From: RFB September 2, 2005 Re: YouTube Introduction YouTube represents an interesting seed-stage investment opportunity. The company's goal is to become the primary outlet of user-generated video contenton the Internet, and to allow anyone to upload, share, and browse this content. The three entrepreneurs are scrappy and smart. They have built a very easy-to-use, fast growing service that taps several strong veins: user-generated content, online advertising, wide proliferation of inexpensive digital video capture devices, and continued broadband adoption. The company has also developed code snippets that allow users to embed YouTube videos directly into other sites. In this way, the company is building a wide content distribution network, in addition to its direct?to?site traffic. Deal Our proposal is to invest $1m in the seed stage, followed by a $4m Series A once specific milestones are met. Sequoia would own ~30% post Series A, with a pool of Competition There are several direct and potential competitors to YouTube. These include: - direct competitors (dailymotion, vimeo) community photo sites (flickr, webshots) - online photo sharing sites (ofoto, shutterly, snapfish) large internet players (Google Yahoo video search) - entertainment sites (big-boys, ebaumsworld) - file sharing services (ourmediacrg, putfile) - IPTV companies (Open Media Network, Brightcove) YouTube appears to have a clear lead over its two direct start?up competitors. The other categories of potential competitors are not necessarily focused on video content, or are not focused on user-generated content within the context of a community?based site. Nevertheless, the company will need to stay very focused over the next 3~6 months to ensure that it builds a rich set of features and content depth to increase its defensibility. Hiring plan We need to help the company quickly hire a CEO and VP BD/Sales. The founding team is enthusiastic about bringing on an experience CEO to help lead the company. However, I?m not sure whether we can land a CEO before the Series A. I would appreciate any ideas on potential candidates for either role. My preference would be to launch a search immediately and to have a CEO in place within 90 days. Two additional former PayPal engineers are set to join in the next week. Both are exceptional. The plan is to house the company in our incubation area for the near term. That will help us frequently interact with the team until we can surround the company with an experienced management team. HIGHLY CONFIDENTIAL 8C000161 Case Document 194 Filed 03/18/10 Page 17 of 41 Key risks 0 Competition/defensibility As outlined above, YouTube faces significant potential competition. The company needs to remain laser focused on improving the user experience to ensure that it continues its early growth trajectory. 0 Revenue model I believe that YouTube has a clear advertising revenue opportunity. However, we don?t yet know what form of advertising would work best. Specifically, can the company develop attractive ad products that are not intrusive to the consumer experience? We can model revenue as follows: unique videos streamed per day of videos monetized CPM 365 estimated annual revenue. Several of the parameters are unknown: i. We don?t know what CPM rates YouTube could command. Video ad CPMs could range from a low of $5 to over $30. ii. We don?t know what percentage of inventory (videos served) could be monetized We are not sure how much YouTube could grow from its current level of 100,000 videos served per day. Below are different scenarios and their associated revenue potential: Videos of videos Implied annual . served] day CPM monetized revenue Scenario 1 10 million $10 15% $6m Scenario 2 20 million $15 20% $22m Scenario 3 30 million $20 25% $55m We will need to test these assumptions carefully over the next few months to get an accurate handle on the company?s revenue potential. We also need to test the success of the company?s content distribution network, and whether we can generate advertising revenue from this network. (Google earns ~55% of its revenue from Google?owned sites, and 45% from Network websites.) Serving 10-30 million videos may appear daunting, as it represents >100x increase over the company?s current activity levels. But the company has achieved its current scale in only two months, and only has 15,000 videos today. (For point of comparison, Flickr and Webshots, two comparable photo community sites, serve 200?500x as many pageviews per day as YouTube.) 0 Scalability As the table above indicates, YouTube will need to scale significantly from its current level for the company to achieve meaningful revenue. We need ensure that YouTube can inexpensively scale orders of magnitude from current levels. 0 Balancing growth YouTube has already drawn the attention of larger media companies Turner, Transcosmos) that see the potential of distributing YouTube content. As with any marketplace, we need to ensure that we balance demand and supply. It would be inadvisable to grow the viewer base significantly without a substantial increase in the number of videos available on the site. The company cannot afford to disappoint large numbers of customers clue to inadequate depth of content. HIGHLY CONFIDENTIAL 8C000162 Case Document 194 Filed 03/18/10 Page 18 of 41 0 Exit We cannot point to many high comparable exit valuations. A few comparable companies include Webshots, flickr, Ofoto, Shutterfly, and Snapfish. While these companies deal only with still images, there are some similarities with YouTube. None of these companies have had exceptional exits. CNET bought Webshots for ~$70m, Yahoo! bought flickr for <$50m. Apparently Shutterfly is preparing to file its IPO. Ofoto and Snapfish were acquired by Kodak and HP, respectively, although financial terms were not disclosed. Another comparable is Blogger, acquired by Google in 2002 for an undisclosed amount. There are some other examples of businesses that built successful models leveraging user? generated content, including Tripadvisor, acquired by IAC in 2004 years ago for over $100m (to the best of my knowledge). Recommendation I first met with the company three weeks ago, and we are in pole position for the financing. Several VCs have been cold calling the company, and a few media companies have also approached YouTube. I?d like to give the company our decision on Monday. I recommend that we proceed with the financing as proposed. YouTube has a great founding team that has hit on several promising themes. The company follows a trend of user?generated content that started with text (blogs), images (flickr, webshots, ofoto), and audio (podcasting). Video is a natural next step, and YouTube is well positioned to capture the lead. The company has not yet enabled advertising revenue streams. But our checks with Yahoo! and Adbrite indicated very strong advertiser demand for online video advertising. We will rapidly need to surround the company with management talent, specifically a CEO. Contents Investment summary Competitive analysis 2 Technology overview 5* Team bios (9 Company presentation A Company metrics (Ml HIGHLY CONFIDENTIAL 8C000163