1. 0 Dr. Fahad Mushayt Vice President, Corporate Strategy STC Group February 7, 2012 Potential Initiatives by Private Sector to Support SMEs STC Ventures

2. Overview  STC Group Overview  STC’s Strategic Motivation for a VC fund  Venture Capital Fund in MENA  Challenges in MENA and KSA  Venture Capital Overview  STC Ventures Fund  Questions 1

3. 2 STC Group Overview

4. 3 A Promising Reality... Customer Base of more than 160.2 Million Customers Revenues Exceeding SR 56 Billions A Market Value Exceeding SR 68 Billions In a 10 Year Period Saudi Telecom has become the leading and most profitable telecommunications company in the Middle East

5. 4 STC Major Historical Milestones Milestones  Sending 30% of STC shares into IPO  Launching the new identity of STC (We work together for a brighter future)  Competitor Mobily launched operations in May 2005  Launching of STC internal and external expansion strategies.  Launching of (FORWARD) Strategy  Expanding the scope of strategic investments to include Malaysia, Indonesia, and India).  STC won 3rd mobile license in Kuwait  STC continues to expand its strategic investments including Turkey and South Africa  Launching the new identity of STC Group  STC won 3rd mobile license in Bahrain  STC implemented changes to the organizational structure 1998 2002 2005 2006 2007 2008 2010  Launching of (LEAD) Strategy 2009  Transformation of STC to operate on commercial basis under its current name

6. 5 Lead in Next-Gen Broadband Differentiate through Integrated Customer Experience Consolidate International Leadership Invest in People Capital Drive Financial Performance and Agility Promote Leading Reputation and Brand Become the broadband operator of choice offering ubiquitous access and innovative content and applications to all customers Delight customers with an integrated experience, tailored and high-quality services, effective marketing and sales, and next-generation customer service Optimize international investment portfolio, further expand in the MENA region, drive products, technology and supply chain synergies, and build-up international management capabilities Invest in leadership and talent development, increase employee engagement, and build a winning corporate culture Provide shareholders with above average returns by streamlining financial controls and embedding financial agility that ensures long-term profitable growth Be recognized as the catalyst for technological, economic and social development by effectively communicating strategic objectives and achievements As leader in a world of constant change, we strive to exceed our customer’s expectations so that, together we reach new horizons STC LEAD Strategy VC Fund Driver Next- Gen Broadba nd

7. STC’s Strategic Motivation for a VC Fund 6

8. For STC, VC Fund is not only Investment  Innovation is important aspect in Lead Strategy –Large companies typically only see innovation when it is profitable, reaches a “tipping point”, or in the news –Seed and early stage VCs see it every day  Regional Lead –Fund will provide to STC antenna function to new local and international partnerships to drive its growth strategy domestically and internationally  Profitability –Any venture fund, even in-house corporate venture funds, need to generate returns to be a viable and long-term addition to corporate strategy –STC chose to outsource 100% of the fund to an experienced and top-tier fund manager (Iris Capital Management)  Economic & Social Contribution to KSA –Promote entrepreneurship and innovation in KSA and the region –Support the building of infrastructure and platforms for the knowledge based economy in KSA and the region –Attract entrepreneurs and innovators to the KSA and region 7

9. Since 2010 there has been a surge of regional activity related to entrepreneurship, VC investment and economic diversity  Within KSA –The creation of the BADIR program by KACST and various regional startup groups (e.g. Riyadh Geeks, Jeddah Geeks, etc.) –The country has also been establishing all-encompassing technology parks in the main regions of the country – Jeddah, Riyadh and Dhahran. These parks are referred to as ‘Techno Valleys’. –Tuqnia Global Technology Fund –Various private and corporate VC funds launching  Across the MENA and Levant regions –Organizations like Oasis 500 (Jordan) supporting entrepreneurship and Inovent (Turkey) seeding the innovation pipeline –Considerable social network activity related to the ecosystem  Internationally towards the region –Arabic entrepreneurs studying abroad are starting to seek capital from the region to come back or to expand into the region –Top-tier foreign VCs are seeking access to KSA and the region 8

