WHITE
&
LEE
LLP
Soup to Nuts 2001
“The End Game in a Down Market”
May 19, 2001
Bruce W. Lichorowic
Bruce Lichorowic
1
Soup to Nuts 2001
Shopping the Company without a Banker
What can you expect?
Bruce W. Lichorowic
Bruce Lichorowic
2
Background…BWL

Focus


Issues


Funding, operational, marketing
Partner


Solutions for troubled companies
VC’s, Angels, LP’s, Board, Entrepreneur
20+ years

Turnarounds
The Environment
“So what’s going on?”

Last Year:

Q1, 114 Acquisitions


Venture-back deals…$44.9B
This year

?

Dot com…Shutting down

Investors are nervous

IPO’s…5, ‘01

Merge or be Acquired?
Source: Reuters, 4/9/01
Bruce Lichorowic
4
Deciding…

Who decides to sell….?

Board

Investors

Shareholders

Founders

Bankers
Bruce Lichorowic
5
Getting Ready

Once the decision is made

Prospecting

Pre-Deal

Deal

Post-Deal
Bruce Lichorowic
6
Prospecting

Business Development

1st calls to…existing Partners



Investors…VC’s



Tell them your intentions…
Set up a meeting
Look into their existing Portfolio
companies
Checking other VC’s with similar
technology
Board

Bruce Lichorowic
Active board members
7
Prospecting

Sales Team

Call key customers interested


Delicate call…
Key Shareholder

Bruce Lichorowic
Inform shareholder of intent to sell
8
Prospecting

Message…Key

Deliver a “common sense” story

Intend to sell the company

Give period of time

Why…funding, Investors

Tell how you help their future

Be confident

Show leadership
Bruce Lichorowic
9
Prospecting

Process

Smooth and Continuous

Stay in contact

Don’t drop any prospect until they say:



No Thanks
Who leads the deal

CEO with Business Development….small company

Operating/Unit Manager….larger company
Timing

Bruce Lichorowic
Key..Don’t rush…
10
Profile your Company
0-6 months

Market/Marketing


Technology


Founders
Business Model/Plan


Whitepaper
Team


Markets Identified, Web Site
One pager Executive Summary
Fundraising

Bruce Lichorowic
Founder/Angels
11
Profile your Company
6-18 months

Market/Marketing

Analyst Approval


Technology


VP Engineering, Proof of Concept, Alpha
Team


Development, Marketing
Business Model/Plan

Basic Executive Plan


VP Marketing, Core Message, PR Launch
VP Business Development
Fundraising

Bruce Lichorowic
Lead VC with Existing Angels
12
Profile your Company
12-24 months

Market/Marketing


Technology


Beta or FCS
Team


Customer Approval
CEO, VP Sales, Marketing Professionals
Business Model/Plan

Detail Plan


Strategic Partnerships
Fundraising

Bruce Lichorowic
Syndicate of Investors, Lead VC
13
Profile your Company
18-24 months

Market/Marketing


Technology


CFO, Audit Firm
Business Model/Plan


FCS with milestone releases
Team


Key Message… ”why customer buy?”
Polished Presentation, Focus Plan,
Reference Sites
Fundraising


Bruce Lichorowic
Syndicate Investors with VC Lead or
Mezzanine if IPO is imminent
14
Pre-Deal…LOI Stage


More deals lost at this stage

Management…Thinks it’s over

General “relax” attitude

Forget take care…Current Customers
Personnel

Feeling of uncertainty

Critical that you keep key employees
Bruce Lichorowic
15
Pre-Deal…LOI Stage”

Diligence Stage


Bruce Lichorowic
Business model…that makes sense

Strong business propositon

Revenue model, pipeline
Technical

IP reviewed, architecture

Show the ”secret sauce”

Key personnel intro’s
16
Pre-Deal…LOI Stage
1 0 1 1 0 11
1
0 1
1
0
1
0 0 1
0
Internet
Personalization
Technique
Dynamic
segmentation
of on-line
users



