To learn more about us, visit www.maveron.com.

The second quarter has been a busy one for the Maveron team. Find out why in our "What's New" section. We have a lot to share with you in this quarter's newsletter, including new investments, new people, new stores and new products.

In this issue you’ll also get our perspective on the Hispanic market and learn about OnRequest Images, a Maveron portfolio company that is changing the way companies source photography.

The Hispanic Market

by Debra Somberg, Maveron General Partner

Changing demographics are causing many marketers to rethink their definition of the “American” consumer, and posing serious challenges for those trying to reach consumers with different tastes, customs and even languages. And nowhere is that challenge greater – and the opportunity more evident – than with the Hispanic market.

The largest and fastest-growing ethnic group in America, the Hispanic population grew 79% in the last decade, versus 13% growth for the overall population. This translates to roughly two million new Hispanic consumers a year in the U.S. In fact, by 2020 Hispanics are projected to represent one in every five U.S. residents. At the same time, Hispanic household purchasing power is growing significantly faster than the population as a whole and will soon reach $1 trillion per year.

What does this market look like? New Maveron portfolio company El Dorado Marketing Group characterizes the Hispanic market as resembling “1950’s America: young, aspirational, and family-oriented... the country’s huge, growing, future middle class.” This group represents a large, emerging consumer powerhouse that is in the very early days of establishing lifelong brand loyalty. A good number of Hispanics are either naturalized or first-generation Americans, which means that many are still trying new categories and brands. U.S. companies have a unique opportunity to drive trial and repurchase, as this burgeoning population sets up households and establishes brand preferences and loyalties.

Despite this major market opportunity, Hispanics are significantly under-marketed to. U.S. marketers only invest about 1% of their total marketing spend against the Hispanic opportunity.

Why?

For one, the Hispanic population is diverse, comprised of subcultures from over 20 countries in Central and South America, the Caribbean and Spain, making it difficult to apply one strategy to the entire population. Hispanics also tend to “acculturate” rather than assimilate; while they adapt to American culture and products, they often maintain a strong emotional connection to their own traditions and value systems. Marketing strategies that work in the general population may not be successful with the U.S. Latino market. Moreover, non-traditional marketing channels serving this population are not well developed. Thus, most marketing dollars have been primarily spent on traditional broadcast media channels.

As a result, unlike the general population, the Hispanic community has not been saturated by marketing messages, barraged by direct marketing or become jaded by promises of the next new thing. The opportunity to create high-impact, efficient marketing strategies in new, targeted and differentiated channels exists, and such strategies will be well rewarded.

For all those reasons, Maveron recently closed an investment in El Dorado Marketing Group, a Boston-based marketing services company focused on reaching the Hispanic-American community. (For more about El Dorado Marketing Group, see "What's New" below).

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Q&A with David Norris, CEO of OnRequest Images

Maveron portfolio company OnRequest Images offers creative professionals a new way to find and acquire fresh, high-quality photography. Leveraging the unique advantages of digital photography with the broad reach of the Internet, OnRequest Images brings together creative professionals (creative directors, art directors, graphic designers and art buyers) with a network of over 1,600 professional photographers in 53 countries to create custom-shot, rights-managed, high-quality stock images in just two to three business days.

In this Q&A, OnRequest CEO David Norris provides insights into the OnRequest model and discusses how the business is evolving to meet critical market needs.

What does OnRequest Images offer that regular assignment and stock photography do not?

Traditionally, companies needing imagery for advertising, direct mail or other uses had just two choices: hire a photographer and do a photo shoot, an expensive and time-consuming process; or acquire a “stock image”, a generic, previously used photograph, which rarely matches the marketing message exactly.

OnRequest Images provides Custom Stock™ – custom photography, shot in 48 to 72 hours and licensed at stock photography prices. Because the images are fresh, new and shot to the customer’s specifications, customers quickly get exactly what they need at a price that fits their budget. OnRequest Images also creates entire libraries of such imagery for customers, called Enterprise Image Libraries.

How is OnRequest using technology to transform a high-touch, low-tech business?

We are automating and accelerating many of the manual photography processes employed by the advertising and marketing industries. For example, using the latest digital photography technologies, OnRequest Images can create and delivery images shot around the world, in just a few days... images that would have taken weeks or months to deliver in the past.

