InterTradeIreland Venture Capital Conference 2012

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Danny Moore's keynote speech at the 2012 InterTradeIreland Venture Capital Conference in Belfast.

Text of InterTradeIreland Venture Capital Conference 2012

  • 1. Entrepreneur turned InvestorDanny Moore Founder, Lough Shore Investmentsw: - Tw: @loughshore

2. Overview Background and the Wombat story Lough Shore: Northern Ireland business landscape (at least from the perspectiveof indigenous tech companies), Where Lough Shore fits in. Experience, comments, lessons learned. Questions.w: - Tw: @loughshore 3. A little background From Glenavy, Co. Antrim. Studied Queens University, Belfast. Joined First Derivatives Plc in January2001, with a focus on New York from early2002. Joined Wombat as the second FTE in Jan2004, based in New York. Wombat was acquired by NYSE in 2008. Became COO of NYSE Technologiesthrough to April 2010. Founded Lough Shore Investments inNovember 2010. Won first Oscar in 2012.w: - Tw: @loughshore 4. Wombat key facts Massive compound organic growth, circa $500k billings in 12 monthsbefore I joined in Q4 2003, business unit circa $40m in 12 months toSept 30th 2008. Quarterly cash positive Q1 2005 through to exit (Q4 2007). Over 12months 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 in2003 were still around in 2008. Maximum deal size (total product value) per customer circa $400k in2003, $5m in 2008.w: - Tw: @loughshore 5. w: - Tw: @loughshore 6. Wombat & Belfast New York first, Belfast second. The companys center of heart wasalways out and out Wall Street (office in 25 Broad, across the roadfrom the exchange). Engine room was out and out Belfast, 70% of the global team weresourced through the Belfast office. Average age across the company globally on exit 26 ! Four major Invest NI investments, culminating in its biggest ever ICTdeal in 2009, 10m to secure 550 jobs from NYSE Euronext. Virtuous circle continues: CME, Cowen Group, First Derivatives inBelfast, Lough Shore Capital.w: - Tw: @loughshore 7. The Dream Team, March 2008w: - Tw: @loughshore 8. Fundraising - Wombat The million dollar secret: the best way to fund a technology business is by selling stuffto customers with strong margins! Merrill Lynch made a circa $3.5m strategic investment in Q4 2005, got returned $55min 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 wereworking with twelve suitors through 2007, eight bid in round one. The $200m secret; VCs or acquirers will see your projections nine months before adeal closes; hitting the numbers needs to be in the DNA. You disappoint, you die. Invest NI was a great partner has to be said.w: - Tw: @loughshore 9. Lough Shore Investments Our mission is to invest in high potential management teams andpartner with them to build great businesses. Our goal is to bring ten great companies to exit or IPO by 2025 w: - Tw: @loughshore 10. Some great NI businessesCompany Year Founded Turnover (2010) Profit Market Cap (03/12)Randox1982 59,695,000 2,908,000 -First Derivatives 1996 25,476,000 3,787,00081,000,000Almac 1968 250,983,43110,721,002-Chain Reaction1984 109,420,0009,527,000 -CyclesAndor Technology1989 42,719,000 4,569,000167,000,000w: -Tw: @loughshore 11. Elephant in the roomOur 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. w: - Tw: @loughshore 12. Lough Shore Big idea Create an outward focused seed investor, specializing in taking localcompanies to the US market and raising international capital throughto IPO. Platinum player in a small market. Develop strong links in local funding community to help thesecompanies fully leverage all the assets available. Partnership approach, strong focus on developing managementteams and working with them to grow the business with a focus oninvestablity. Really strong focus on skills, ecosystem and go to market, bothhere and in the US. Partner with government to address the management skills gap.w: - Tw: @loughshore 13. Partnering with Management The Essence of Running a Business Face time with