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Creative exits v3 10 20-2013 for distribution Fas Mosleh at OPEN Networking Event HP
The panel discussion focused on creative exits for startups. The panelists discussed both traditional exits like strategic sales and mergers as well as non-traditional exits like private equity deals, management buyouts, and leveraged buyouts. They emphasized the importance of planning an exit strategy early and focusing on building value through developing disruptive technology, growing customer base and revenue. The panelists advised entrepreneurs to consider the motives and organizational fit of potential acquirers. They also stressed the importance of relationships, location of teams, and board composition for a successful exit.
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Creative exits v3 10 20-2013 for distribution Fas Mosleh at OPEN Networking Event HP
- 1. Creative Exits: Moderator: FasMosleh, SVP, IP M&A, Kanzatec Panelists: Mark Heyl, Partner, M&A, Hopkins & Carley Tae Hea Nahm, Founding Partner, Storm Ventures Yusuf Safdari, Partner, Pilsbury Muddu Sudhakar, VP/GM, VMWare Rights to trademarks referenced herein, other than Kanzatec trademarks, belong to their respective owners. We disclaim proprietary interest in the marks and names of others. 1
- 2. CreatiVe !? What doescreative mean? Unusual Solving an issue creatively Unconventional UNLOCKING THE VALUE OF YOUR IP 2
- 3. Creative Exits -Objective • We explore the many ways that you can get some kind of valuable payout before you move on to your next project. We will discuss several interesting ways of ensuring that you and your investors can walk away with something in your pockets. When is the best time to plan out an exit strategy? We examine exits contemplated in the early stages through the later stages. • We will talk about what constitutes the most value in your company, such as the people, intellectual knowledge, relationships or the network. i.e. where are the value drivers, when an acquirer looks at you? Is it the alliances, customers, or intellectual property such as the patents? Or is it the technologies, the products the channels and the management team as well as the operational processes that make your company successful? • But what are the non-conventional ways to get out of here and still get a great payback?! 3
- 4. Agenda • • • • Introduction Panelist views Prepared questions Opensession UNLOCKING THE VALUE OF YOUR IP 4
- 5. My Background -Fas Mosleh – Global High Tech GM/Sales/Marketing/BD executive • Spanned chip to software – IP Monetization executive at Kanzatec IP Group (sell ‘000’s patents/year) • 100+ buy/sell transactions over $200M • VP Global Acquisitions – Intellectual Ventures • Executive Director Patent Sales Group – HP – Manager, founder HP’s 1st Venture fund in 1998 ($2B+ M&A) Experienced at building new businesses - Executive at venture funded startups - Agiliti, Vernier Networks, Jamcracker Executive at Hewlett-Packard, Eastman Kodak, Agilent, Avago Technologies and Micron; IBM UK labs & sales management
- 6. Exits where Iworked EXIT POTENTIAL UNLOCKING THE VALUE OF YOUR IP 6
- 7. Why do CompaniesAcquire? Typical drivers Ask “How do we provide the value?” Size Products Technology/IP/Trade secrets Team Customers Channels/Distribution Processes Partners Brand Patents Share Entry New products Change UNLOCKING THE VALUE OF YOUR IP 7
- 8. The Value ina Tech Company Products & Technology Management Processes & Operations Patents Customers and Channels Team & Brand © Copyright Kanzatec LLC 2013 UNLOCKING THE VALUE OF YOUR IP 8
- 9. The Value ina Tech Company Products & Technology Management Processes & Operations Patents Customers and Channels Team & Brand © Copyright Kanzatec LLC 2013 UNLOCKING THE VALUE OF YOUR IP 9
- 10. IP ‘Exit’ Examples Assets Acquirer Pricepaid Company 17000+ Google $12.5B Patents 6000 Rock Star Bid Co: RIM, Apple, EMC, Ericsson, Microsoft, Sony $4.5B Patents 100’s CPTN Holdings (consortium $450M including Microsoft, Oracle, Apple, EMC) UNLOCKING THE VALUE OF YOUR IP 10
- 11. IP Sale Examples Assets Acquirer Pricepaid Patents 1700 Intel $375M Patents 1100 Intellectual Ventures, RPX $525M Patents 800 Microsoft $1B It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. – Charles Darwin UNLOCKING THE VALUE OF YOUR IP 11
- 12. Elements of Value- What Exit Potential (Perceived Value) P-Patents/IP T-Team C-Customers/channel PT-Product/Technology W-Whole business © Copyright Kanzatec LLC 2013 12