How has the company’s model evolved over time?

As we’ve acquired more customers and gained a deeper understanding of their needs, we’ve adjusted our business model to meet those needs. For example, we have learned that one of the key objectives of our corporate clients is to build brand value – something we can do by creating libraries of proprietary imagery for them.

What are the benefits of Enterprise Image Libraries?

Enterprise Image Libraries offer many benefits, including stronger and more consistent support of a client’s brand, lower cost per image, quicker turn-around time for marketing campaigns and reduced risk of copyright infringement liability. These libraries are a great solution for corporations that are building a brand and need image consistency. By creating complete libraries of brand-supporting imagery, we are able to offer our customers a great return on their investment.

How has the industry reacted to OnRequest’s service?

Customers have embraced our services because they recognize the value our new business model delivers. Photographers that shoot for us are very excited, because we are bringing them new business opportunities and working with them to create great value for customers. On the flip side, because OnRequest’s model disrupts the long-standing status quo, some of the more traditional industry players are afraid of the model. As often is the case in rapidly changing markets, we expect that many participants will not make the transition and will be left behind.

How will the professional photography market evolve in the future?

Professional photographers will certainly move more and more towards digital photography. Amazingly, many still shoot film today, but that will not be true five years from now. To effectively compete with their customers’ increasing array of imagery choices, professional photographers will have to continue to evolve their businesses. The simple fact that an incredible number of new digital photos hit the market each month means that photographers need to differentiate themselves more clearly now than ever before.

OnRequest Images will benefit significantly from these changes, as photographers increasingly look for markets where they can provide services and compete for business effectively. Our business could not have been built five years ago, but we are now in the perfect place at the perfect time to take advantage of major shifts in this market.

For more information on OnRequest Images, please visit www.onrequestimages.com.

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New Investment: Kinetix Living

This quarter, Maveron invested in Kinetix Living, an early-stage Canadian company focused on the healthy lifestyle sector, with particular emphasis on the weight-loss segment of the market. The company’s founders are passionately committed to helping consumers achieve a healthy lifestyle through nutrition and exercise. Their unique, integrated approach stands apart from the competition by combining community programs (e.g. Weight Watchers) and products (e.g. Slim Fast) with exercise.

Through its programs, information and products, Kinetix’s mission is to reshape the nutrition and fitness industry. The market opportunity is large and growing, as consumers become increasingly aware of the obesity epidemic and the resulting impact on health and healthcare costs. To date, the company has achieved strong results through mainstream grocery, drug and mass merchandising channels in Canada. Kinetix will soon move its headquarters to Seattle. Going forward, the company plans to focus on direct channels of distribution before rolling out to traditional U.S. retail channels.

For more information about Kinetix, please visit www.kinetixliving.com.

New Investment: El Dorado Marketing Group

Maveron recently invested in El Dorado Marketing Group, an early-stage marketing services company focused on reaching the Hispanic-American community with direct-to-consumer messaging. El Dorado is building a network of direct-to-Hispanic channels around behaviors that are common to Hispanic-Americans, channels through which marketing messages can be delivered directly. Hispanic-Americans are the next big middle class, with a population predicted to reach 60 million by 2020. The company is led by successful serial entrepreneur Chris Hessler and a team of veteran marketing services executives.

For more information about El Dorado Marketing, please visit www.eldoradomg.net.

New Investment: eos

eos, the first premium airline serving transatlantic business travelers, recently announced plans to launch round-trip service from New York to London in Q3 of this year. eos has secured $185 million in equity and lease financing and has assembled a team of industry veterans to lead the company. Founder and Chief Executive Officer David Spurlock is the former director of strategy for British Airways.

eos brings an innovative and specialized approach to transatlantic service, transforming the flight environment from a multi-class airplane with more than 200 seats into a premium, tailored space that provides superior customer attention for 48 business travelers. The airline has taken possession of its first 757 aircraft, which are being outfitted and customized to reflect what customers want: the feel of private transportation and a community of like-minded travelers. Designed with a clear focus on today’s business traveler, eos’ single, premium-class service will give each customer 21 square feet of personal space.

eos has raised $85 million in equity financing from Golden Gate Capital, Sutter Hill Ventures and Maveron, and $100 million in lease financing from International Lease Finance Corp.

