Upping valuation v2 9 30-2013

UNLOCKING THE VALUE OF YOUR IP UNLOCKING THE VALUE OF YOUR

Creative Venturing: Upping your Valuation Moderator: Fas Mosleh, SVP, IP M&A Panelists: Praveen Gupta, VP, SK Telecom Tony Quintong, CEO, Securieon Clive Surfleet, Former IBM Executive Mark Heyl, Partner, M&A, Hopkins & Carley

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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.

UNLOCKING THE VALUE OF YOUR IP

• Introduction

• Panelist views

• Questions

• Open session

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Agenda

Kanzatec is a leading Patent Research and Transaction Advisory firm serving private and public high tech companies to help drive greater business success through high-performance patent strategies. Our senior consultants combine operating company experience in business management, information systems, patent strategy and operations, with analysis and research capabilities spanning many high tech segments. The company collaborates with a wide range of high tech companies, from startups to the Fortune 500.


Corporate Introduction

• Founded in 2008 to focus on IT analysis and research – grew into IT product and system research, prototyping for F500 for IP projects – IT systems heritage

• Emerging, SMB & Fortune 500 companies in high tech – imaging, web, software, enterprise datacenter, systems, semiconductors, mobile/wireless telecom

• IP Brokerage Palo Alto, CA - Sales, Acquisitions, Valuation, Research/Analysis

• Global team members and Subject Matter Expert network – Silicon Valley, NY, Kansas, San Diego, London, Netherlands, Korea, China

– India, Europe, SMEs

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What Kanzatec Does – R&R

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IP M&A and Patent Sales


Example Industries We Serve

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Energy

Transport

Networking Medical

Imaging

Mobile

Data Center Semiconductor Cloud

Social Web E-Commerce Software


The Value in a Tech Company

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Products & Technology

Management Processes & Operations

Customers and Channels

Team & Brand

Patents


The Value in a Tech Company

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Products & Technology

Management Processes & Operations

Customers and Channels

Team & Brand

Patents


• Situation – Need another round of funding

• Challenges – Business doing poorly – New funding hard to get at reasonable valuation

• Action

– Divest patents with a license grant back

• Results

– Obtained $2M to extend runway another 18 months

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Upping Valuation– IP Funding


• Situation – $1B+ revenues semi company

• Challenges – Unnecessary IP found every year

• Action – Create a regular revenue stream

• Results – Sell $1M of patents every quarter garnering 75% margins

– Healthy, dynamic IP strategy

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Upping Valuation– IP Income


Why Do Companies Patent?

10 Source: HIGH TECHNOLOGY ENTREPRENEURS AND THE PATENT SYSTEM: RESULTS OF THE 2008 BERKELEY PATENT SURVEY


Praveen Gupta

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Creative Venturing

Upping Valuation Creative Exits Creative Funding


Upping the Valuation: When do I start?

What can I do early on?

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Praveen Gupta

Vice President – Corporate Business Development

October 4, 2013

UNLOCKING THE VALUE OF YOUR IP 13

When do I start? – At Idea Conception Stage

Source: Wikipedia - derived from work by Kompere

Goals to get from Idea Conception to Exit: Maximize Value (Wealth) at Exit Minimize Time to Exit at the peak of growth curve Target IPO, but Position for Getting acquired not sold

Idea Conception


What can I do early on?

• Fundamental • Identify and Focus on Value Drivers • Be driven by Passion not Emotion • Selfless Leader - Think Team not individual • Flexible and Realistic

• Don’t be blinded by your own thoughts • Open mind - No Tunnel Vision • Excellent Listener – Open to Criticism and act on it appropriately • Admit mistakes, learn from them, fix, and execute

• Strategic

• Build A-Team – Core expertise and relationships in your target area • Solve a real problem not a me-too solution • Get on the Radar of potential acquirers and investors

• Tactical

• Understand market, competition, & Customers – Outside-In • Seek Value add Partners and relationships • Build fundamental IP – Tweaks are not differentiators • Create work environment that encourages creativity


Examples: Good, Bad, & Tough-Luck

• Good • GSM Switch Company

• Decided to focus on 2nd and 3rd tier markets • Built a highly reliable full feature GSM switch at affordable prices • Avoided competition with big guys • Fast revenue growth as 3G market took-off • Sold to a US based company focused on Asia market to enable their expansion in emerging markets • Very good returns for investors

• Bad • VoD server Company

• Focused on serving VoD Applications over DSL • Great vision but too many bells & whistles • Great strategy but very low flexibility on tactical side • Targeted very small size customers without fully validating their financial credentials • By year 3, broke-even on booked revenue, but mostly turned out to be uncollectible • Company shut-down – tried to sell but no buyers

• Tough-Luck • Enterprise Software Company

• Built A-Team • Focus on CRM with defensible IP and Fortune 500 customer base • Positioned to price at $1+ Bn for IPO but market crashed that day • Sold 6 months later for low valuation due to ongoing Stock market issues


Tony Quintong

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Creative Venturing



Upping Valuations Without Emotions “Everything in life is for sale except for your family, friends and your soul” Izzy Orin


Value is often in the eyes of the beholder


Pre 2008-A false sense of value was masked by great waves of optimism and available credit. You just had to be at the right place and the right time to catch a wave of success.


