Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg...
Transcript of Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg...
![Page 1: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/1.jpg)
Mergers & Acquisitions
SBIR Phase II Conference
June 2016
1
![Page 2: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/2.jpg)
Disclaimer
I am not an attorney
I am not a financial advisor
Please make sure you get advice from excellent paid professionals
2
![Page 3: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/3.jpg)
Perspective of this presentation
YOU as an (asset) allocator of your
time and talent
3
![Page 4: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/4.jpg)
Transformation
The smartest
person in the
room
The most
effective
person in the
room
The most
effective
person in the
lab
The most
effective
person in the
company
![Page 5: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/5.jpg)
Today’s Presentation
Part 1: Avoid founder frustration
Part 2: Begin with the end in mind
Part 3: The M&A Process
5
![Page 6: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/6.jpg)
Part 1: Avoid founder frustration
6
![Page 7: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/7.jpg)
What people say:
7
“The investors
screwed us”
“Venture
capitalists are
evil”
“Why don’t they
understand – it’s OUR
money.”
“It was my
idea”
“This is SO
unfair”
![Page 8: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/8.jpg)
BUSINESS & TECH.
Tuesday, May 31, 2016
Mr. Nord says, “Then founders look around three years in, and they have 45 people and no real business model and own 4.5% of their business and are asking themselves what happened”.
8
![Page 9: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/9.jpg)
Avoid Founder Frustration:Know the rules
Willett wins with the lowest score Giants win with the highest score
Both sports are played with a stick and a small ball.
9
![Page 10: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/10.jpg)
Liquidation Preference:
Which is better 1x or 2x?
It depends.
Make sure you have the right experts
on your deal team.
10
![Page 11: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/11.jpg)
Avoid Founder Frustration::Know who is at the table
Understand their incentives
YOU
Directors
Investors
Management team
Employees
Advisors
Acquirer11
![Page 12: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/12.jpg)
Avoid Founder Frustration:Understand how you can
add value
• What is the job of the acquirer/investor?
• What is your job?
– “Advance the science”
– “Publish papers”
– “Build the company”
– “Generate (superior) return for our
investors/limited partners/shareholders”12
![Page 13: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/13.jpg)
Avoid Founder Frustration:Manage Conflicts
There will be conflicts.
Figure out how to manage them.
Figure out if it is time to recuse yourself.13
![Page 14: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/14.jpg)
Avoid Founder Frustration:Understand Business Value
Idea versus Execution
What is your relationship to the company?
Pick your role carefully:
Founder
Employee*
Officer
Director
Investor
Advisor*
Consultant14
![Page 15: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/15.jpg)
http://www.sportingnews.com/nba/
~2003 - Charlotte Christian High School 2015 – NBA MVP
Stephen Curry Rookie (2009): $2.7m
Stephen Curry MVP (2016): ~$22m
https://en.wikipedia.org/wiki/Stephen_Curry
15
Avoid Founder Frustration:Understand Business Value
Idea versus Execution
![Page 16: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/16.jpg)
Avoid Founder Frustration:Understand the Business Value
$1b of sales potential versus $1b in sales
16http://www.bizjournals.com
$2.8B
Valuation
![Page 17: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/17.jpg)
Avoid Founder Frustration: Avoid envy
You don’t need to be envious of someone who won the lottery or had an IPO that went up. You have to figure out what makes sense and follow your own course.
Warren Buffett, April 30, 201617
![Page 18: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/18.jpg)
18
Part 2: Begin with the end in mind
![Page 19: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/19.jpg)
The M&A Process
19
![Page 20: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/20.jpg)
Investor Math – Founder Math
What do I/We get?
Two things:
What percent of the pie do I/We own?
What is the pie worth?
(Valuation)
20
![Page 21: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/21.jpg)
Investor Math – Founder MathThe Cap(italization) Table
The start-up book.com21
![Page 22: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/22.jpg)
Investor Math – Founder Math
The Cap(italization) Table
What percent of the pie to I/We own?
