Danny Moore's keynote at the InterTrade Ireland VC Conference 2012

w: loughshore.co - Tw: @loughshore

Danny Moore – Founder, Lough Shore Investments

Entrepreneur turned Investor


Overview

•  Background and the Wombat story

•  Lough Shore:

•  Northern Ireland business landscape (at least from the perspective of indigenous tech companies),

•  Where Lough Shore fits in.

•  Experience, comments, lessons learned.

•  Questions.


A little background…

•  Wombat was acquired by NYSE in 2008. •  Became COO of NYSE Technologies through

to April 2010. •  Founded Lough Shore Investments in

November 2010. •  Won first Oscar in 2012.

•  From Glenavy, Co. Antrim. •  Studied Queen’s University, Belfast. •  Joined First Derivatives Plc in January 2001, with

a focus on New York from early 2002. •  Joined Wombat as the second FTE in Jan 2004,

based in New York.


Wombat – key facts

•  Massive compound organic growth, circa $500k billings in 12 months before I joined in Q4 2003, business unit circa $40m in 12 months to Sept 30th 2008.

•  Quarterly cash positive Q1 2005 through to exit (Q4 2007). Over 12 months runway on the balance sheet on exit.

•  Combative penetrate and up-sell “base-hit” driven business model. Only a handful of the more than dozen competitors in the sector in 2003 were still around in 2008.

•  Maximum deal size (total product value) per customer circa $400k in 2003, $5m in 2008.



Wombat & Belfast

•  New York first, Belfast second. The company’s center of heart was always out and out Wall Street (office in 25 Broad, across the road from the exchange).

•  Engine room was out and out Belfast, 70% of the global team were sourced through the Belfast office.

•  Average age across the company globally on exit – 26 ½!

•  Four major Invest NI investments, culminating in its biggest ever ICT deal in 2009, £10m to secure 550 jobs from NYSE Euronext.

•  Virtuous circle continues: CME, Cowen Group, First Derivatives in Belfast, Lough Shore Capital.


The Dream Team, March 2008


Fundraising - Wombat •  The million dollar secret: the best way to fund a technology business is by selling stuff to

customers with strong margins!

•  Merrill Lynch made a circa $3.5m strategic investment in Q4 2005, got returned $55m in Q1 2008.

•  Best deal we ever did, doubled the exit value in my estimation,

•  Used the cash to bolster the balance sheet, then buy Harco.

•  Auction to sell the company started out as a fundraising round for an MBO. We were working with twelve suitors through 2007, eight bid in round one.

•  The $200m secret; VCs or acquirers will see your projections nine months before a deal closes; hitting the numbers needs to be in the DNA. You disappoint, you die.

•  Invest NI was a great partner – has to be said.


Lough Shore Investments

❝ Our mission is to invest in high potential management teams and partner with them to build great businesses. Our goal is to bring ten great

companies to exit or IPO by 2025 ❞ !!


Some great NI businesses

Company Year Founded Turnover (2010) Profit Market Cap (03/12)

Randox 1982 £59,695,000 £2,908,000 -

First Derivatives 1996 £25,476,000 £3,787,000 81,000,000

Almac 1968 £250,983,431 £10,721,002 -

Chain Reaction Cycles 1984 £109,420,000 £9,527,000 -

Andor Technology 1989 £42,719,000 £4,569,000 167,000,000


Elephant in the room

Our mission is to invest in high potential management teams and partner with them to build great businesses. Our goal is to bring ten

great companies to exit or IPO by 2025.!


Lough Shore – Big idea

•  Create an outward focused seed investor, specializing in taking local companies to the US market and raising international capital through to IPO. Platinum player in a small market.

•  Develop strong links in local funding community to help these companies fully leverage all the assets available.

•  Partnership approach, strong focus on developing management teams and working with them to grow the business with a focus on investablity.

•  Really strong focus on skills, ecosystem and go to market, both here and in the US.

•  Partner with government to address the management skills gap.


Partnering with Management

The Essence of Running a Business

Always Be Selling / Always Be Closing

The Boring Stuff

Need To Be Doing This Really Well

Face time with customers and

partners Product and Engineering Doing Deals

Building a Team and Leadership

International Expansion

Finance and Admin Legal Go To Market PR and

Marketing

Management Process Logistics Governance M & A


Strategic planning, execution and tracking using the 8QP

8QP Heatmap shows progress at a glance

❝The 8QP has been a fantastic tool for helping me step back and take a real strategic view on the direction of the company❞ Jonathan Chesney, WorldDesk


Advice to founders •  Have an angle.

•  Manage the business, if you don’t need the money they’ll be knocking on your door. Patience and consistency with careful cash management.

