w hite & l ee llp soup to nuts 2001 “the end game in a down market” may 19, 2001
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W HITE & L EE LLP Soup to Nuts 2001 “The End Game in a Down Market” May 19, 2001. Bruce W. Lichorowic. Soup to Nuts 2001 Shopping the Company without a Banker What can you expect?. Bruce W. Lichorowic. Background…BWL. Focus Solutions for troubled companies Issues - PowerPoint PPT PresentationTRANSCRIPT
1Bruce Lichorowic
WWHITEHITE && L LEEEE LLPLLP
Soup to Nuts 2001 Soup to Nuts 2001
“The End Game in a Down Market” “The End Game in a Down Market”
May 19, 2001May 19, 2001
Bruce W. LichorowicBruce W. Lichorowic
2Bruce Lichorowic
Soup to Nuts 2001 Soup to Nuts 2001
Shopping the Company without a Shopping the Company without a
BankerBanker
What can you expect?What can you expect?
Bruce W. LichorowicBruce W. Lichorowic
Background…BWLBackground…BWL Focus Focus
Solutions for troubled companiesSolutions for troubled companies
IssuesIssues Funding, operational, marketingFunding, operational, marketing
PartnerPartner VC’s, Angels, LP’s, Board, EntrepreneurVC’s, Angels, LP’s, Board, Entrepreneur
20+ years 20+ years TurnaroundsTurnarounds
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The EnvironmentThe Environment ““So what’s going on?”So what’s going on?”
Last Year:Last Year: Q1, 114 AcquisitionsQ1, 114 Acquisitions
Venture-back deals…$44.9BVenture-back deals…$44.9B
This yearThis year ??
Dot com…Shutting downDot com…Shutting down Investors are Investors are nervousnervous IPO’s…5, ‘01IPO’s…5, ‘01 Merge or be Acquired?Merge or be Acquired?
Source: Reuters, 4/9/01Source: Reuters, 4/9/01
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Deciding…Deciding…
Who decides to sell….?Who decides to sell….? BoardBoard
InvestorsInvestors
ShareholdersShareholders
FoundersFounders
BankersBankers
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Getting Ready Getting Ready
Once the decision is madeOnce the decision is made ProspectingProspecting
Pre-DealPre-Deal
DealDeal
Post-DealPost-Deal
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ProspectingProspecting Business DevelopmentBusiness Development
11stst calls to…existing Partners calls to…existing Partners Tell them your intentions…Tell them your intentions… Set up a meetingSet up a meeting
Investors…VC’sInvestors…VC’s Look into their existing Portfolio companiesLook into their existing Portfolio companies Checking other VC’s with similar technologyChecking other VC’s with similar technology
BoardBoard Active board members Active board members
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ProspectingProspecting Sales TeamSales Team
Call key customers interestedCall key customers interested Delicate call…Delicate call…
Key ShareholderKey Shareholder Inform shareholder of intent to sellInform shareholder of intent to sell
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ProspectingProspecting
Message…KeyMessage…Key
Deliver a “common sense” story Deliver a “common sense” story Intend to sell the companyIntend to sell the company
Give period of timeGive period of time
Why…funding, Investors Why…funding, Investors
Tell how you help their futureTell how you help their future
Be confidentBe confident
Show leadershipShow leadership
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Prospecting Prospecting ProcessProcess Smooth and ContinuousSmooth and Continuous
Stay in contactStay in contact Don’t drop any prospect until they say:Don’t drop any prospect until they say:
No ThanksNo Thanks
Who leads the dealWho leads the deal CEO with Business Development….small company CEO with Business Development….small company Operating/Unit Manager….larger companyOperating/Unit Manager….larger company
TimingTiming Key..Don’t rush…Key..Don’t rush…
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Profile your Company Profile your Company 0-6 months0-6 months
Market/MarketingMarket/Marketing Markets Identified, Web Site Markets Identified, Web Site
TechnologyTechnology WhitepaperWhitepaper
Team Team FoundersFounders
Business Model/PlanBusiness Model/Plan One pager Executive SummaryOne pager Executive Summary
FundraisingFundraising Founder/AngelsFounder/Angels
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Profile your Company Profile your Company 6-18 months6-18 months
Market/MarketingMarket/Marketing Analyst ApprovalAnalyst Approval
VP Marketing, Core Message, PR LaunchVP Marketing, Core Message, PR Launch TechnologyTechnology
VP Engineering, Proof of Concept, AlphaVP Engineering, Proof of Concept, Alpha Team Team
Development, MarketingDevelopment, Marketing Business Model/PlanBusiness Model/Plan
Basic Executive Plan Basic Executive Plan VP Business Development VP Business Development
FundraisingFundraising Lead VC with Existing AngelsLead VC with Existing Angels
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Profile your Company Profile your Company 12-24 months12-24 months
Market/MarketingMarket/Marketing Customer Approval Customer Approval
TechnologyTechnology Beta or FCSBeta or FCS
Team Team CEO, VP Sales, Marketing ProfessionalsCEO, VP Sales, Marketing Professionals
Business Model/PlanBusiness Model/Plan Detail Plan Detail Plan
Strategic PartnershipsStrategic Partnerships FundraisingFundraising
Syndicate of Investors, Lead VCSyndicate of Investors, Lead VC
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Profile your Company Profile your Company 18-24 months18-24 months
Market/MarketingMarket/Marketing Key Message… ”why customer buy?”Key Message… ”why customer buy?”
