quirky town meeting 2.17.15

TOWN MEETING February 2015

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It’s easy to thinkthings are going well.

0

12.5

25

37.5

50

2010 2011 2012 2013 2014

Gross Product Revenue Net Revenue

GROSS PRODUCT REVENUE

70% growth in Net Product Revenue in 2014

Does not count Service & Wink Revs.

PRODUCTS LAUNCHED

2011

22 new inventions

2 line extensions

2012

26 new inventions

38 line extensions

2013

30 new inventions

68 line extensions

2014

26 new inventions

49 line extensions

ORGANIZATION CONNECTED PRODUCTS HVACSTORAGE

CONNECTED LIGHTING

2012 2013 2014

# OF DIRECT UNITS 65,662 108,376 509,851

# OF INDIRECT UNITS 2 ,123,072 5,445,382 3,537,068

TOTAL 2,188,734 5,553,758 4,046,919

MORE PRODUCT SHIPPED

2012 2013 2014

# OF DIRECT ORDERS 26,760 43,468 129,924

# OF INDIRECT ORDERS 13,181 20,674 48,426

TOTAL 39,941 64,142 178,350

178.05% MORE ORDERS IN 2014 VS. PREVIOUS YEAR

2012 2013 2014

OCEAN SHIPMENTS 51 86 236

AIR SHIPMENTS 129 142 173

TOTAL 180 228 409

79.4% MORE SHIPMENTS IN 2014 VS. PREVIOUS YEAR

MORE PARTNERS

0

6,000

12,000

18,000

24,000

2011 2012 2013 2014

NEW RETAIL PARTNERS 2014

MORE ROBUST PARTNERSHIP WITH GE ON PRODUCT DEV.

NEW RETAIL PARTNERS 2014

MORE ROBUST PARTNERSHIP ON PRODUCT DEVELOPMENT

RETAIL GROWTH

MORE COMMUNITY

0

250,000

500,000

750,000

1,000,000

2011 2012 2013 2014

REGISTERED COMMUNITY MEMBERS

At the turn of 2015, we passed the 1MM community mark with 1,085,713 registered users

MORE IDEAS

IDEAS SUBMITTED TO QUIRKY

Just passed the +300k ideas submitted to Quirky LTD

0

30,000

60,000

90,000

120,000

2011 2012 2013 2014

ACROSS SO MANY CATEGORIES

4%5%6%

9%

11%

15%20%

29%ElectronicsHomeWildcardKitchenHealthTravelPlayParenting

SFO OFFICE

Wink is on fire.

Wink adds a new home every 60-90 seconds.

1mm users & 3.6mm devices

And is on track to end 2015 with more than

but this isn’t he full story.

For 6 Years, we’ve used Town Meeting as a forum for transparency.

Sharing the good, the bad, the ugly.

Tonight won’t be a rainbows and butterflies Town Meeting.

Tonight won’t be a rainbows and butterflies Town Meeting.

At scale, Quirky has a number of major challenges to

making invention accessible.

The last 6 monthshave been our hardest.

TWO BUCKETS:

COMMUNITY CHALLENGES

BUSINESS CHALLENGES

$

BUSINESS CHALLENGES

$

Quirky does not make money.

Our margins are consistently under pressure.

Why? Not enough scale in too many categories.

Storage Organization

Kitchen Cleaning

Toys Health Pets

Power Connected

Fitness Audio

Gadgets & Accessories

The only brand to span as wide of a retail footprint/

While we have scale…

11,789,414 million

units shipped

817 containers shipped

We don’t have true scale in any one category

And that means we lose money.

• Not enough weight with suppliers

• Not enough terms with retailers

• Not enough marketing money to shine a light one very product.

• Unable to realize economies of scale.

This does not make invention accessible.

Let’s illustrate the problem very clearly:

Invented by Gyro 3598 influencers picked at eval Jan 24, 2014

FREEWHEEL

TOOLING 100K

MANUFACTURING NRE 20K

REGULATORY CERTIFICATION 5K

APP DEVELOPMENT 60K

QUIRKY DEVELOPMENT COSTS ~$100K

EST. OVERALL SUNKEN COST 500K

FREEWHEEL STATS

36

But Quirky isn’t a toy company

• Despite being in 22k+ retail doors we don’t have distribution in toys.

• No brand recognition & consumer trust, etc.

Invented by Kansas 3183 influencers picked at eval Jan 9, 2014

VANISH

With Home Depot, we defined the goal of MSRP at $130 !

…so we spent about $360k dollars engineering it. !

VANISH WOULD HAVE TO RETAIL FOR OVER $250

Invented by Sonia 2280 influencers picked at eval June 5, 2012

SHEATH

MARGIN CHALLENGE ($15 scissor vs $5 competitors)

SHEATH GROWTH MARGIN

STANDARD SCISSOR/OFFICE PRODUCT CATEGORY GROSS MARGIN

-5%

+35%

Invented by Phil 4107 influencers picked at eval Dec 12, 2012

BEAT BOOSTER

FACTORY NRE $15,000

TOOLING $163,800

REGULATORY CERTIFICATION $14,048

SAMPLE BUILD $10,800

INTERNAL ENGINEERING / OPS COSTS $185,000

EST. OVERALL SUNKEN COST $388,648

WE’VE SOLD 28 UNITS SINCE DECEMBER

Are these great ideas?