10. VC Fund Growth in MENA 9 Source: Zawya PV, 2011

11. Example of Venture Capital Firms in MENA FirmRegionStageInvestment Size USM Sector STC VenturesMENA & International Seed/Early/ growth 0.1 -7ICT/TMT Accelerator Technology MENAEarly Stage0.5M-5MICT/TMT Catalyst PEMENAEarly Stage1-7MEnergy and Technology Dubai Silicon Oasis Fund MENASeed & Early100K-5MHi-tech twofour54 IbtikarAbu DhabiSeed/Early/ growth 500K-5MMedia and entertainment Malaz CapitalMENARound B/C1-2MTMT Riyada EnterpriseMENA + Turky/Pakistan Growth0.5-15Various 10 Source: Zawya PV, 2011

12. VC Fund Challenges in MENA 11

13. 12 Specific challenges to KSA ….  Access to contiguous risk capital funding –Regional entrepreneurs must have access to risk capital from Seed stage through to growth stage –There is currently very little risk capital available at the Seed and early stages  Mentorship & Coaching –To become a viable company, KSA entrepreneurs need access to mentorship, coaching and experienced advisors in building out their companies  Legal Structure –Legal/Regulatory need to be improved to stimulate VC Fund investments  Access to Highly Qualified People –As good new technology companies grow, sourcing and hiring experienced technolgy resources will be a challenge  Access to External Markets –KSA companies must have access to external and international markets

14. STC Ventures lead a 2010 study that made specific recommendations to the Council of Ministers to improve the VC investment environment in KSA 13 –Overarching goal is to encourage continued innovation in the Kingdom of Saudi Arabia –Offer the Kingdom a modern, attractive, “marketable”, workable and efficient legal and tax infrastructure for the financing of knowledge-based industries –Through improvement of legal/regulatory and tax regimes and structures that will: –Stimulate VC and private equity investment –Facilitate early stage company formation –In the context of the existing Saudi Arabian investment infrastructure, policy and laws

15. Venture Capital Fund Overview 14

16. Key stages in the innovation life cycle and average VC deal sizes* 15 Image Sources: zcreationszs, pixomar, filomina scalese, simon howden, jennifer renee Research (Invention) Big Idea (Innovation) Prototype (Entrepreneurship) Product (Business Model) M&A /IPO (Business Model) Cashflow + (Management) Seed Investors (Founders, Family, Angels, Seed VCs) Common Shares Seed Investors (Founders, Family, Angels, Seed VCs) Common Shares Early Stage VC (Series A, Series B) Preferred Equity Early Stage VC (Series A, Series B) Preferred Equity Late Stage VC (Series C, Series D, etc) Preferred Equity, Debt Late Stage VC (Series C, Series D, etc) Preferred Equity, Debt Growth, Buyout, Mezzanine (Equity, Debt, Bonds, etc) Growth, Buyout, Mezzanine (Equity, Debt, Bonds, etc) $250K – $1M $2 – $4M $5 – $8M > $10M * Deal size figures will typically be higher for deals in the materials, energy and cleantech sectors, particularly those involving extensive R&D facilities and specialized equipment and highly qualified R&D personnel

17. STC Ventures Focus: seed, early-stage and later-stage deals in emerging and established innovation ecosystems Seed & Early Stage Post Grad Research University Education + ResearchPrivate Sector Investors Governments and Regional Innovation Ecosystems Seed Investors Early Stage VC Technology Transfer Offices Pre-Seed SeedEarly Stage Cashflow + IP Commercialization 16 Later Stage Later Stage VC 5-7 years to liquidity 3-5 years to liquidity 1-3 years to liquidity

18. STC has outsourced fund management to a highly experienced and connected VC fund manager 17 Research (Invention) Big Idea (Innovation) Prototype (Entrepreneurship) Product (Business Model) M&A / IPO (Business Model) Cashflow + (Management) Seed Investors Early Stage VCs Later Stage VCs 1. Effective Sourcing –Direct and trusted relations with a broad range of funding organizations, investors and professional advisors –Proactive approach to sourcing deals in key sectors and regions of interest to the fund –Can spot teams that can be helped to build a good business and those that can’t 2. Effective Due Diligence –Efficient screening of deal flow and get to “no” efficiently –Maintains a strong advisory network with direct access to deep domain expertise 4. Effective Portfolio Management –Rigorous commitment to spending regular and structured time with portfolio companies –Proactive problem resolution skills –Maintains deep networks for building out teams, product-market strategies and business model development –Good network for follow-on financings and exits 3. Proper Funding –Structures win-win-win deals (Founders-Seed Investor-VC) with alignment of the parties –Strong co-investment network

