Growth Strategies in a Tough Economy

Venture Association of New JerseyFebruary 17, 2009

Chris Sugden, Managing Partner

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Chris Sugden, Managing Partner

7 years with Edison

Entrepreneur previously – “walked the walk”

25 financings

16 initial investments

Past Director of 15 companies

8 Currently

Fintech and E-Commerce

NY/NJ Region

Lead investor/advisor

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About Edison

Founded 1986, honoring America’s greatest inventor and entrepreneur

11 investment professionals

20 specialists in origination, diligence, tracking & exits

5 offices: NJ, NY, MA, PA and VA

6 partnerships totaling $650M

166 investments, 102 exits

59 active portfolio companies

Consistent 3+X fund returns

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Typical Edison Company Profile

$5-20M Revenue

Early Leader in Emerging Market

Incomplete Management

Insufficient Sales and Marketing

Lack Equity, Bank and other Financing Sources

Accelerate Growth: 30-60%

Potential 15+% EBITDA Margin

Reve

nue

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Edison’s Active Role in Portfolio

Sole/lead investor: largest shareholder

Source additional financing: next equity round, bank, leasing, etc.

Principal business advisor

Referrals of employees, distributors, vendors, partners and customers

Organize and guide Board of Directors

Prepare for optimal exit

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Flexible Uses of Capital

Earlystage

Latestage

Expansion Capital

Secondary Stock Purchases: Existing Shareholder Liquidity

Management Buyouts

Recapitalizations Corporate Spinouts Rollups/Consolidations

Flexible structure: Focus on economics vs. control Participating preferred Convertible preferred Common stock

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Market Specialties: 10+ Edison Investments

Financial Technology

Pharma and Healthcare Business Services

Interactive Marketing

Communications & Enabling Technology

Education

Business Services and E-commerce

Customer Relationship Management

Supply Chain and Logistics

Human Resources and Payroll

Government

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Low Capital Intensive Business

Previously self-financing

<$10M financing round

Valuation discipline

Build business over 3-7 years

Low/optional follow-on requirement

Debt financing for working capital

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Consistent Returns

Successful on 1-3X revenue exit

Sell company to Fortune 2000

Reaching $30+M revenue yields 3-5X

$100M revenue generates 10+X return

3-5 big winners per Edison partnership

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“10+X Return Model”

Increase size of business 40% growth over 5 years 5X

Increase valuation multiple Invest at 1.5X revenue 2X Sell company at 3.0X revenue

Current model challenged by slowing growth, lengthening exit timetable and sharply reduced revenue multiples

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Current Exit Liquidity Challenges

IPOs shut off

Public comparables plunged by 20 – 80%

Fortunes 500 acquirors distracted

Credit crunch

Private equity firms bargain hunting

Edison proactively cultivates strategic buyers

Until M&A market resumes, Edison team focused on building company value

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Severe Reaction to 2008 Meltdown

Silicon Valley VCs worried about survival. Slash headcount and spending. Outsourced development.

Banks and Private Equity firms worried about debt service. Slash headcount and spending to generate cash flow.

Edison leader in growth equity. Concerned about expansion pace of top companies?!?

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2008 Edison Results

$23+ million median revenue

30% organic growth

22% companies declined in revenue

30% expanded over 40%

10% soared by over 100%

Sustaining rapid growth of top companies = greatest challenge

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How Top Edison Cos. Grow Over 40%? Spend for 25% growth

Recurring revenue model (SaaS, subscription)

Market your installed base aggressively for up-sells/ expansion

Metrics and leading indicators frequently reforecast

Web marketing and search engine optimization critical

Inside sales, lead generation/qualification

4 to 1 pipeline coverage

Attack your weakest competitors

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Rebalance expenses

Top grade every year; prune bottom 10-20% of employees

Eliminate bottom 20% of least important projects

Spend on revenue generation

Upgrade team at all levels

Boost commissions and incentives

Zero based budgeting; set priorities with entire team

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Everybody Sells Culture

CEO drives 20% of revenue

All executives assigned to key and new accounts

Incent employees for uncovering revenue opportunities

Incent your business partners

Add dollars on an open project PO (industry specific)

Sell what is in the briefcase

Sell to operating budget and avoid capital approval

“Ring the bell”; celebrate every win

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Selling in a Tough Environment

Customer/Prospects

ROI is key - Companies look to save money

But, don’t forget about driving revenue either

Sell high early; more approval levels

Make your product and/or team irreplaceable!

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Selling in a Tough Environment

Sales Strategies

Protect your base

Be 3-4 months ahead of renewals

Existing accounts are gold: sell/up-sell

Improve your talent

Activity levels matter; adopt system to track

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Repositioning Products and Services

Every pitch focus on quantifiable benefit to the client

Easier, less expensive alternative than competitors

Fast implementations, low use of customer resources

Sell training and service

Companies have money for compliance solutions (fines, penalties, etc.)

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Don’t forget new product development

Advance product leadership Examine development pipeline; focus on revenue

generation Customer funded or advance orders Acquire/license products from cash strapped

competitors Upgrade development talent Pay on time delivery bonus

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Evolve Business Model and Strategy

Utilize new technologies

Deepen applications

Broaden sales channels

Drive out cost

Outperform competitors best practices

Raise prices

Act like the market leader!

Aim for major win!

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Growth Advantage During Down Economy

Market trends more important

Weaker competition

Performance and cost-based decisions

Fewer decision makers

Modest employee turnover

Top sales talent available

Success is sweeter!

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Edison is actively investing

Nearly all Edison’s largest returns were made during soft/slow economic period

11 new investments in 2008

14 follow-on investments

Edison plans to invest $100M in 2009