Building aProduct and InternationalE customers andDoing Deals Team andEngineeringxpansionpartners LeadershipAlways Be Selling / Always Be ClosingThe Boring Stuff Finance andPR andLegalGo To MarketAdminMarketing ManagementLogistics GovernanceM&AProcessNeed To Be Doing This Really Wellw: - Tw: @loughshore 14. Strategic planning, execution and tracking using the 8QP8QP Heatmap shows progress at a glanceThe 8QP has been afantastic tool for helpingme step back and take areal strategic view onthe direction of thecompanyJonathanChesney, WorldDesk w: - Tw: @loughshore 15. Advice to founders Have an angle. Manage the business, if you dont need the money theyll 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 augmentthe balance sheet and invest to scale sales / delivery (inc. globally). Be honest and transparent. There isnt a serious angel investor or VC out there whohasnt got sold a pup (or a litter of pups). Many have been on the receiving end of fraudand other vicious practices. They are cautious and rightly so! Be realistic about growth projections and valuation. Take outside advice. Manyeleventh hour collapses stem from investor unease about either the valuation or theintegrity of the founders. Seed investing in particular is about partnership.w: - Tw: @loughshore 16. Compounding = PatienceEinstein considered Buffets life story The compound interest the snowball. most powerful force in the universe. 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 thats 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.w: - Tw: @loughshore 17. Mr Consistency Get the small calls right and grind out theresults, consistently. Day after day, weekafter week, year after year. Its all about base hits and RBIs (i.e. takethe base hits and the home runs willcome). Or, as they say in Ireland, takeyour points and the goals will come! The concept of the flywheel is key,aggregating hundreds of small wins tobuild sustainable momentum JimCollinsw: - Tw: @loughshore 18. Compounding ConsistencyDecade2011 2010200920082007 20062005 2004200320022001First DerivativesTurnover36.74 25.4817.5512.679.336.31 3.79 2.68 1.651.781.85Operating profit (loss)6.576.29 5.94 5.232.631.64 0.88 0.60 0.420.630.54EBITDA 8.587.25 6.45 5.562.911.92 1.13 0.63 0.440.650.56EBITDA Margin 23.34 28.4536.7443.89 31.16 30.3529.6923.5226.38 36.73 30.18Return on CommonEquity24.82 27.4631.3844.49 43.65 39.3929.8426.8133.81100.12Revenue Growth 37.1% 44.2%45.2% 38.5% 35.8% 47.8%66.4%41.6%62.5% -7.3%-4.0%EBITDA Growth36.7% 18.3%12.4% 15.9% 91.2% 51.8%70.2%78.7%44.8%-33.4%16.8%AndorTurnover57.35 42.7233.1124.72 21.27 19.2415.7111.65 9.21Operating profit (loss)8.945.73 4.79 2.121.351.40 0.78 1.24 1.06EBITDA11.197.42 6.02 2.922.142.13 1.41 1.53 1.33EBITDA Margin 19.51 17.3718.1811.82 10.08 11.09 8.9913.0914.48Return on CommonEquity19.10 19.5524.99 8.90 10.22 17.1314.3831.05Revenue Growth 26.0% 34.3%29.0% 34.0% 16.2% 10.5%22.4%34.9%26.5%EBITDA Growth34.4% 50.8%23.3%106.0% 36.3%0.5%51.0%-7.3%14.4%Apple ($billions)Revenue108.25 65.2342.9137.49 24.58 19.3213.93 8.28 6.215.745.36Operating Income33.79 18.3911.74 8.334.412.45 1.64 0.35 0.030.05 -0.33EBITDA35.60 19.4112.47 8.824.732.68 1.82 0.50 0.140.16 -0.23EBITDA Margin 32.89 29.7629.0723.53 19.26 13.8613.08 6.03 2.222.86 -4.31Return on CommonEquity41.67 35.2830.5433.23 28.51 22.8521.24 5.94 1.661.62 -0.63Revenue Growth 36.8% 66.0%52.0%14.4% 52.5%27.2% 38.6%68.3%33.4% 8.1%7.1%EBITDA Growth73.0% 83.4%55.6% w: 41.4% - 86.4% Tw: @loughshore76.8% 47.0% 265.1% 261.6% -15.9% -171.0% 19. The Shore The Rationale Investment was made from the marketing budget. Massive alignment of interest (Lough Shore, Shores of LoughNeagh,CALNI, returning from the US, showcasing NI). Terry George, the Entrepreneur: Northern Ireland team operating at the highest level in theirindustry, Crystal clear aspiration, objectives and business plan, Cheap / brilliant at sweating the assets. Massive brand message if we got the win. w: - Tw: @loughshore 20. And when it all works out!w: - Tw: @loughshore 21. Questionsw: - Tw: @loughshore