Raising capital (and How to Exit) June 2010

Transcription

1 Raising capital (and How to Exit) June

2 Founded July 1999 built and owned by founders Completed over 90 M&A and Private Placements GP Bullhound is Europe s No 1 TMT advisor Professional team drawn from: History of Successful Growth GP Bullhound timeline Founded July 22 Independent Research Launched Media Momentum Launched 50 th Transaction Closed San Francisco Office Opened GP Bullhound Ranked #1 Private Placement House in Europe Cleantech Connect Launched Global Tech Fund Launched First M&A Transaction Closed GP Capital MBO Investor Allstars Launched Bullhound and GP Capital Merger GP Bullhound Acquired Touchstone Securities GP Bullhound Shortlisted for Boutique of the Year at the M&A Awards 1

3 Global Team Local Presence San Francisco London Martin Smith Non-exec Chairman CSFB/DLJ, New Star Per Roman Founder / Partner AutoDesk, Lehman Brothers Hugh Campbell Founder / Partner Citibank, Goldman Sachs Manish Madhvani Founder / Partner Barclays PE Christian Lagerling Founder / Partner Barclays Capital, BZW Alec Dafferner Partner / Head of US UBS, Volpe Brown W. Henry Makansi Partner Lehman Brothers, Warburg Pincus Lord Clive Hollick Partner KKR, Prosieben Nielsen, Diageo Antony Northrop Senior Advisor Lazards, Touchstone Mats Johansson Senior Advisor Futuremedia plc, Thursley Group Frank Schmitt Director UBS, Arma Partners Claudio Alvarez Vice President Edison Investment, Execution Ltd Julien Oussadon Associate Arma Partners, Société Générale Carl Bergholtz Associate Jefferies International Remy Valette Analyst Société Générale Amanjit Dhami Analyst UBS Sasha Afanasieva Analyst Merrill Lynch Justine Chan Analyst Harris Williams Graeme Bayley CFOO HSBC Cecilia Roman Head of Events Arthur Andersen, Morgan Stanley Rakhdeep Dhaliwal Financial Controller Sevacare Lina Einarsson Events Manager Indigofera, Distribution Sofie Emtesjo Assistant Lansdowne Partners, Accenture Anna Isabella Leplau Assistant Harrods Ltd 2

4 Deep Domain Expertise Software Internet/Mobile Cleantech Hardware Saas Digital Media Photovoltaic Cells Mobile Peer to Peer Advertising Solar Concentrator Infrastructures IT Services Games Fuel Cells Telecom Equipment E-Commerce Interactive Energy Efficiency Semiconductor Entertainment Industrial Process 3

5 Financing Lifecycle Revenue Angels Founders Seed Capital The Chasm Venture Capital Strategic Investors Early Stage C Later Stage Mezzanine The Wall IPO Public Markets Secondary Offerings B A Valley of Death Time Seed or Start-up: Market research and product development. Little or no revenues Early Stage: Funding full-scale operations and selling products/services. Not yet profitable Later Stage: Funding expansion and new products. Near break-even 4

6 Selected Strategic Alternatives Minority Investment Provides company with valuable capital to weather current market cycle and drive new growth Investors would include global VCs/Growth Capital investors as well as a select group of strategic players Future liquidity event pushed out at least 12+ months Shareholders suffer dilution but retain ability to participate in future growth potential of the company Key is focusing new investors on core business and value of assets while helping them understand the current business No liquidity for current investors Majority Investment Investment by financial partner for > 50% stake Ability to raise primary capital to fund cash flow needs and growth initiatives as well as buy out current investors seeking liquidity Process and structure has become more standard in recent years Buyers/investors would include PE/Buyout funds and secondary players familiar with this type of investment and structure Financial partners focused on IRR and future exit opportunities Current shareholders less able to participate in future growth potential of the company Sale Straight sale of the company Process focused on global strategic players Strategic buyers have ability to pay higher multiple due to synergies and strategic premium Positioning is key position as an opportunity to acquire a unique property otherwise not available in a normalized market environment Shareholders giving up ability to participate in future growth potential of the company 5

7 2 Key Questions To Consider Do you really need the money? Will the money ensure you generate a better return for your current shareholders at exit? Valuation Liquidation preferences Deal fees Business support 6

8 VCs Are Not The Only Source VCs in Europe and USA Government funds and subsidies Strategics Venture debt Private equity funds Alternatives Hedge funds Family offices Middle Eastern investors 7

9 The Entrepreneur s View VCs have money, bargaining power VCs have knowledge how to write contracts, value companies, VCs have experience with investment process VCs work for their fund providers, NOT for the entreprenuer Top VCs are valuable for top companies Risky business for the entreprenuer: lots of bankruptcies, lots of average investments get killed early 8

10 Our Current View on VC Investments We see a focus on later stage safe haven investments Investors still being cautious, shunning excessive risk. As such: A wider audience of potential investors has to be approached Investors that find initial comfort have to be hand-held throughout the process Deal timetables are being prolonged as investors do extra due diligence US VC s are increasingly focusing on local US deals. Will only venture to Europe if the investment is sizable and involves a later stage company Current VC investments have improved since the lows of mid