TechnologyTechnology FCS with milestone releasesFCS with milestone releases
Team Team CFO, Audit FirmCFO, Audit Firm
Business Model/PlanBusiness Model/Plan Polished Presentation, Focus Plan, Reference Polished Presentation, Focus Plan, Reference
Sites Sites FundraisingFundraising
Syndicate Investors with VC Lead or Syndicate Investors with VC Lead or Mezzanine if IPO is imminentMezzanine if IPO is imminent
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Pre-Deal…LOI StagePre-Deal…LOI Stage
More deals lost at this stageMore deals lost at this stage Management…Thinks it’s over Management…Thinks it’s over
General “relax” attitudeGeneral “relax” attitude
Forget take care…Current CustomersForget take care…Current Customers
PersonnelPersonnel Feeling of uncertaintyFeeling of uncertainty
Critical that you keep key employeesCritical that you keep key employees
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Pre-Deal…LOI StagePre-Deal…LOI Stage””
Diligence StageDiligence Stage Business model…that makes senseBusiness model…that makes sense
Strong business propositonStrong business propositon
Revenue model, pipelineRevenue model, pipeline
TechnicalTechnical IP reviewed, architectureIP reviewed, architecture
Show the ”secret sauce” Show the ”secret sauce”
Key personnel intro’sKey personnel intro’s
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Pre-Deal…LOI StagePre-Deal…LOI Stage
““Secret Sauce”… Core TechnologySecret Sauce”… Core Technology Underlying technology behind the productsUnderlying technology behind the products Meet customers needs and applicationsMeet customers needs and applications
00 1100 1100 11
00 1100
11
00 1100 1111
1111
Internet Personalization
Technique
Dynamic segmentation
of on-line users
Adaptive response to on-line users
Cooperative Multi-Agent
Search
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Pre-Deal…LOI StagePre-Deal…LOI Stage””
Diligence StageDiligence Stage
Identified MarketIdentified Market Customer Customer
Market sizeMarket size
What problems are your fixing?What problems are your fixing?
