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Creative Exits:
Moderator: Fas Mosleh, SVP, IP M&A, Kanzatec
Panelists:
Mark Heyl, Partner, M&A, Hopkins & Carley
Tae Hea ...
CreatiVe !?
What does creative mean?
Unusual
Solving an issue creatively
Unconventional

UNLOCKING THE VALUE OF YOUR IP

2
Creative Exits - Objective
• We explore the many ways that you can get some kind of valuable
payout before you move on to ...
Agenda
•
•
•
•

Introduction
Panelist views
Prepared questions
Open session

UNLOCKING THE VALUE OF YOUR IP

4
My Background - Fas Mosleh

– Global High Tech GM/Sales/Marketing/BD executive
• Spanned chip to software

– IP Monetizati...
Exits where I worked

EXIT POTENTIAL
UNLOCKING THE VALUE OF YOUR IP

6
Why do Companies Acquire?
Typical drivers

Ask “How do we provide the value?”

Size
Products
Technology/IP/Trade secrets
T...
The Value in a Tech Company
Products &
Technology

Management
Processes &
Operations

Patents
Customers and
Channels

Team...
The Value in a Tech Company
Products &
Technology

Management
Processes &
Operations

Patents
Customers and
Channels

Team...
IP ‘Exit’ Examples
Assets

Acquirer

Price paid

Company
17000+

Google

$12.5B

Patents
6000

Rock Star Bid Co: RIM,
Appl...
IP Sale Examples
Assets

Acquirer

Price paid

Patents
1700

Intel

$375M

Patents
1100

Intellectual Ventures, RPX

$525M...
Elements of Value - What
Exit Potential (Perceived Value)

P-Patents/IP
T-Team
C-Customers/channel
PT-Product/Technology
W...
High Exit Potential Examples
Many exit options
SKYPE

Salesforce.com

Twitter

GoDaddy

‘Local’ Class
Business

‘World’ Cl...
3 Developmental Phases = Rings of EP - How
Rising EP

Example conditions

C1

B1

Working product
Proven value proposition...
Exit on top - When
Your Exit potential (value)

Top of the world

Preferred
Exit

Getting better
Missed it 

We can sell...
Key Questions to Ask Yourself
Prioritize key value drivers

Market Money Machine

Timing is Key
Know where you are headed
...
17
Mark Heyl

Creative
Exits
18
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 Me...
Traditional Exits
• Strategic Sale to Third Party
• Selling to Employees
– Source of Payment
– Remedies for Non-Payment
– ...
Traditional Exits
• Strategic Sale to Third Party
• Selling to Employees
• Transferring to Family Members
– Source of Paym...
Traditional Exits
•
•
•
•

Strategic Sale to Third Party
Selling to Employees
Transferring to Family Members
Liquidation
–...
Non-Traditional Exits
• Private Equity
• Management Buy-Out
• Leveraged Buy-Out
• ESOP
Thank you.
Mark A. Heyl
mheyl@hopkinscarley.com

Hopkins & Carley, A Law Corporation
70 S. First Street
San Jose, CA 95113...
Tae Hea Nahm

Creative
Exits
26
Tae Hea Nahm @ Storm Ventures
Mobile
SaaS

Incubation
US IPO

Sold to Adobe Storm LP

Sold to Cisco

Korea
Sold to Qualcom...
Exits
M/A

IPOs

Sold to Cisco

US

Sold to Qualcomm

Sold to IBM

Sold to Adobe

Sold to SemTech

Korea

Taiwan

US IPO

...
Yusuf Safdari

Creative
Exits
29
OPEN: Creative Exits for
Startups
Presented by
Yusuf Safdari
October 21, 2013
Buyer Reasons for Engaging in M&A
•
•

•
•

•
•
•

Buy (rather than build) innovative technology products and services– “B...
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...
Overview of M&A Process
I.