For more information about eos, please visit www.eosairlines.com.

New VP Finance at Maveron: Judd Lee

We are pleased to announce that after five years at Maveron, Jon Evans, our Vice-President of Finance, has decided to return to his roots in a finance role at an operating company and has become the Chief Financial Officer of Kinetix Living. Jon's successor, Judd Lee, has joined Maveron to oversee finance, accounting, tax and information technology.

Judd joins Maveron from Microsoft’s Corporate Strategy and Planning Group where he most recently helped build the company’s consolidated multi-year financial model and strategic plan. During his three and a half years at Microsoft, Judd was also a Business Manager for the former head of the Worldwide Sales, Marketing and Services Group and a Senior Finance Manager in the Business Solutions Group.

Prior to Microsoft, Judd served as Vice President/Chief Financial Officer for SafeHarbor Technology Corporation, a Washington venture-backed technology company. Before moving to Washington, Judd was an M&A investment banker and held various operating roles. Judd holds a B.S. in Industrial Engineering and Operations Research from the University of California at Berkeley and an MBA from The Wharton Business School.

Capella Education Company Files Registration for IPO

Capella Education Company, parent corporation of Capella University, announced on April 18 that it has filed a registration statement with the Securities and Exchange Commission for a proposed initial public offering of its common stock. The underwriters for this offering will be Credit Suisse First Boston, acting as lead manager and sole book-runner, with Banc of America Securities LLC and Piper Jaffray & Co., acting as co-managers.

For more information about Capella, please visit www.capella.edu.

lucy Opens Three More Retail Stores

lucy recently announced the opening of its first Colorado store, in Denver’s Cherry Creek North outdoor shopping center. lucy has also opened a second Portland-area store in Tigard, and another California store in Corte Madera, bringing the total number of lucy stores to 18. These stores are part of a national retail expansion plan that includes several more lucy store openings in 2005.

lucy stores carry a clever mix of activewear, featuring a selection of niche brands like
Splendid and om girl, as well as traditional performance brands like Nike and adidas. The best of these brands is combined with the exclusive lucy label, which offers designs with unparalleled style, fit and function.

For more information about lucy, please visit www.lucy.com.

Potbelly Opens Seven New Stores, Adds Two Restaurant Veterans to Exec Team

Potbelly opened seven stores during the first half of this year, as the company’s total store count grew to 74 stores. The company also announced two new additions to its executive team. William W. Moreton joined Potbelly as President and Chief Financial Officer on June 15, and John T. Bettin will join the company on July 18 as Senior Vice President and Chief Operations Officer.

Moreton brings more than 20 years of experience, predominantly in restaurant growth and development, to the Potbelly management team. Moreton is highly regarded in the restaurant industry and financial community and comes to Potbelly from Baja Fresh, a subsidiary of Wendy’s International, Inc., where he was Chief Executive Officer.

Bettin has had a distinguished 30-year career in all facets of the restaurant industry and is currently the President of Morton's, The Steakhouse.

For more information about Potbelly, please visit www.potbelly.com.

Cranium Launches Three New Games

Cranium gives everyone the chance to shine with the launch of three exciting new games: Bumparena™, Whoonu™ and Cranium Family Fun™. These games will “have everyone laughing, clapping and high-fiving at family get-togethers, game nights or at any social gatherings.”

Cranium Family Fun sets a new standard for family game nights as players team up to complete a variety of unforgettably hilarious activities designed to reveal the hidden talents of each family member. Whoonu is a suspense-filled guessing game that will have everyone from 8 to 108 years old celebrating their favorite (and not so favorite) things. Bumparena is the outrageously fun game of bouncing balls and bumper walls, where a single move can change the game in a flash.

“Coming out of 2004, which was our most successful year ever, we now have 12 games for children and grownups of all ages and nearly 30 million active Craniac players around the world,” said Richard Tait, Cranium’s CEO and Grand Poo Bah. “We’re even more excited about 2005 and are thrilled to debut Cranium Family Fun, Whoonu and Bumparena. These new games are going to provide even more opportunities for families and friends to spend outrageously fun time together, while giving everyone a chance to shine.”

For more information about Cranium, please visit www.cranium.com.

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