CSE: Common Stock Equivalents
15%
YOU
Everybody else
85%
22
![Page 23: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/23.jpg)
15%YOU
Everybody
else85%
Investor Math – Founder Math
What’s the pie worth?
What do I get?
Pie is worth I/We get
$50 million $7.5 million
$250 million $37.5 million
CSE: Common Stock Equivalents 23
![Page 24: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/24.jpg)
Avoid Founder Frustration:Understand the specific scenarios
15%YOU
Everybody
else85%
YOU
Everybody
else
2%
98%
Pie = Even a penny below
$50M
Pie = “$50M or above”
CSE: Common Stock Equivalents 24
![Page 25: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/25.jpg)
Avoid Founder Frustration:Understand the intricaciesof YOUR liquidation stack
25
![Page 26: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/26.jpg)
THE NEW YORK TIMES BUSINESS THURSDAY, JUNE 2, 2016
ENTREPRENEURSHIP
In their haste to get financing, start-up founders often fail to read the fine print and later discover that they have signed away huge shares of the profits.
26
![Page 27: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/27.jpg)
Liquidation Stack
Where do you sit?
Sale Price: $400,000
Mortgage: $150,000
27
![Page 28: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/28.jpg)
Liquidation Stack
Where do you sit?
Equity
Debt $150,000
$250,000
Valuation: $400,000
28
![Page 29: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/29.jpg)
Liquidation Stack
Where do you sit?
Sale Price: $130,000
Mortgage: $150,000
29
![Page 30: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/30.jpg)
Liquidation Stack
Where do you sit?
Equity
Debt
$150,000
$-20,000
Valuation: $130,000
30
![Page 31: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/31.jpg)
Investor Math – Founder Math
Series A
Exit
2016 2018 2023
Define Key Milestones
or
Key Financing Milestones
Capital required/financing need for Series A
Total capital required/total financing need
Series B
DebtSeries
C
![Page 32: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/32.jpg)
Debt
Preferred
Common
Other
Liquidation
Stack
Where do
you sit?
32
![Page 33: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/33.jpg)
Liquidation Stack
Where do you sit?
Series C
Common
Series B
Series A
Series C
Common
Series A,B Pari Passu
33
![Page 34: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/34.jpg)
Liquidation StackWhat happens when there IS
enough to pay out the whole stack?
Series C
Common
Series B
Series A
Series C
Common
Series A,B
34
![Page 35: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/35.jpg)
Liquidation StackWhat happens when there is NOT
enough to pay out the whole stack?
Series C
Common
Series B
Series A
Series C
Common
Series A,B
35
![Page 36: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/36.jpg)
36
![Page 37: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/37.jpg)
Avoid Founder Frustration:Gains and Losses
Plan for Your Transition
What is your role (if any) in the surviving entity?
Founder
Employee
Officer
Director
Investor
Advisor
Consultant
37
![Page 38: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/38.jpg)
38
Part 3: The M&A Process
![Page 39: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/39.jpg)
The M&A Process
Close
Plan Shop Bids Term sheet Diligence
39
![Page 40: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/40.jpg)
Plan: Assess the state of the current market
• What is more likely – IPO or sale?
• What were the multiples in recent transactions?