Initial Business Discussions – discuss desirability of transaction and principal
business term...
Muddu Sudhakar

Creative
Exits
34
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 cre...
Focus on Building Great Company
• Build great teams
• Good market opportunity
• Develop Disruptive Technology
• Continuous...
Advice for Entrepreneurs
• Companies are bought, not sold
• Companies bought get 2x to 5x better price vs
companies sold
•...
Exit Expectations
• Most founders and entrepreneurs have
unrealistic expectations of exit values
• Most VCs do not have go...
Exit Values
• 2009/2010: Median VC exist value was $70M
• 2011/2012: Median VC exist value was $100M
• The Average Success...
2012 VC Exits
• More than 50% of the startup exits were less than $50
million, while over 80% were less than $200 million....
Valuation for VC Investments
• Entry price matters for getting good returns for VCs
• Entrepreneurs need to always think a...
Angel vs Seed funds vs VC
• Very important to engage with top-tier and
good angels, firms, funds
• Lot of bottom feeders –...
Board Structures
• Important to have independent people on
board
• Represent fiduciary of common shareholders
• Ensures ri...
Relationships
• Build relationships and network with partners, OEMs,
potential acquirers
• Start Early
• Go deep and broad...
Motives of Buyer
• Understand motives of buyer for acquisition
•
•
•
•
•

Next $1B revenue business unit opportunity
Lack ...
Organization Mapping and Dynamics
•
•
•
•

Understand buyer organization and Dynamics
Who are all key decision makers
Wher...
Talent and Teams
• Location of team is VERY important
• Understand your buyers R&D group locations
• Product and talent ac...
Prepared Questions and Open Q&A

Creative
Exits
49
Questions
• What is the most creative exit deal you ever put together – either
on the sell side or on the buy side? Why? W...
What’s Your V?
VALUE

Customers
Employees
Shareholders
Investors

V

V
© Copyright Kanzatec LLC 2013

V

V
51
Thank You

Creative
Exits
52
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Creative exits v3 10 20-2013 for distribution Fas Mosleh at OPEN Networking Event HP

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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 v3 10 20-2013 for distribution Fas Mosleh at OPEN Networking Event HP