Adaptive
response to
on-line users
Cooperative
Multi-Agent
Search
“Secret Sauce”… Core Technology
Underlying technology behind the products
Meet customers needs and applications
Bruce Lichorowic
17
Pre-Deal…LOI Stage”

Diligence Stage
 Identified

Customer

Market size

What problems are your fixing?
 Review
Bruce Lichorowic
Market
backgrounds

Founders

Sales, Marketing, Engineering
18
Pre-Deal…LOI Stage
$1,400
TOTAL
CASH
REQUIRED
$1,200
$1,000
BREAKEVEN
$800
$600
$400
$200
$JU N
Bruce Lichorowic
JU L
AU G
SEP
OCT
NOV
DEC
JAN
F EB
MAR
AP R
MAY
19
Pre-Deal…LOI Stage
Product Road Map
Q2 2001
Q3 2001
Q4 2001
1H2002
2H 2002
Product #1
1.0
PRO
1.0
2.0
PRO
2.0
Product #2
PRO
1.0
1.0
PRO
2.0
Product #3
1.0
Bruce Lichorowic
2.0
20
Pre-Deal…LOI Stage

Financial Review
 Cash…Burn
rate
 Sales…Pipeline
 Budgets…by
 Balance
Bruce Lichorowic
Department
Sheet, P&L
21
Pre-Deal…LOI Stage
DESCRIPTION
JAN
ACTUAL
FEB
MAR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
545.9
$111.9
$932.6
$4,932.8
$7,260.5
$6,118.4
$4,970.7
$3,767.3
BEGINNING CASH BALANCE: *
$468.6
$520.1 $
270.8
CASH FROM INVESTMENTS OR LOANS:
• Series B Preferred Financing
• Series B2 Preferred Financing
• Credit and/or Lease Line for Capital
• Interest Income & Other
CASH FROM INVESTMENTS OR LOANS:
$250.0
—
—
1.1
$251.1
—
—
—
0.8
$0.8
$503.9
—
—
8.6
$512.5
—
—
—
3.6
$3.6
—
1,500.0
—
0.7
$1,500.7
—
5,000.0
—
0.1
$5,000.1
—
3,500.0
—
1.2
$3,501.2
—
—
130.0
6.2
$136.2
—
—
125.0
9.1
$134.1
—
—
112.5
7.6
$120.1
—
—
101.5
6.2
$107.7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$14.2
32.4
—
$46.6
$1.6
4.0
16.2
$21.8
$15.7
0.4
2.0
$18.2
$1.7
4.5
0.2
$6.5
$60.2
0.5
2.2
$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
• Insurance, Payroll Taxes, Employee Benefits
• Commissions
• Recruiting & Other Personnel Expenses
• Contractors/Temporary Personnel/Legal/Audit
• Cost of Sales/Other Materials/Office Supplies
• Computer Hardware/Software Expenses
• Air Travel/Automobile/Entertainment/Hotel
• Advertising/Promotions
• Equipment Rental & Maintenance Agreements
• Facilities/Utilities/Communications Costs
• Other Expenses
CASH REQUIRED FOR OPERATIONS:
$54.8
10.0
4.2
7.2
80.4
10.3
—
14.9
12.2
2.5
0.8
—
$197.3
$52.5
6.2
2.5
5.9
119.7
1.1
—
5.8
30.6
—
22.4
1.5
$248.2
$82.4
7.3
2.5
—
50.8
—
1.2
7.8
13.1
—
0.7
0.8
$166.6
$185.5
20.2
3.7
30.0
93.1
0.3
—
2.1
28.0
—
6.6
5.9
$375.4
$158.3
15.5
5.5
65.0
260.0
2.0
10.0
25.0
34.0
—
12.5
17.2
$605.0
$220.0
41.6
5.1
55.0
214.1
29.3
38.0
34.0
61.0
23.0
12.5
16.5
$750.0
$371.3
70.2
0.6
60.0
185.0
31.5
42.8
29.8
86.0
21.0
26.5
20.5
$945.0
$427.5
80.8
5.6
60.0
190.0
31.5
42.8
34.0
96.0
21.0
26.5
18.8
$1,034.5
$452.5
85.5
0.6
52.5
190.0
31.5
52.3
34.0
71.0
24.0
26.5
18.7
$1,039.1
$495.8
93.7
21.5
52.5
205.0
29.3
42.8
39.1
36.0
22.0
26.5
25.2
$1,089.4
$495.8
93.7
24.9
52.5
205.0
31.5
42.8
39.1
36.0
22.0
26.5
37.2
$1,107.0
CASH REQUIRED FOR CAPITAL AND OTHER
• Prepayment required for lease of a facility
• Capital Purchases
• Credit and/or Lease Line for Capital Payment
• Interest Expense
• Taxes payable
CASH REQUIRED FOR CAPITAL AND OTHER
—
$2.3
—
—
—
$2.3
—
$1.9
—
—
—
$1.9
—
$70.8
—
—
—
$70.8
—
$62.2
—
—
—
$62.2
—
$75.0
—
—
—
$75.0
—
$250.0
—
—
—
$250.0
—
$275.0
—
—
—
$275.0
—
$260.0
$3.6
$2.0
—
$265.6
—
$250.0
$7.1
$3.8
—
$260.9
—
$225.0
$10.2
$5.5
—
$240.7
—
$203.0
$13.0
$7.0
—
$223.0
$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
$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)
CASH FROM REVENUE:
30 days from date of shipment
60 days from date of shipment
90 days from date of shipment
CASH FROM REVENUE:
TOTAL CASH REQUIRED:
NET CASH FLOW: Positive / (Negative)
Bruce Lichorowic
$
APR
22
Pre-Deal…LOI Stage
Channels
• Seed Accounts
• Early Adopters
• Major Accounts
Direct Sales
Indirect Sales
Integrators
Business Development
Bruce Lichorowic
Market Segments
• Mid-Market
• Vertical Markets
Technology Integrators
Marketing Partners
23
Pre-Deal…LOI Stage