Review backgroundsReview backgrounds FoundersFounders
Sales, Marketing, EngineeringSales, Marketing, Engineering
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$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY
TOTAL TOTAL CASH CASH
REQUIREDREQUIRED
BREAKEVENBREAKEVEN
Pre-Deal…LOI StagePre-Deal…LOI Stage
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Pre-Deal…LOI StagePre-Deal…LOI StageProduct Road MapProduct Road Map
PRO
1.0
Product #1Product #1
Product #2Product #2
Product #3Product #3
Q2 2001Q2 2001 Q3 2001 Q4 2001Q3 2001 Q4 2001 1H2002 1H2002 2H 2002 2H 2002
1.0 2.0
1.0
1.0 2.0
PRO
2.0
PRO
1.0
PRO
2.0
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Pre-Deal…LOI StagePre-Deal…LOI Stage
Financial ReviewFinancial Review Cash…Burn rateCash…Burn rate
Sales…PipelineSales…Pipeline
Budgets…by DepartmentBudgets…by Department
Balance Sheet, P&LBalance Sheet, P&L
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DESCRIPTION JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV
BEGINNING CASH BALANCE: * $468.6 $520.1 270.8$ 545.9$ $111.9 $932.6 $4,932.8 $7,260.5 $6,118.4 $4,970.7 $3,767.3
CASH FROM INVESTMENTS OR LOANS:• Series B Preferred Financing $250.0 — $503.9 — — — — — — — —• Series B2 Preferred Financing — — — — 1,500.0 5,000.0 3,500.0 — — — —• Credit and/or Lease Line for Capital — — — — — — — 130.0 125.0 112.5 101.5 • Interest Income & Other 1.1 0.8 8.6 3.6 0.7 0.1 1.2 6.2 9.1 7.6 6.2
CASH FROM INVESTMENTS OR LOANS: $251.1 $0.8 $512.5 $3.6 $1,500.7 $5,000.1 $3,501.2 $136.2 $134.1 $120.1 $107.7
CASH FROM REVENUE: 30 days from date of shipment — — — — — — $14.2 $1.6 $15.7 $1.7 $60.2 60 days from date of shipment — — — — — — 32.4 4.0 0.4 4.5 0.5 90 days from date of shipment — — — — — — — 16.2 2.0 0.2 2.2
CASH FROM REVENUE: — — — — — — $46.6 $21.8 $18.2 $6.5 $63.0
TOTAL CASH GENERATED: $251.1 $0.8 $512.5 $3.6 $1,500.7 $5,000.1 $3,547.7 $158.0 $152.3 $126.6 $170.7
CASH REQUIRED FOR OPERATIONS:• Salaries for Employees $54.8 $52.5 $82.4 $185.5 $158.3 $220.0 $371.3 $427.5 $452.5 $495.8 $495.8 • Insurance, Payroll Taxes, Employee Benefits 10.0 6.2 7.3 20.2 15.5 41.6 70.2 80.8 85.5 93.7 93.7 • Commissions 4.2 2.5 2.5 3.7 5.5 5.1 0.6 5.6 0.6 21.5 24.9 • Recruiting & Other Personnel Expenses 7.2 5.9 — 30.0 65.0 55.0 60.0 60.0 52.5 52.5 52.5 • Contractors/Temporary Personnel/Legal/Audit 80.4 119.7 50.8 93.1 260.0 214.1 185.0 190.0 190.0 205.0 205.0 • Cost of Sales/Other Materials/Office Supplies 10.3 1.1 — 0.3 2.0 29.3 31.5 31.5 31.5 29.3 31.5 • Computer Hardware/Software Expenses — — 1.2 — 10.0 38.0 42.8 42.8 52.3 42.8 42.8 • Air Travel/Automobile/Entertainment/Hotel 14.9 5.8 7.8 2.1 25.0 34.0 29.8 34.0 34.0 39.1 39.1 • Advertising/Promotions 12.2 30.6 13.1 28.0 34.0 61.0 86.0 96.0 71.0 36.0 36.0 • Equipment Rental & Maintenance Agreements 2.5 — — — — 23.0 21.0 21.0 24.0 22.0 22.0 • Facilities/Utilities/Communications Costs 0.8 22.4 0.7 6.6 12.5 12.5 26.5 26.5 26.5 26.5 26.5 • Other Expenses — 1.5 0.8 5.9 17.2 16.5 20.5 18.8 18.7 25.2 37.2
CASH REQUIRED FOR OPERATIONS: $197.3 $248.2 $166.6 $375.4 $605.0 $750.0 $945.0 $1,034.5 $1,039.1 $1,089.4 $1,107.0
CASH REQUIRED FOR CAPITAL AND OTHER• Prepayment required for lease of a facility — — — — — — — — — — —• Capital Purchases $2.3 $1.9 $70.8 $62.2 $75.0 $250.0 $275.0 $260.0 $250.0 $225.0 $203.0 • Credit and/or Lease Line for Capital Payment — — — — — — — $3.6 $7.1 $10.2 $13.0 • Interest Expense — — — — — — — $2.0 $3.8 $5.5 $7.0 • Taxes payable — — — — — — — — — — —
CASH REQUIRED FOR CAPITAL AND OTHER $2.3 $1.9 $70.8 $62.2 $75.0 $250.0 $275.0 $265.6 $260.9 $240.7 $223.0
TOTAL CASH REQUIRED: $199.6 $250.1 $237.4 $437.6 $680.0 $1,000.0 $1,220.0 $1,300.0 $1,300.0 $1,330.0 $1,330.0