  1. 1. 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 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. 1
  2. 2. CreatiVe !? What does creative mean? Unusual Solving an issue creatively Unconventional UNLOCKING THE VALUE OF YOUR IP 2
  3. 3. Creative Exits - Objective • 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?! 3
  4. 4. Agenda • • • • Introduction Panelist views Prepared questions Open session UNLOCKING THE VALUE OF YOUR IP 4
  5. 5. My Background - Fas Mosleh – 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) 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
  6. 6. Exits where I worked EXIT POTENTIAL UNLOCKING THE VALUE OF YOUR IP 6
  7. 7. Why do Companies Acquire? Typical drivers Ask “How do we provide the value?” Size Products Technology/IP/Trade secrets Team Customers Channels/Distribution Processes Partners Brand Patents Share Entry New products Change UNLOCKING THE VALUE OF YOUR IP 7
  8. 8. The Value in a Tech Company Products & Technology Management Processes & Operations Patents Customers and Channels Team & Brand © Copyright Kanzatec LLC 2013 UNLOCKING THE VALUE OF YOUR IP 8
  9. 9. The Value in a Tech Company Products & Technology Management Processes & Operations Patents Customers and Channels Team & Brand © Copyright Kanzatec LLC 2013 UNLOCKING THE VALUE OF YOUR IP 9
  10. 10. IP ‘Exit’ Examples 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 $450M including Microsoft, Oracle, Apple, EMC) UNLOCKING THE VALUE OF YOUR IP 10
  11. 11. IP Sale Examples Assets Acquirer Price paid Patents 1700 Intel $375M Patents 1100 Intellectual Ventures, RPX $525M Patents 800 Microsoft $1B 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 11
  12. 12. Elements of Value - What Exit Potential (Perceived Value) P-Patents/IP T-Team C-Customers/channel PT-Product/Technology W-Whole business © Copyright Kanzatec LLC 2013 12
  13. 13. High Exit Potential Examples Many exit options SKYPE Salesforce.com Twitter GoDaddy ‘Local’ Class Business ‘World’ Class Business Kodak © Copyright Kanzatec LLC 2013 Few options UNLOCKING THE VALUE OF YOUR IP 13
  14. 14. 3 Developmental Phases = Rings of EP - How Rising EP Example conditions C1 B1 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 A1 Proven MMM – profitable Market leader (share) Strong Brand Notable solution fills gaps Consistent results Proven people © Copyright Kanzatec LLC 2013 UNLOCKING THE VALUE OF YOUR IP 14
  15. 15. Exit on top - When Your Exit potential (value) Top of the world Preferred Exit Getting better Missed it  We can sell Exit Potential ‘S’ Curve GAP © Copyright Kanzatec LLC 2013 Time UNLOCKING THE VALUE OF YOUR IP 15
  16. 16. Key Questions to Ask Yourself Prioritize key value drivers Market Money Machine Timing is Key Know where you are headed UNLOCKING THE VALUE OF YOUR IP 16
  17. 17. 17
  18. 18. Mark Heyl Creative Exits 18
  19. 19. Creative Exits: Traditional vs. Non-Traditional Transactions Presented by Mark A. Heyl Hopkins & Carley, A Law Corporation
  20. 20. 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
  21. 21. 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
  22. 22. Traditional Exits • Strategic Sale to Third Party • Selling to Employees • Transferring to Family Members – Source of Payment – Estate Planning – Ability to “Let Go” • Liquidation
  23. 23. 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
  24. 24. Non-Traditional Exits • Private Equity • Management Buy-Out • Leveraged Buy-Out • ESOP
  25. 25. Thank you. Mark A. Heyl mheyl@hopkinscarley.com 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
  26. 26. Tae Hea Nahm Creative Exits 26
  27. 27. Tae Hea Nahm @ Storm Ventures Mobile SaaS Incubation US IPO Sold to Adobe Storm LP Sold to Cisco Korea Sold to Qualcomm Storm LP Sold to CoreLogic Korea IPO Current Boards Sold to IBM Sold to Avocent Sold to Cisco Semi Taiwan IPO Sold to SemTech
  28. 28. Exits M/A IPOs Sold to Cisco US Sold to Qualcomm Sold to IBM Sold to Adobe Sold to SemTech Korea Taiwan US IPO Sold to Avocent Sold to CoreLogic Korea IPO Taiwan IPO
  29. 29. Yusuf Safdari Creative Exits 29
  30. 30. OPEN: Creative Exits for Startups Presented by Yusuf Safdari October 21, 2013
  31. 31. 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
  32. 32. 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
  33. 33. 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. 703191557
  34. 34. Muddu Sudhakar Creative Exits 34
  35. 35. Creative Exits for Startups Muddu Sudhakar Cloud Services, Big Data, Storage VP & GM VMware @smuddu
  36. 36. 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
  37. 37. Focus on Building Great Company • Build great teams • Good market opportunity • Develop Disruptive Technology • Continuous work with customers • Grow Revenue
  38. 38. Advice for Entrepreneurs • 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
  39. 39. 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
  40. 40. 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
  41. 41. 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.
  42. 42. 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
  43. 43. 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
  44. 44. Board Structures • Important to have independent people on board • Represent fiduciary of common shareholders • Ensures right steps are taken to protect company and people
  45. 45. 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
  46. 46. 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
  47. 47. 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?
  48. 48. 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
  49. 49. Prepared Questions and Open Q&A Creative Exits 49
  50. 50. Questions • 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 UNLOCKING THE VALUE OF YOUR IP 50
  51. 51. What’s Your V? VALUE Customers Employees Shareholders Investors V V © Copyright Kanzatec LLC 2013 V V 51
  52. 52. Thank You Creative Exits 52

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