Start-ups: the tortoise and the hare

© 2015, iText Group NV, iText Software Corp., iText Software BVBA© 2015, iText Group NV, iText Software Corp., iText Software BVBA

Hare Corp. and Tortoise LLC; fables and factsBruno Lowagie, CSO ThinkFree / iText GroupAntwerp Management SchoolMaster Classes Readiness: Investor Readiness

© 2015, iText Group NV, iText Software Corp., iText Software BVBA

Hare Corp. and Tortoise LLC; fables and facts2



Hare Corp.Social Media StartupSelected by the incubator BelgoLabReceived €50K seed money

Tortoise LLC.Technology StartupFounded by two engineersFully funded by founders

Before I start, allow me to introduce…



2000-2007: fighting the FUD

Open source is not documentedThe IP of open source isn’t clearOpen source isn’t backed by a company


Documentation

• Free Online Tutorial• “iText in Action”



2004: Free online tutorialFree online tutorial:• Google AdSense

• 2004: $8,900• 2005: $14,500• 2006: $6,200• 2007: $2,350• 2008: $1,900• 2009: $1,500• 2010: $280• 2011: $520• 2012: $350• 2013: $160



2005-2006: “iText in Action”

1st Edition: 2006• 11.600 copies• Approx. $33K

2nd Edition: 2010• 9.200 copies• Approx. $30K


Intellectual Property

Reviewing the IP of your productTrademarking your product nameWriting patents



2006-2007: IP Review



2010: Registered Trademark



2014: Patents

Open source is a means to prevent others to patentYou can not patent source codeYou can patent software mechanisms



Why write Belgian patents?

31%2%


Creating a Company

January 2008: 1T3XT BVBA• Transfer of the IP into the company using CLAs• First year in business: no success



The Belgian TimesAfter having received €3M in a Series A funding from the Belgian VC “Brabo Fund”, Hare Corp. has now announced that it has secured another round of $25M with the US Venture Capitalist “Menlo Ventures” at a valuation of a whopping $100M. Earlier today, Hare Corp. welcomed its five hundred thousandth user. “This means that every user is worth a mere $200,” says Jack Haas, Founder and CEO at Hare Corp., “That’s quite a conservative valuation, wouldn’t you say? We’re working on a subscription model that will generate a multiple of that amount by every user.” Hare Corp. will be using the cash to reinforce its Belgian office and to start up a brand new office in Silicon Valley.



Rebooting the business in the USFebruary 2009: ISC incorporated in CaliforniaFounded by a friend, Andrew Binstock

1st sale: The Hartford (CT), insurance company 2nd sale: Charles Schwab (CA), bank

Sales people on commission 30% on every sale If they didn’t sell anything, they didn’t get paid

December 7, 2009: license change Still open source Commercial license required for commercial use

September 30, 2010: I quit my dayjob



Importing the US success to BEAugust 2011:

iText Software BVBAFirst employee on payrollCommission: 15% / 30%

August 2013:Office in Cambridge, MASales people on payroll in the US



The Belgian TimesHare Corp. lands a dazzling $75M Series C round from Park Capital, one of the top-tier VCs in the US. The company isn’t making any money yet, but Joe Witless, Hare’s brand new VC-appointed CEO claims that the company could soon be “as big as Facebook.” The investors agree: “This will be our next $1B company!” The founders stay on board of the company. According to Joe Witless, they are key to the success of the company and they will play a significant role in the new management team.