Does the world need & want them?

Yes.

Can quirky do them justice? sell them and scale them profitably?

No.

This wasn’t a problem for several years, because the investments we made in each idea were relatively small.

But we need to fix this.

Because Making Invention Accessible for 6 years isn’t the goal…

…Making Invention Accessible forever is.

These Ideas have value, and deserve to exist in the world. We just aren’t able to do this alone.

INTRODUCING POWERED BY QUIRKY “PbQ”

How it works.

• PbQ will enable 21st century invention.

!

• Brand partners leverage the Quirky platform for product ideation and development.

!

• Harness the power of the community to enable fast and meaningful growth.

Our platform provides the necessary services to enabling 21st-century invention. !

Categories that will remain owned and operated by Quirky as core categories:

HOME OFFICE TOYS PETS FITNESS

POWER CONNECTED APPLIANCES

ACCESSORIES

ORGANIZATION & FURNITURE

STATIONERY & WRITING

ELECTRONICS

KITCHEN

BATHROOM

CLEANING

STORAGE & ORGANIZATION

DECOR & LIFESTYLE

DIY, TOOLS & GARDEN

OUTDOOR

EDUCATIONAL, PUZZLES & BOARD GAMES

BABY

ARTS & CRAFTS

BUILDING

BIKES & RIDE-ONS

OUTDOORS

TRAVEL

FEEDING

HOME

GROOMING

PLAY

TEAM

FOOTWEAR

SPORTS

APPAREL

OUTDOOR

EXERCISE

ACCESSORIES

More to come…

TOYS PETS OFFICE AUDIO HOME

We are a platform for enabling invention, rather than a brand of products.

COMMUNITY CHALLENGES

Quirky was built by you, and for you.

We started small.

And have progressed into larger, more complicated things.

This has created a number of questions, complaints, suggestions… etc.

• What type of products does Quirky want, and which will they actually make?

• Can we really launch 3 products a week?

• What is the actual role of the community?

• “Similar” Issues and growing number of products in various cues.

• What is the role of our partners (do we listen to them, or our community)?

All things we intend on answering tonight.

Overall, things don’t feel like they should.

!

Community

Quirky (we’re all community)

!

Community vs

Quirky+

!

Community

Quirky (we’re all community)

!

Community vs

Quirky+

Removing Subjectivity

Truly putting data in the front seat.

Allowing the community to do more, so that we can !

do more & make more.

Quirky 2.0

Its been a year long project (With many distractions)

Focusing on submissions, collaboration & evaluation

SUBMISSIONS

Things to know: !

• You can still submit without being a designer, bring on the napkin sketches or not even napkin sketch stage ideas.

!

• You’ll fill in as much as you can

✓ Features & Functions

✓ Inspiration

✓ Sketches

✓ Renders

✓ Pitch Video

UPON SUBMISSION, THERE WILL BE PROJECTS.

THESE 5 PROJECTS NEED TO BE COMPLETE PRIOR TO EVAL

Very few people can do all this alone.

We are a community company

PUBLIC !Everyone can see, contribute, and help with your submission !

PRIVATE

Invite only for participation/viewing friends, named comm members etc !

VS

Incentivizing Collaboration

Influence Management

You have full control of what, who, and where your influence goes !

80% of influence will be in your control. 20% will be reserved for post-eval projects.

Let’s assume you’ve completed all of your projects !

Now what? !

How does something go to eval?

Submit to Eval (if a private idea, this will force it to become public) !

… or leave with your idea and all the work that’s been done on it.

Quirky quickly validates the check marks

A transparent “coming up in eval list / queue”

While in queue, Market Research project happens !

Comp Shop, Pricing, Etc

Eval 2.0 Overview

All complete ideas in every category every week.

(Unless its a challenge week)

Eval will proceed as always, ending in a vote.

But everyone will vote, not just people in NYC.

On PbQ ideas, there is double acceptance required to move forward. !

eval selection + partner approval.

Beta of 2.0 March 18th

OK, so lets talk about all of the change required to

facilitate making invention accessible in 2015 and

beyond.

FOCUSING

TO ENSURE WE HAVE A LONG & PROSPEROUS

FUTURE TOGETHER

1. We’re going to sunset E-commerce. !

We want to focus on being a community invention company & platform, not a retailer.

!

When: Quirky 2.0 launch

!

• 1051% jump in daily order volume in Nov & Dec (compared to previous 10 months)

• Daily email & call volume averaged 1510+ logs per day

RESULTS

• We averaged an extra 7 days to process & ship orders placed on Quirky.com

• Average Customer Service call resolution time went up 18 minutes, and we reached a volume high of 3,200 unanswered emails at one point

• Order abandon rate jumped to over 50%

We’ve been challenged by e-commerce:

Let the guys that specialize on this do the heavy lifting for us so

we can focus on making products

Quirky will still have product detail pages. They will link out to our most trusted retail partners.