NET CASH FLOW: Positive / (Negative) $51.5 ($249.3) $275.1 ($434.0) $820.7 $4,000.2 $2,327.8 ($1,142.1) ($1,147.7) ($1,203.4) ($1,159.4)
ACTUAL
Pre-Deal…LOI StagePre-Deal…LOI Stage
23Bruce Lichorowic
Pre-Deal…LOI StagePre-Deal…LOI Stage
• Seed AccountsSeed Accounts• Early AdoptersEarly Adopters• Major AccountsMajor Accounts
Channels Market Segments
Technology Technology IntegratorsIntegrators
Marketing PartnersMarketing Partners
Direct SalesDirect Sales
Indirect SalesIndirect Sales IntegratorsIntegratorsIntegratorsIntegrators
Business DevelopmentBusiness Development
• Mid-MarketMid-Market• Vertical MarketsVertical Markets
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Pre-Deal…LOI StagePre-Deal…LOI Stage
LicensesLicenses HostingHosting Professional Professional
ServicesServices
93%
7%
Licenses & Hosting Professional Services
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The DealThe Deal Valuation in today’s MarketValuation in today’s Market
Thriving Business…ProfitableThriving Business…Profitable ½ to ¼ of the last round of funding½ to ¼ of the last round of funding
Multiplier of trailing revenuesMultiplier of trailing revenues
Business…Out of CashBusiness…Out of Cash Sell the asset or IPSell the asset or IP
Software Company…need the engineersSoftware Company…need the engineers
Hardware Company…need the engineersHardware Company…need the engineers
Cents on the $$$Cents on the $$$
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The Deal The Deal The Deal The Deal Heat of the dealHeat of the deal
Simplicity is keySimplicity is key
ID what needs to accomplishedID what needs to accomplished
View what’s reasonableView what’s reasonable
Build a robust modelBuild a robust model
EmployeesEmployees Double TriggerDouble Trigger
Change of ControlChange of Control
Change of Job FunctionChange of Job Function
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Post DealPost Deal
Integration ModeIntegration Mode Set short term “attainable” goalsSet short term “attainable” goals
Watch costsWatch costs
Settle disputes quicklySettle disputes quickly
Form one cultureForm one culture
MergerMerger Technology, people, cultures & systemsTechnology, people, cultures & systems
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Top 10…Must HavesTop 10…Must Haves1.1. One Page Business BriefOne Page Business Brief
2.2. Value Proposition…10 wordsValue Proposition…10 words
3.3. True sustainable pipeline True sustainable pipeline
4.4. Find out what they’re looking for…Find out what they’re looking for…
5.5. Don’t announce products in the LOI stageDon’t announce products in the LOI stage
6.6. Get a reference customer ASAPGet a reference customer ASAP
7.7. Calculate to the month…breakevenCalculate to the month…breakeven
8.8. Accurately describe…use of fundsAccurately describe…use of funds
9.9. Understand their Business modelUnderstand their Business model
10.10. Business Integrity*Business Integrity*
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Top 10…Personal ChecklistTop 10…Personal Checklist
1.1. Keep your cool…Keep your cool…
2.2. Selling the company is a full-time jobSelling the company is a full-time job
3.3. Don’t assume VC’s are going to HelpDon’t assume VC’s are going to Help
4.4. Constantly rethink your strategyConstantly rethink your strategy
5.5. Watch out…sinking shipsWatch out…sinking ships
6.6. Check your ego at the door Check your ego at the door
7.7. Plan on 2-3 rounds of negotiations Plan on 2-3 rounds of negotiations
8.8. Always tell yourself the truthAlways tell yourself the truth
9.9. Know where the “Exits” are Know where the “Exits” are
10.10. Trust your instinctsTrust your instincts
30Bruce Lichorowic
Bruce W. LichorowicBruce W. Lichorowic
Specialist for Distressed CompaniesSpecialist for Distressed Companies