2013: four optionsOption 0: Get out

Short M&A project

Option 1: Milk itThis is not in our nature

Option 2: Pedal to the MetalIt’s like getting an injection so that you can win the “Tour de France”

Option 3: Drive itChange accountants (BDO) / appoint an auditor (Deloitte)Hire an HR specialist (Hudson) and hire experienced staff (you)Change 1T3XT BVBA into iText Group NV (2013)Install a board of directors (1st board meeting: December 2013 / January 2014)



Before: old company structure

(2)

BRUNO LOWAGIE

INGEBORG WILLAERT

1T3XT BVBA (BELGIUM)OWNS ITEXT GROUP’ IP

50%

50%

WIL-LOW BVBA (BELGIUM)HOLDING COMPANY

ITEXT SOFTWARE BVBA (BELGIUM)SALES IN EUROPE

99%

100% ITEXT SOFTWARE CORP. (US)SALES IN THE UNITED STATES

(1) Wil-Low BVBA is wholly owned by Bruno Lowagie and Ingeborg Willaert, each holding 50% shareholding interest in the company(2) The remaining 1% shareholding interest is equally distributed between Bruno Lowagie and Ingeborg Willaert

100%(1)



After: new company structure



The Belgian TimesPark Capital announces that it’s backing out as an investor in the Belgian Social Media startup Hare Corp. Park explains that it will continue to focus on social media through on another company in its portfolio, Rabid Inc.Rabic Inc. is a direct competitor of Hare Corp. It was started by a handful of disgruntled former Hare Corp. employees who were fired by former Hare CEO Joe Witless who waived all non-compete clauses to save money on the severance package. Rabid’s social media platform is perceived as the better version, unhindered by the technological legacy Hare is dealing with. According to Social Media expert Bart De Vlaeming, Rabid Inc. is perceived as the new hype: “Users massively turn their back on Hare in favor of Rabid Inc.”



Financial 2011 – 2015

2011 2012 2013 2014 2015

Revenue 1.4M€ 3.1M€ 4.5M€ 4.9M€ 6.5M€

EBITDA 504K€ 1.4M€ 2.6M€ 2.3M€ 2.3M€

Growth 117.9% 44.6% 8.9% 32.4%

2014: Transition YearCommission vs. DiscountChange in revenue recognitionFiring and hiring!Executing the business plan!



Operational result (Aug. 27)

Predictable results: who can guess when the bonuses are paid?



The Belgian TimesToday, we have some sad news about the Belgian startup Hare Corp. Investors BelgoLab, Brabo Funds, Menlo Ventures, and Park Capital, have decided to make a deal: Hare Corp. was sold to Rabid Inc. for an undisclosed amount of money. It is assumed that the investors have cut their losses.One of our inside sources at “BelgoLab”, the incubator whose initial shares were never diluted, informed us that there was no money left for the initial founders. In other words: the initial founders weren’t rewarded for their personal investment in the startup. Founder Jack Haas returned to Belgium, but he was unavailable for an interview.



My source of inspiration for Hare Corp.

A mistake made by someone else is a mistake I don’t have to make.



Still no news about Tortoise LLC?

2014



Plans for the future: GoT



2015: four optionsOption 0: Business as Usual

Try to grow 30% a year without changing anything to our business.

Option 1: MakeDevelop some (or all?) of the GoT ideas ourselves.Hire more developers, outsource some of the work, sublicense existing technology.

Option 2: BuyAcquire companies that can help us implement the GoT ideas.Spread the risk by working with a VC?

Option 3: Get in“Get in” is “Get out”, but phrased in a friendlier way. It’s an “exit” on our terms.Get acquired by a larger company on condition that we execute on the GoT ideas together.Stand on the shoulders of a giant.



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A new challenge



The Belgian TimesThe story of the Hare and the Tortoise is a fable. It’s not always true, as is probably demonstrated by many of the other lecturers in the Investor Readiness program of the Antwerp Management School.However: it isn’t always untrue either. The iText story shows that the Tortoise doesn’t have to lose. Not succeeding in getting funding isn’t a shame, it’s an opportunity to be the Tortoise that —eventually— beats the Hare.In any case, whether you want to follow the fast track of the Hare or the slower path of the Tortoise, there is one certainty in business: there will be hurdles and obstacles. By following the sessions in the Investor Readiness program, you’ll get a fair idea of what to expect. Enjoy the ride!

What Belgian newspapers should be writing:



Conclusion

“If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.”

Henry David Thoreau, “Walden; or, Life in the Woods” (1854)

Start-ups: the tortoise and the hare

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