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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.
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Creative Exits: Moderator: Fas Mosleh, 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
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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.
CreatiVe !?
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What does creative mean? Unusual Solving an issue creatively Unconventional
UNLOCKING THE VALUE OF YOUR IP
• 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?!
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Creative Exits - Objective
• Introduction
• Panelist views
• Prepared questions
• Open session
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Agenda
UNLOCKING THE VALUE OF YOUR IP
– 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)
My Background - Fas Mosleh
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
Exits where I worked
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EXIT POTENTIAL
Why do Companies Acquire?
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Size Share Entry New products Change
Typical drivers Ask “How do we provide the value?”
Products Technology/IP/Trade secrets Team Customers Channels/Distribution Processes Partners Brand Patents
UNLOCKING THE VALUE OF YOUR IP
The Value in a Tech Company
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Products & Technology
Management Processes & Operations
Customers and Channels
Team & Brand
Patents
UNLOCKING THE VALUE OF YOUR IP
© Copyright Kanzatec LLC 2013
The Value in a Tech Company
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Products & Technology
Management Processes & Operations
Customers and Channels
Team & Brand
Patents
UNLOCKING THE VALUE OF YOUR IP
© Copyright Kanzatec LLC 2013
Assets Acquirer Price paid
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 including Microsoft, Oracle, Apple, EMC)
$450M
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IP ‘Exit’ Examples
UNLOCKING THE VALUE OF YOUR IP
Assets Acquirer Price paid
Patents 1700
Intel $375M
Patents 1100
Intellectual Ventures, RPX $525M
Patents 800
Microsoft $1B
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IP Sale Examples
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
Elements of Value - What
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Exit Potential (Perceived Value) P-Patents/IP T-Team C-Customers/channel PT-Product/Technology W-Whole business
© Copyright Kanzatec LLC 2013
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High Exit Potential Examples Many exit options
Few options
‘World’ Class Business
‘Local’ Class Business
Kodak
Salesforce.com
GoDaddy
SKYPE
UNLOCKING THE VALUE OF YOUR IP
© Copyright Kanzatec LLC 2013
C1 B1 A1
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3 Developmental Phases = Rings of EP - How
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
Proven MMM – profitable Market leader (share) Strong Brand Notable solution fills gaps Consistent results Proven people Ex
amp
le c
on
dit
ion
s
Rising EP
UNLOCKING THE VALUE OF YOUR IP
© Copyright Kanzatec LLC 2013
Preferred Exit
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Exit on top - When
We can sell
Top of the world
Missed it
Your Exit potential (value)
Time
Getting better
UNLOCKING THE VALUE OF YOUR IP
GAP Exit Potential ‘S’ Curve
© Copyright Kanzatec LLC 2013
Key Questions to Ask Yourself
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Prioritize key value drivers
Market Money Machine
Timing is Key
Know where you are headed
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Mark Heyl
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Creative Exits
Creative Exits: Traditional vs. Non-Traditional Transactions
Presented by
Mark A. Heyl Hopkins & Carley, A Law Corporation
Traditional Exits
• Strategic Sale to Third Party
– Asset Sale
– Stock Sale
– Merger • True Merger
• Reverse Triangular Merger / Forward Triangular Merger
• Selling to Employees
• Transferring to Family Members
• Liquidation
Traditional Exits
• Strategic Sale 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
Traditional Exits
• Strategic Sale to Third Party
• Selling to Employees
• Transferring to Family Members
– Source of Payment
– Estate Planning
– Ability to “Let Go”
• Liquidation
Traditional Exits
• Strategic Sale to Third Party
• Selling to Employees
• Transferring to Family Members
• Liquidation
– Voluntary Dissolution / Termination
– Bankruptcy
– Assignment for the Benefit of Creditors
Non-Traditional Exits
• Private Equity
• Management Buy-Out
• Leveraged Buy-Out
• ESOP
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
Tae Hea Nahm
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Creative Exits
Tae Hea Nahm @ Storm Ventures
Sold to Qualcomm
Sold to CoreLogic
SaaS
Mobile
Korea IPO
Sold to Cisco
Sold to SemTech Taiwan IPO
Sold to Avocent
Sold to IBM
Sold to Cisco Sold to Adobe
Storm LP
US IPO
Korea
Incubation
Semi
Current Boards
Storm LP
Exits
M/A IPOs
US
Korea
Taiwan
Sold to Qualcomm
Sold to SemTech Sold to Avocent
Sold to IBM
Sold to Cisco
Sold to Adobe US IPO
Sold to CoreLogic Korea IPO
Taiwan IPO
Yusuf Safdari
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Creative Exits
OPEN: Creative Exits for Startups
Presented by
Yusuf Safdari
October 21, 2013
703191557
Buyer Reasons for Engaging 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
Yusuf’s Top 5 Points 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
Overview of M&A Process
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.
Muddu Sudhakar
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Creative Exits
Creative Exits for Startups
Muddu Sudhakar Cloud Services, Big Data, Storage
VP & GM VMware
@smuddu
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
Focus on Building Great Company
• Build great teams
• Good market opportunity
• Develop Disruptive Technology
• Continuous work with customers
• Grow Revenue
• 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
Advice for Entrepreneurs
Exit Expectations
• Most founders 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
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
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.
Valuation for VC Investments
• 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
Angel vs Seed funds 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
Board Structures
• Important to have independent people on board
• Represent fiduciary of common shareholders
• Ensures right steps are taken to protect company and people
Relationships
• Build relationships and network with partners, OEMs, potential acquirers
• Start Early
• Go deep and broad
• Prioritize
• Some VCs and board will tell you otherwise – they are wrong
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
Organization Mapping and Dynamics
• 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?
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
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Creative Exits
Prepared Questions and Open Q&A
• What is the 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
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Questions
UNLOCKING THE VALUE OF YOUR IP
What’s Your V?
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VALUE
V
V V
V
Customers Employees Shareholders Investors
© Copyright Kanzatec LLC 2013
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Creative Exits
Thank You