!

(we hear they ship products on time)

2. There are lots of ideas in lots of various phases in our pipeline that we need to bring clarity to.

Product State What Happens Now

Things not chosen at Eval We are not searching the archives, you can resubmit under new terms with launch of Q 2.0

Things chosen at eval and not designed

In owned categories, status quo, in Powered categories there will be a 30 day window after a PbQ deal is announced where we will let you know if parter is moving fwd with product or not.

Things chosen at eval and virtually launched

Things in manufacturing pipeline

Products on the market

3. We are going to allow kids to invent on Quirky.

When: Quirky 2.0 launch

Fuck, we better watch our mouths.

4. With the launch of 2.0, we are no longer searching the archives for “similars”, this is unscalable.

5. Some changes to our internal teams.

PRODUCT ENGINEERS +23.5%

QUALITY ENGINEERS +40%

WINK +140%

CUSTOMER SERVICE +487.5%

STAFF GROWTH BY DISCIPLINE

192 2412014 2015

Total Headcount:

\

We restructured our company to support PbQ

0

30

60

90

120

Engineering Customer Service Other

EMPLOYEES

Reduced the amount of folks here to service PbQ

2014 2015

EMPLOYEE RESTRUCTURING

6. No more referral payments

7. We are not going to force ourselves into 3 Virtual Launches per week.

$75 $50

8. Withdrawal limit dropped:

9. We are removing the requirement that every product we make has to start with a community idea.

How that works….

10. A topic we fight hard every day to avoid bringing up, but we just have to.

Community Rewards

2009 2014

A look back

DIRECT INDIRECT IP TRANS.

BEFORE 3/1/2010 30% 30% 30%

3/1/10 – 7/10/2013 30% 10% 30%

7/10/13 – 2/18/2015 10% 10% 10%

You’ve made 9 million,

We’ve lost over 100 million.

>$40,00030 members

>$10,000

>$5,000

105 members

195 members

>$100k10 members

We will always honor prior commitments

But with new opportunity (PbQ partners drive a lot more volume than little Quirky does/did)

100% of nothing is nothing.

… Comes a new structure

Effective tonight.

At midnight.

QUIRKY PRODUCT

ROYALTY BASED IP TRANSACTION (PBQ)

NON ROYALTY BASED IP TRANSACTION

INVENTOR EARNED

< 500K 5% 3.5% 10%

QUIRKY PRODUCT

ROYALTY BASED IP TRANSACTION (PBQ)

NON ROYALTY BASED IP TRANSACTION

INVENTOR EARNED

< 500K 5% 3.5% 10%

INVENTOR EARNED

> 500K 3% 1.5% 5%

Definitions:

• Quirky Product: Products we produce, manufacture, design, distribute, and own the IP for.

!

• Royalty Based Product: A product that is commercialized via a partner where we are paid

based upon revenue received by the partner. % is based upon the revenue received by the

partner, not % that quirky receives. This is how we structure PbQ deals.

!

• Non Royalty Based Revenue: Purchase of an idea by a partner, where price is not

dependent on Partner Revenue.

• Payout was based on sales less returns for the same time period.

!

• This calculation can overstate community payout since it does not take into account markdowns, promotions and other deductions

!

• Inconsistent payout schedules were mainly driven by delays in returns and other deductions processed by the customers

HISTORICAL COMMUNITY PAYOUT METHODOLOGY

• The historical community payout methodology lacked visibility and audit-ability

• The new methodology will be calculated quarterly and derived from Gross Product Revenue (what Quirky invoiced the customer for the quarter) less 15% reserve.

• This reserve will be trued-up in the following quarter based on actual returns and other deductions taken by the customers.

• The payout will be scheduled to be paid out 2 weeks after the quarter closes

NEW COMMUNITY PAYOUT METHODOLOGY

2014 True up Feb 27, 2015

Q1 2015 April 17, 2015

Q2 2015 July 17, 2015

Q3 2015 October 16, 2015

Q4 2015 January 15, 2016

Q1 Q2 Q3 Q4

GROSS PRODUCT SALES $150 $100 $250 $400

RESERVE (15%) ($22.5) ($15) ($37.5) ($60)

ACTUAL REDUCTIONS FROM PRIOR QUARTER $0 ($10) ($25) ($20)

RESERVE FROM PRIOR QUARTER $0 $22.5 $15 ($37.5)

ELIGIBLE SALES FOR COMMUNITY PAYOUT $127.5 $97.5 $202.5 $357.5

FROM CURRENT QUARTER $127.5 $85 $212.5 $340

FROM PRIOR QUARTER $0 $12.5 ($10) $17.5

PAYOUT METHODOLOGY EXAMPLE

Ask us anything. Tonight.

Tomorrow. Day after tomorrow. As long as it takes.