Licenses
Hosting
Professional
Services
7%
93%
Licenses & Hosting
Bruce Lichorowic
Professional Services
24
The Deal

Valuation in today’s Market

Thriving Business…Profitable


½ to ¼ of the last round of funding

Multiplier of trailing revenues
Business…Out of Cash

Sell the asset or IP

Software Company…need the engineers

Hardware Company…need the engineers

Cents on the $$$
Bruce Lichorowic
25
The Deal


Heat of the deal

Simplicity is key

ID what needs to accomplished

View what’s reasonable

Build a robust model
Employees

Bruce Lichorowic
Double Trigger

Change of Control

Change of Job Function
26
Post Deal

Integration Mode

Set short term “attainable” goals

Watch costs

Settle disputes quickly

Form one culture

Merger

Bruce Lichorowic
Technology, people, cultures & systems
27
Top 10…Must Haves
1.
One Page Business Brief
2.
Value Proposition…10 words
3.
True sustainable pipeline
4.
Find out what they’re looking for…
5.
Don’t announce products in the LOI stage
6.
Get a reference customer ASAP
7.
Calculate to the month…breakeven
8.
Accurately describe…use of funds
9.
Understand their Business model
10.
Business Integrity*
Bruce Lichorowic
28
Top 10…Personal Checklist
1.
Keep your cool…
2.
Selling the company is a full-time job
3.
Don’t assume VC’s are going to Help
4.
Constantly rethink your strategy
5.
Watch out…sinking ships
6.
Check your ego at the door
7.
Plan on 2-3 rounds of negotiations
8.
Always tell yourself the truth
9.
Know where the “Exits” are
10.
Trust your instincts
Bruce Lichorowic
29
Bruce W. Lichorowic
Specialist for Distressed Companies
Bruce Lichorowic
30