19. 18 Management Team Technology & IP Product-Markets Customers Properly staffed team with hiring plan for next round Actively managed and protected IP Strategy Product in use with compelling product-market value proposition and clear competitive positioning Referenceable customers that validate business model and its assumptions Gaps in senior team Typically Founder or Founder +1 IP exists and may be partially protected Often unprotected IP or in-licensed IP, unprotected concepts or know-how Product specification may exist, incomplete or unqualified demand creation assumptions Beta customers may be using a prototype Fully-fund to reach each of these goals: Business Strategy Validated business model & detailed development plan Initial business plan “Napkin or envelope” Conceptual or limited product-market analysis No customers Portfolio Development Goals SeedEarly Stage Fund’s goal is to properly fund portfolio companies and to actively monitor and mentor their achievement of specific milestones

20. STC Ventures Fund 19

21. 20 Linking an untapped large market with the proper fund  Large consumer market  Growing ICT/TMT spend  20% of global exported investments from GCC  Growing $ for regional/local investment opportunities  Limited VC industry  Strong governments drive for innovation and entrepreneurship  Limited experienced entrepreneurs and startup initiatives  Limited ecosystem for quality deal flow  Limited support platforms for entrepreneurs and ventures  No experienced VC managers  Long time to ROI for young ventures in region  Link local entrepreneurs with an international network of entrepreneurs and ventures  Start with exclusive access to incubation and venture initiatives  Largest technology company in ME as anchor investor of the fund  Internationally experienced VC to manage the fund  Fund will also invest in later stage deals for faster ROI Large Untapped Market Critical Hurdles The Concept

22. 21 The fund's key characteristics  Fund target size of $250M; largest ICT/TMT VC fund in the region. Initial drawdown of $50M Large investment pool Experienced fund manager Viable anchor investor Industry focus Value-adding Mix Contribution to the Knowledge Based Economy of the region  Fund managed by a successful and experienced VC focused on ICT/TMT investments with a proven financial record and multi-regional presence  Anchored by STC, a strong leader in the market, with large scale cash positioning and committing to a large share of the fund (50%)  Fund is specialized in the ICT/TMT sector which has large current demand and potential growth in the region  Fund manager will strategically add value to the fund through: –Active opportunity sourcing –Providing expertise to portfolio companies –Helping companies access MENA market for faster portfolio development and growth  Fund will promote the knowledge based industry of the region by: –Promoting entrepreneurship –Promoting innovation –Developing the ICT/TMT sector, a pillar in building the KBEs of the region –Create employment opportunities for skilled and unskilled Geographic coverage  Fund will invest in KSA, MENA region and internationally

23. Questions ? 22

24. 23 Dr. Fahad Mushayt Vice President, Corporate Strategy Saudi Telecom Company fhmushayt@stc.com.sa Saudi Arabia’s National Companies & Venture Capital STC Ventures Thank you

25. For the first three quarters of 2011, U.S. based VCs invested 20% more dollars in 3% more deals than the same period in 2010. True VC investment in MENA is at its earliest stages 24 Source: PwC MoneyTree Report (Q3 2011)

26. Investment by U.S. VCs by sector. Software at its highest levels since 2001, followed by biotech. Internet deals declined. In the MENA and KSA regions, most deals are Internet and software- based. 25 Source: PwC MoneyTree Report (Q3 2011)

27. Investment by U.S. VCs by stage of deal. The MENA and KSA ecosystems are just beginning to populate angel groups and VC funds at each stage of growth 26 Source: PwC MoneyTree Report (Q3 2011)

28. Investments by U.S. VCs by region. Many Silicon Valley and Route 128 entrepreneurs from MENA and KSA are seeking regional co-investors 27 Source: PwC MoneyTree Report (Q3 2011)