Financing  Environment  and  M&A  for  Tech  Startups  Chatham  and  Madison  Tech  Meetup  

June  11,  2013

George Abraham george@rhodiumstrategies.com

917.776.4757 @skiinggeorge

Who  is  George  Abraham… Founder of Rhodium Strategies – advises emerging growth technology companies, their investors, and

the companies who buy them -----

Strategic/M&A advice, business model generation workshops, strategic consulting and independent

valuations -----

Clients include emerging growth technology companies, VC funds & Global Fortune 100

enterprises ------

Board member at Tekserve - $100m revenues, 200 employees

Who  is  George  Abraham  (cont)… Founder of SAS Investors, an early stage tech transfer focused VC fund

Led investments in Tacit Networks (sold to Packeteer for $78m); Textronics (sold to Adidas for $36m); Hydroglobe (sold to Graver Technologies) &Protonex (LSE: PTX.L; IPO valued

company at $110m)

Managing Director at the tech i-Bank C.E. Unterberg Towbin; ran US private placements for VC backed companies.

Who  is  George  Abraham  (cont)… Selected Clients (present & past)

Valuation Clients (100+ present & past)

First,  a  note  on  being  a  tech  entrepreneur

Current  Funding  Environment

Venture  capital  activity  ‘sluggish’  and  continuing  to  decline  in  Q1  2013

VC  Deal  Flow  Trend

Q1  2013:  $6.3  billion  across  753  deals,  worst  quarter  in  more  than  two  years

Where  is  the  money  going?

Are  you  going  to  IPO?

PROBABLY NOT Exit will come from a sale

M&A  is  the  way  to  go  –  but  still  a  small  percentage

VC  backed  M&A/IPO  2009-­‐‑13

Ratio  seems  steady  at  about  15%  -­‐‑  20%  of  VC  companies  financed  per  year

Exit  as  multiple  of  investment

Less  than  media  would  have  you  believe

More  Stats  on  VC  Funding  and  Exits

Info  on  exits,  IPO  and  trends  in    deal  terms

Best places to get this info

Fenwick & West Venture Capital Survey www.fenwick.com

Price Waterhouse MoneyTree Report

www.pwcmoneytree.com

Pitchbook www.pitchbook.com

National Venture Capital Association www.nvca.org

Lets  talk  about  M&A

Why  do  emerging  tech  companies  sell?

Google comes knocking Do they even know you exist?

Timing is perfect; sector is hot Tough to time the market

Shareholder fatigue; can’t raise money Often the case – worst scenario for a good exit

Competition is brutal; Business not growing fast enough; Hard to create channels of dist.

Need a strong partner Board & Mgt plan 1 to 2 years ahead to sell

Smart way to go

If  you  don’t  properly  plan  for  M&A *Run  short  of  cash  before  closing *Desperate  negotiations *Panic  among  

management  team *Tough  to  hire  a  banker *Don’t  have  proper  relationships  with  

buyers

M&A  Takes  A  Long  Time

6 MONTHS TO A YEAR – PLUS PREP TIME

How  to  Plan  for  M&A Cash in bank to ride out the process

It costs money to sell your company – accountants, lawyers, bankers, travel etc etc

Who are the natural buyers? What other industries could benefit from your business? Build strategic relationships 6 months to a year before starting M&A process Pull together a good team of advisors – early in the process

Is  your  house  in  order?

Books & Records up to date? All Shareholder authorizations and Board Minutes?

Equity incentive options issued and papered? Employment agreements, invention assignment

agreements all signed and in one place? Etc etc etc…

Prepare  before  you  pitch Information memorandum Pitch deck Projections (remember the earn-out…) Justification for expected valuation Diligence to support your pitch

Companies  are  Bought  –  Not  Sold

Good exits happen when someone tries to buy your company rather than you trying to sell your company

Most likely to happen when you have a pre-existing relationship with the buyer

Help  the  acquirer  answer  a  key  question

The Acquirer will want to know: How will buying this asset make my

existing business more valuable, and how will I bring value to the asset I am

buying?

In your pitch – answer this question!

Deal  Terms     Even if the deal is

for cash, you never get all the cash at closing!

Earn out Holdback – 10% to 15% Employment agrmnt Non-compete

Geiing  from  LOI  to  Closing

DILIGENCE A highly invasive process They will ask for shocking amounts of information You have to get it all to them – fast

LEGAL DOCUMENTATION Trees will die for your exit

Tempers will fray at times...

Almost  always  a  hiccup  right  before  closing

Many things can derail closing at the

11th hour Minority shareholders Last minute diligence issues Personality clash Out of control lawyers Loss of a key contract Dispute about distribution of proceeds

Summary Common mistake – not planning and preparing for M&A Getting deals done is hard, time consuming, and requires cash in the bank Proper Prior Planning – helps drive exit value The M&A process is stressful and will distract from your core business activities If you are successful, time at the beach will be well earned

THANK  YOU!!!

George Abraham Rhodium Strategies

george@rhodiumstrategies.com 917.776.4757

@skiinggeorge