11 The Fund Raising Process 10

12 Phase 1: Preparation Key issues: Business plan in English Financial model 36 months Executive summary Investor presentation 25 slides Data room Investor list 11

13 Phase 2: Marketing Key for your business is to: Access active VCs Investing in your specific field At your specific stage Create competition for the deal Understand the VCs process 12

14 Phase 3: Closing Double the efforts now Keep to tight timetable Maintain momentum Keep close to investors Push all advisors Manage deal costs Closely manage all DD Organise closing dinner! 13

15 Deal structures What Should You Expect Second round VCs are still VCs! Looking for 5x return or 30-50% IRR Dilution of 25-40% 1x+ liquidation preference 8% preference dividend Anti-dilution protection Warranties with 1-2x salary for key management as indemnity A level of control over key decisions such as exit 14

16 What companies get funding these days? 15

17 Not These.. 16

18 ..But These Nimble, Focussed and High Energy Entrepreneurs 17

19 What Are The VC s Looking For At A Minimum Companies that provide solutions with sustainable competitive advantages Well protected intellectual property Proof of concept is completed and understood The larger the addressable market, the better larger markets mean larger exits Clear customer need for the product with identified customer pain An understanding of the competitive landscape startups as well as established players A strong team (preferably with prior exits) and execution plan Support from existing investors 18

20 What VC s Really Want In The Current Environment Proven revenue model, i.e. revenues in place (and growing) No technology risk Path to profitability Proven distribution and market traction Experienced management team and organisation in place (prior exits) Clear market need Limited competition 19

21 Typical Financing Round Company Requirements Value Seed/Round A Financing Expansion Round Late Stage Round Early proof of concept Commercialisation strategy Fully developed business model Impressive team of founders Experienced management team Proven senior management with an experienced second line Credible business plan Successful execution of business plan Plan to move the business to the next level Go to market strategy Strong sales capabilities Developed sales channels Clear value proposition Scalability Defined market offering Time 20

22 Typical Financing Round Characteristics Seed/Round A Financing Expansion Round Late Stage Round 1-5 million 5-10 million 8-20 million Seed Investors: Friends, family, angels 1 4 key nvestors Early-stage fund(s): Often 1 fund Seed Investors: Some follow Early-stage fund(s): Usually follows Institutional fund(s): 1 2 additional institutional funds 1 Venture Debt provider Seed Investors: Hardly ever follow Early-stage fund(s): Often doesn t follow Existing institutional fund(s): Often follow, but not all New late-stage funds: 1 2 institutional funds Pre-IPO Investors: 1 hedge fund, family office, early stage Private Equity 1 Venture Debt provider 21

23 Representative Typical Investors Seed/Round A Financing Expansion Round Late Stage Round Early stage funds Early Stage followers new institutional investors Existing institutional investors Private Equity Funds Venture debt providers Hedge Funds Venture debt providers 22

24 The Exit Process 23

25 There Are A Number Of Ways To Exit A Company Sale to Corporate Buyer Sale to Financial Sponsor Management Buy-Out Initial Public Offering (IPO) Reorganisation / Liquidation 24

26 Their Are A Number Of Questions To Be Considered Is it the right time to sell the company Are shareowners and management aligned on objectives and outcome Are all owners sellers or could a partial exit be satisfactory Is there enough financing in place to enable a successful process Has the company established relationships with its potential buyer community Do we wait for an inbound offer or do we actively seek the buyers Are we internally prepared (response time is critical) 25

27 Exits Are Always Difficult Despite relatively strong valuations and deal volumes in technology M&A transactions, achieving a high quality exit can be challenging M&A Drivers IPO threshold remains high M&A path is an accepted and often preferred exit strategy for investors Investors concerned about broader economic uncertainties Increase in late stage investments creates pressure of near-term liquidity Cash generation is strong M&A Challenges Consolidation of large vendors is shrinking the buyer pool Buyers have limited M&A bandwidth access becomes more important Buyers are increasingly looking to higher revenue companies to achieve scale Strong profitability key due to current market conditions and financial buyers criteria 26

28 The Exit Process - Overview Key aspects of running a successful exit process include investor access, process expertise, and bandwidth investment required to parallel process a large number of potential buyers Targeted outreach to qualify potential buyers across a number of factors 5-10 potential buyer meetings over a 1-4 week period Often ask potential buyers to issue indicative offer pre due diligence Qualify Potential Buyers Approach Potential Buyers Management Meetings Pre-offer Due Diligence Letter of Intent Exclusive DD and Legals (20-50+) (10-30) (5-10) (2-5) (1) (1) Approach selected potential buyers simultaneously Approach key decision makers Avoid information shopping Keep potential buyers interested in deal and conveys positive image of team Push all involved parties to keep the timeline and co-ordinate DD meetings and legal drafting sessions Typical Cycle is 6+ Months 27