- 13. High Exit PotentialExamples Many exit options SKYPE Salesforce.com Twitter GoDaddy ‘Local’ Class Business ‘World’ Class Business Kodak © Copyright Kanzatec LLC 2013 Few options UNLOCKING THE VALUE OF YOUR IP 13
- 14. 3 Developmental Phases= Rings of EP - How Rising EP Example conditions C1 B1 Working product Proven value proposition Differentiated Working technology Filed IP/Patents Solid market traction Proven customer wins Proven business model Acclaimed technology Granted IP/Patents A1 Proven MMM – profitable Market leader (share) Strong Brand Notable solution fills gaps Consistent results Proven people © Copyright Kanzatec LLC 2013 UNLOCKING THE VALUE OF YOUR IP 14
- 15. Exit on top- When Your Exit potential (value) Top of the world Preferred Exit Getting better Missed it We can sell Exit Potential ‘S’ Curve GAP © Copyright Kanzatec LLC 2013 Time UNLOCKING THE VALUE OF YOUR IP 15
- 16. Key Questions toAsk Yourself Prioritize key value drivers Market Money Machine Timing is Key Know where you are headed UNLOCKING THE VALUE OF YOUR IP 16
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- 19. Creative Exits: Traditional vs.Non-Traditional Transactions Presented by Mark A. Heyl Hopkins & Carley, A Law Corporation
- 20. Traditional Exits • StrategicSale to Third Party – Asset Sale – Stock Sale – Merger • True Merger • Reverse Triangular Merger / Forward Triangular Merger • Selling to Employees • Transferring to Family Members • Liquidation
- 21. Traditional Exits • StrategicSale to Third Party • Selling to Employees – Source of Payment – Remedies for Non-Payment – Condition of Business – Condition of Customer Relationships • Transferring to Family Members • Liquidation
- 22. Traditional Exits • StrategicSale to Third Party • Selling to Employees • Transferring to Family Members – Source of Payment – Estate Planning – Ability to “Let Go” • Liquidation
- 23. Traditional Exits • • • • Strategic Saleto Third Party Selling to Employees Transferring to Family Members Liquidation – – – Voluntary Dissolution / Termination Bankruptcy Assignment for the Benefit of Creditors
- 24. Non-Traditional Exits • PrivateEquity • Management Buy-Out • Leveraged Buy-Out • ESOP
- 25. Thank you. Mark A.Heyl [email protected] Hopkins & Carley, A Law Corporation 70 S. First Street San Jose, CA 95113 200 Page Mill Road, Suite 200 Palo Alto, CA 94306 (408) 286-9800 hopkinscarley.com
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- 27. Tae Hea Nahm@ Storm Ventures Mobile SaaS Incubation US IPO Sold to Adobe Storm LP Sold to Cisco Korea Sold to Qualcomm Storm LP Sold to CoreLogic Korea IPO Current Boards Sold to IBM Sold to Avocent Sold to Cisco Semi Taiwan IPO Sold to SemTech
- 28. Exits M/A IPOs Sold to Cisco US Soldto Qualcomm Sold to IBM Sold to Adobe Sold to SemTech Korea Taiwan US IPO Sold to Avocent Sold to CoreLogic Korea IPO Taiwan IPO
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- 30. OPEN: Creative Exitsfor Startups Presented by Yusuf Safdari October 21, 2013
- 31. Buyer Reasons forEngaging in M&A • • • • • • • Buy (rather than build) innovative technology products and services– “Buy me Microsoft, Oracle or Cisco!” Acquire a highly talented group of technologists and tech execs-- (“Buy me Google, Facebook or Twitter!”) Obtain financially valuable or strategic IP rights (Acquisition of Motorola by Google for mobile patent portfolio). Realize operational (economies of scale) or financial synergies (Merger of HP and Compaq). Gain access to new markets or product lines to drive sales and financial performance of acquiror’s existing products (Oracle acquisition of Sun). Replace inefficient management (Somebody should have bought Yahoo!). Purchase a Seller that is undervalued by market or distressed but with value. 703191557
- 32. Yusuf’s Top 5Points to Keep in Mind • Plan the exit when you form the Company: who will want to buy it, why and when? You should be an acquisition target for multiple companies to optimize your exit. • Keep your corporate house in order. Clear contracts in line with market norms and capital structure to avoid scuttling a deal. • Acquirors are often found during strategic or investment discussions. “What would you guys think if we bought you instead?” • Build defenses around the “crown jewels,” e.g., assignment of IP, patentable innovations, market barriers and a committed team. • Keep on top of developments in your market and adjacent markets—be ready to pivot towards market opportunities and acquirors. 703191557