•  Major on proof of traction. The best stories are based around revenue acceleration. The founding team has already got the business up and running, but need to augment the balance sheet and invest to scale sales / delivery (inc. globally).

•  Be honest and transparent. There isn’t a serious angel investor or VC out there who hasn’t got sold a pup (or a litter of pups). Many have been on the receiving end of fraud and other vicious practices. They are cautious and rightly so!

•  Be realistic about growth projections and valuation. Take outside advice. Many eleventh hour collapses stem from investor unease about either the valuation or the integrity of the founders.

•  Seed investing in particular is about partnership.


Compounding = Patience

•  To make it big in the medium term, entrepreneurs need to understand the power of compound growth (including how it relates to building a balance sheet).

•  It is a concept that’s fundamental to growing a customer base, cash flow, team, balance sheet, & retaining equity.

•  Small changes in level of debt, revenue growth, margin, return on equity, have massive impacts on how a business scales in the medium term.

Einstein considered compound interest “the most powerful force in

the universe”.

Buffet’s life story “The snowball”.!


Mr Consistency

•  Get the small calls right and grind out the results, consistently. Day after day, week after week, year after year.

•  It’s all about base hits and RBIs (i.e. take the base hits and the home runs will come). Or, as they say in Ireland, take your points and the goals will come!

•  The concept of the “flywheel” is key, aggregating hundreds of small wins to build sustainable momentum – Jim Collins


Compounding Consistency Decade 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001

First Derivatives Turnover 36.74 25.48 17.55 12.67 9.33 6.31 3.79 2.68 1.65 1.78 1.85

Operating profit (loss) 6.57 6.29 5.94 5.23 2.63 1.64 0.88 0.60 0.42 0.63 0.54 EBITDA 8.58 7.25 6.45 5.56 2.91 1.92 1.13 0.63 0.44 0.65 0.56 EBITDA Margin 23.34 28.45 36.74 43.89 31.16 30.35 29.69 23.52 26.38 36.73 30.18

Return on Common Equity 24.82 27.46 31.38 44.49 43.65 39.39 29.84 26.81 33.81 100.12

Revenue Growth 37.1% 44.2% 45.2% 38.5% 35.8% 47.8% 66.4% 41.6% 62.5% -7.3% -4.0% EBITDA Growth 36.7% 18.3% 12.4% 15.9% 91.2% 51.8% 70.2% 78.7% 44.8% -33.4% 16.8% Andor Turnover 57.35 42.72 33.11 24.72 21.27 19.24 15.71 11.65 9.21

Operating profit (loss) 8.94 5.73 4.79 2.12 1.35 1.40 0.78 1.24 1.06 EBITDA 11.19 7.42 6.02 2.92 2.14 2.13 1.41 1.53 1.33 EBITDA Margin 19.51 17.37 18.18 11.82 10.08 11.09 8.99 13.09 14.48

Return on Common Equity 19.10 19.55 24.99 8.90 10.22 17.13 14.38 31.05

Revenue Growth 26.0% 34.3% 29.0% 34.0% 16.2% 10.5% 22.4% 34.9% 26.5% EBITDA Growth 34.4% 50.8% 23.3% 106.0% 36.3% 0.5% 51.0% -7.3% 14.4% Apple ($billions) Revenue 108.25 65.23 42.91 37.49 24.58 19.32 13.93 8.28 6.21 5.74 5.36 Operating Income 33.79 18.39 11.74 8.33 4.41 2.45 1.64 0.35 0.03 0.05 -0.33 EBITDA 35.60 19.41 12.47 8.82 4.73 2.68 1.82 0.50 0.14 0.16 -0.23 EBITDA Margin 32.89 29.76 29.07 23.53 19.26 13.86 13.08 6.03 2.22 2.86 -4.31

Return on Common Equity 41.67 35.28 30.54 33.23 28.51 22.85 21.24 5.94 1.66 1.62 -0.63

Revenue Growth 36.8% 66.0% 52.0% 14.4% 52.5% 27.2% 38.6% 68.3% 33.4% 8.1% 7.1% EBITDA Growth 73.0% 83.4% 55.6% 41.4% 86.4% 76.8% 47.0% 265.1% 261.6% -15.9% -171.0%


The Shore – The Rationale

•  Investment was made from the marketing budget.

•  Massive alignment of interest (Lough Shore, Shores of Lough Neagh, CALNI, returning from the US, showcasing NI).

•  Terry George, the Entrepreneur:

•  Northern Ireland team operating at the highest level in their industry,

•  Crystal clear aspiration, objectives and business plan,

•  Cheap / brilliant at sweating the assets.

•  Massive brand message if we got the win.


And when it all works out!


Questions