29 Phase 1: Preparation Phase 1 Preparation Kick-off meeting Research report Financial model Investor presentation Investor shortlist Sign-off workshop Focus on building a strong equity story for optimal positioning of the company towards buyers Detailed report of about pages on the company Fully integrated financial model tailored for buyers page investor presentation + additional slides for later site visits + live dry run trainings 2-3 page teaser document distributed at initial buyer contact Compiling of buyer shortlist for targeting 28

30 Phase 2: Marketing And Buyer Contact Phase 2 Buyer contact Initial contact and scheduling Road show Site visits Indicative term sheets Buyer analysis Go-to-market phase Important that management can focus on business and milestones as well as buyer contacts Address the right set of buyers Manage an efficient and effective roadshow Organize follow-on site visits Choose the best parties to take forward 29

31 Phase 3: Closing Phase 3 Closing Due diligence Negotiation of terms Definitive agreement Documentation Closing Push all involved parties to ensure timetable is met so that the company can get back to business as usual Manage term sheet negotiations often complex if indicative term sheets differ greatly Co-ordinate communication between buyer, buyer s advisors, company and company s advisors Manage due diligence process from data room set-up to managing lawyers and accountants 30

32 Roadblock Issue Impact Management Bandwidth Investor Access Deal Packaging Diligence Requests Deal Negotiations Key management should expect to spend up to 50% of their time on the exit to run a successful process Inability to parallel process investors leads to serial interactions Company access typically limited to 2-5 potential buyers through management and board connections Inability to target right partner Company has one shot with a potential buyer Deal needs to be packaged correctly (summary, investor presentation, management interaction) Potential buyers will make a variety of ad-hoc requests that consume entire management team s time Risk of alienating potential buyers during negotiations and losing opportunity momentum Roadblocks Emerge in Every Transaction Common roadblocks can delay the exit process anywhere from two weeks to six months If management invests right amount of time in process risks deteriorating business If exit is secondary focus, potential 4 month impact Accessing correct decision maker: 1 to 3 weeks Multiply by potential buyers May require company to reach out to 2 to 3x the number of potential buyers to achieve successful outcome 1 to 2 week turnaround per diligence request Multiply by 3 to 5 buyers Possible impact to future relationship with new management Could cause process restart if negotiations break down (backup buyer options) 31

33 Some VC Backed Companies Enjoy Real Home Run Exits... MySQL AB Skype Sale January 2008, $900m Enterprise Value / Revenues = 17.0x Sale September 2005, $4bn Enterprise Value / Revenues = 134.6x Sun Microsystems acquired the stakes from Balderton, Benchmark Capital, Index Ventures, SAP, Red Hat, Intel Capital, and others MySQL AB provides open source database software. Its products include MySQL Enterprise, a set of productiontested software, which offers production support and monitoring tools; MySQL Cluster, which provides a database clustering architecture for deploying missioncritical database applications; and MySQL Embedded Database, a zero administration database mysql had raised circa $40m from a series of investors between 2001 and 2006 EBay agreed to pay $1300 million in cash and 32.4 million shares of ebay stock, or approximately $1,251 million, which are subject to certain restrictions on resale. A further payout of up to $1,500 million, potential performance-based consideration was agreed to be paid Skype provides a software that enables individuals and businesses to make free video and voice calls, send instant messages, and share files with other Skype users. It also enables to make calls to landlines and mobiles internationally Skype raised $19m from Bessemer Venture Partners, Draper Fisher Jurvetson and Index Ventures in 2004 as well as one round of undisclosed size in

34 ...However, Most Exits Are Of Average Size Tradera AB Pricerunner AB Sale April 2006, $48m Sale August 2004, $36m ebay acquired Tradera from Provider Ventures and TIME Vision Tradera provides auction services to buy and sell various goods through its Web site. The company uses a feedback system where sellers and buyers give each other written feedback about business experiences. It makes the feedback points available for all members to facilitate a safer trading environment Tradera raised $1.5m from IT Provider Adviser, Kaplans Auktioner; NewMedia Spark and Scandinavia Online in September 2000 ValueClick, Inc. signed a definitive agreement to acquire PriceRunner AB for $35.8 million in cash and stock in August 2004 Pricerunner is a comparison shopping engine that provides consumers with access to buying information on a variety of products. It aggregates product details, user and expert product reviews, and retailer ratings, as well as prices in one location Pricerunner had raised capital from a number of funds since being founded in $10m was raised in 2000 and an additional $3.5m was raised in 2001, there was another fund of undisclosed size in

35 Fundraising And M&A Process Do s Get Board alignment how much / what price / which investors or buyer Get all your documentation / data room in order Build a buzz about the business Deliver the forecast numbers Focus on customers and revenues Think about you customer / partner references Build industry relationships Think long and hard about timing 34

36 Fundraising And M&A Process Dont s Rely on your Board or investors to raise the money or find the right buyer Think it will be easy Forget about your business Have unrealistic views on valuation Raise too little money or sell at the wrong time Be unprepared you have one shot 35

37 Frank Schmitt