- 33. Overview of M&AProcess I. Initial Business Discussions – discuss desirability of transaction and principal business terms. II. Letter of Intent – prepare and negotiate basic terms of a transaction in a generally non-binding form. III. Due Diligence – investigation of the assets, qualities, finances and liabilities of a business. IV. Negotiation of Acquisition Agreements – draft and negotiate detailed deal terms. V. Preparation for Closing – hold shareholder meeting to approve transaction, satisfy closing conditions, obtain third party consents, obtain government approvals, etc. VI. Closing – complete and sign definitive documentation; all closing conditions must be satisfied or waived. VII. Post-Closing Obligations – adjust purchase price; indemnification for misrepresentations. 703191557
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- 35. Creative Exits forStartups Muddu Sudhakar Cloud Services, Big Data, Storage VP & GM VMware @smuddu
- 36. Advice for Entrepreneurs •Do not plan or think about Exit • Focus on building great company • Constantly work towards creating value • “Build it and they will come” is not a bad mantra
- 37. Focus on BuildingGreat Company • Build great teams • Good market opportunity • Develop Disruptive Technology • Continuous work with customers • Grow Revenue
- 38. Advice for Entrepreneurs •Companies are bought, not sold • Companies bought get 2x to 5x better price vs companies sold • Do not hire Investment Bankers unless it is MUST
- 39. Exit Expectations • Mostfounders and entrepreneurs have unrealistic expectations of exit values • Most VCs do not have good sense of exit values either • ALL VCs want Home Runs for ALL companies
- 40. Exit Values • 2009/2010:Median VC exist value was $70M • 2011/2012: Median VC exist value was $100M • The Average Successful Startup Raises $25M+ and get acquired for $196M
- 41. 2012 VC Exits •More than 50% of the startup exits were less than $50 million, while over 80% were less than $200 million. Only eight $1 billion startups were acquired in 2012.
- 42. Valuation for VCInvestments • Entry price matters for getting good returns for VCs • Entrepreneurs need to always think about improving and increasing valuation • To get good valuation focus on building great teams, disruptive and unique technology, grow customer base, and grow revenue • Stay Lean to keep options Open
- 43. Angel vs Seedfunds vs VC • Very important to engage with top-tier and good angels, firms, funds • Lot of bottom feeders – be careful • Wrong person can destroy company and creates challenges w/ captable – impacts exits • In M&A and going IPO having right VC on the board makes a big difference
- 44. Board Structures • Importantto have independent people on board • Represent fiduciary of common shareholders • Ensures right steps are taken to protect company and people
- 45. Relationships • Build relationshipsand network with partners, OEMs, potential acquirers • Start Early • Go deep and broad • Prioritize • Some VCs and board will tell you otherwise – they are wrong
- 46. Motives of Buyer •Understand motives of buyer for acquisition • • • • • Next $1B revenue business unit opportunity Lack of revenue growth Missing next-generation Product Talent acquisition Strategic purchase
- 47. Organization Mapping andDynamics • • • • Understand buyer organization and Dynamics Who are all key decision makers Where do they plan to fit the acquisition? New Business Unit, new product group, integrate into existing teams • Plan to retain and grow both R&D and/or sales team?
- 48. Talent and Teams •Location of team is VERY important • Understand your buyers R&D group locations • Product and talent acquisitions require teams to be local • Remote teams and outsourcing often hurt in acquisition • Important to have good cultural fit with R&D teams • VCs /Management hate to admit that location of team matters
- 49. Prepared Questions andOpen Q&A Creative Exits 49
- 50. Questions • What isthe most creative exit deal you ever put together – either on the sell side or on the buy side? Why? What and How? • What do you think a company or its founders should consider when planning an exit? • When should you think about an exit and why? • What is the best time to do an exit? Please give an example of good timing and bad timing • What is your best way (What are the ways) to initiate an exit? • How do you price your company (creatively) for an exit? • What is different about PE deals • When did you start planning for an exit? • How did you decide what was offered was the right amount? • Outline the creative moves you had to make to execute an exit UNLOCKING THE VALUE OF YOUR IP 50
- 51. What’s Your V? VALUE Customers Employees Shareholders Investors V V ©Copyright Kanzatec LLC 2013 V V 51
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