The Reality-Fault lines eventually cracked and a tsunami of economic waves of disaster caused wipeouts


Insert Graph of Historic Market Performance


Connecting the Dots for Higher Values-Milk Shakes and Life What is the real value you are delivering to the client?

RFP-reading between the lines-Medical Sterilization

Knowing the IP value of your employees Bentleys-M5s-S55-Posers-Furniture

Lipstick on a Pig Fire-Ready-Aim Is not Sustainable-Used Tech Equipment

Radura is not a river in Italy-NAFTA Cows, Spinach and the FDA

The difference between Arrogance and Confidence is-Competence Ballast Water


We deviate from the norm and quickly look at the systemic issues preventing real value


Systemic Challenges to Value Revenue Sustainability and Scalability Masked Misalignment of Culture and Infrastructure from the top False Sense of Core Expertise-Ego What markets can you win? Who are the top three companies that would buy your firm? Silos and misalignment Investor Fatigue/Founder Fatigue


Decision Points to Upping Your Valuation Why sell or buy today? What would your customers says? Blunt Employee Feedback Competitive Market Position and Differentiation Growth by Acquisition or by Execution? Valuations you can justify



Clive Surfleet

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Creative Venturing



BLADE NETWORK TECHNOLOGY (BNT) VALUATION STORY

Clive Surfleet – Former BNT SVP, HP & IBM Executive

October 4, 2013

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• Technology from Alteon & Nortel

• Business Started at Nortel in 2003

– Networking switches for Blade Server market

• By 2006, business was struggling due to lack of focus in Nortel

• Spun out as a private company in 2006

• Acquired by IBM in 2010

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BNT Background


• Valuation Measures – Revenue, Growth, Margins, Expenses, etc.

– Perception of Value by the Buyer

• Valuation Issues – Weak Gross Margins

– Product Breadth

– Route to Market – Direct, Reseller, OEM

– Customer Breadth

– Perception of Low Value Add

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BNT Valuation Issues


• What we did – Very tight operational management

– Technical Field Sales Engagement

– Product Expansion – First to market with new technology

– New Routes to Market

– New Product Categories

– Make yourself look bigger than you really are

– Customer Intimacy

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Steps Taken to Improve Valuation


• Build exceptionally close relationships with a few large customers – Long Term Relationships – Daily, weekly, monthly interaction at all levels – Multi-function relationships – R&D, Support, Sales,

etc.

• Build a strategic alignment – If your customer wins, you win

• Allow them to help guide your product and business plans.

• Continually bring new ideas to your customer.

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Customer Intimacy


• Displaced Cisco in a large number of accounts

• Grew to 70% market share in Blade server networking

• Several customers became minority shareholders

• Eventually sold the company to our largest customer

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Results


Mark Heyl

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Creative Venturing


UNLOCKING THE VALUE OF YOUR IP UNLOCKING THE VALUE OF YOUR

Upping Valuation: Pre-Exit Considerations

Presented by

Mark A. Heyl Hopkins & Carley, A Law Corporation


Priorities of a Founder

Develop Product or Service

Raise Capital

Minimize Operating Expenses

Minimize Taxes




Raise Capital


Minimize Taxes




Raise Capital


Minimize Taxes




Raise Capital


Minimize Taxes




Raise Capital


Minimize Taxes


Paradigm Shift Preparing for the Exit

• Financial Statements

• Establishing a Consensus

• Timing

• Consult with Advisors




– Profits Most Substantial Factor in Determination Price

– Shift Focus from Reducing Taxes to Maximizing Profits

– Remove Unnecessary / Inappropriate Expenses • Take Non-Contributing Family Members off Payroll

• Take Personal Items off Balance Sheet (i.e., cars, boats, 2nd homes)


• Timing




– Profits Most Substantial Factor in Determination Price

– Shift Focus from Reducing Taxes to Maximizing Profits

– Remove Unnecessary / Inappropriate Expenses • Take Non-Contributing Family Members off Payroll

• Take Personal Items off Balance Sheet (i.e., cars, boats, 2nd homes)



• Timing


– Dissenting Family Members

– Identify Key Employee

– Retention Bonuses

– Stock Options




– Dissenting Family Members

– Identify Key Employee

– Retention Bonuses

– Stock Options


• Timing

– Health Considerations

– Economic Considerations

– Transition





• Timing

– Starting or Buying Another Business

– Retirement

– Funding the Plan



– Corporate Transaction Attorney

– Business/Industry/Valuation Consultants

– Estate Planning Attorney

– CPA

– Financial Advisor

– Business Broker / Intermediary


Thank you.

Mark Heyl [email protected]

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


Thank You

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Creative Venturing

Creative Exits November 8 Creative Funding December 6


What’s Your V?

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VALUE

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