– Industry specific
– Stage specific
• Assess the risk of now versus later:
– Take the bird in hand
– Hold out for a higher valuation later
• Past results or previous offers are not comparable
40
![Page 41: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/41.jpg)
Plan: Sale versus IPO requirements
• Product “complete”
• Revenue
• Path to profitability
• Full management team
• Developed salesforce
• Growth story
• SOX-compliant systems
• Audited financials
� �
�
�
�
�
�
�
��
�
�
�
�
�
�
Needed for Sale Needed for IPO
Nice to
have
In most situations, M&A is the more attainable exit
41
![Page 42: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/42.jpg)
Plan: Understand Markets Dynamics
42
![Page 43: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/43.jpg)
43
![Page 44: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/44.jpg)
44http://www.wsj.com/articles/the-cloud-deal-wave-hasnt-crested-yet-1465143376
June 5, 2016
![Page 45: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/45.jpg)
New York Times45
2015: Biggest M&A Year Ever
![Page 46: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/46.jpg)
New York Times46
![Page 47: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/47.jpg)
47http://info.kpmg.us/ma-survey/index.html
![Page 48: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/48.jpg)
Valuation
48
![Page 49: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/49.jpg)
49http://info.kpmg.us/ma-survey/index.html
![Page 50: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/50.jpg)
50http://info.kpmg.us/ma-survey/index.html
![Page 51: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/51.jpg)
Valuation
An art and a science
51
![Page 52: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/52.jpg)
52
“The whole process
was crazy-making,
because it was
imprecise. The was no
right number. It was all
a matter of opinion,
feeling, selling.”
![Page 53: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/53.jpg)
Understand Valuation MetricsWhat is Your Company Worth?
Many Valuation Methods:
• Price/Sales Multiple
• Price/Earnings Multiple
• Tops down meets bottoms up
• Industry specific
53
![Page 54: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/54.jpg)
Understand Valuation MetricsWhat is Your Company Worth?
54
Use many methods and develop a range
Be realistic
![Page 55: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/55.jpg)
Investor Math – Founder Math
Series A Exit
2016 2018 2023
Define
Key Milestones
or
Key Financing Milestones
Capital required/financing need for Series A
Total capital required/total financing need
Series B Debt Series C
![Page 56: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/56.jpg)
56
![Page 57: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/57.jpg)
Company
Name
Series A
Req’d
Series A Milestone Total
Capital
Req’d
Long-term
revenue
potential
Potential
valuation
$500K Three contracts: to
establish “track record”
$1.0M $2.25M $5.0M
$1.5M Commercial readiness $1.5M $2.5M $5.5M
$2.3M Two contracts:
“proof of concept”
$2.5M $40.0M $100M
$2.5M Demonstrate efficacy –
(xx) indication
$87M $2.1B $8.0B
$5.0M Two collaborations +
identify own compound
$125M $1.0B $4.0B
$1.5M IND filed for resistant
(xx) cancer
$4M $35M $200M
Investor Math – Founder Math
57
![Page 58: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/58.jpg)
Plan/Prepare
• Know your ecosystem:– Most likely acquirers, alternative targets (your
competitors), existing alliances, consolidation
– Assess the potential buyers for cultural fit
• Know your company’s situation:– Cash out date, burn rate, ability to raise more capital,
money and team to get to the next milestone
• Consider type of sale– What: Asset sale, stock acquisition, merger, tender offer
– How: Targeted sale, auction
– Transact for cash or stock?
58
![Page 59: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/59.jpg)
59http://info.kpmg.us/ma-survey/index.html
Avoid Founder Frustration:Understand You are Part of a Pipeline
![Page 60: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/60.jpg)
60http://info.kpmg.us/ma-survey/index.html
![Page 61: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/61.jpg)
Business Day
61
SATURDAY, JUNE 4. 2016
The sharpest attack came from Greg Duffy, the founder and former chief executive of
Dropcam, the home video camera and cloud-computing service that Nest acquired for $555
million in 2014, about six months after Google bought Nest. Mr. Duffy clashed with Mr.
Fadell, remained at Nest for eight months and briefly moved to another post at Google
before departing last September.
Writing on Medium in late March, Mr. Duffy said he regretted selling Dropcam to Nest and
noted his “extreme differences on management style with the current leadership at Nest.”
![Page 62: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/62.jpg)
62
Which factors are most important when evaluating a target?
Target Valuation and Investment Return
Strategic Fit
Growth Potential
67%
56%
44%
Cultural Fit 15%
http://info.kpmg.us/ma-survey/index.html
![Page 63: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/63.jpg)
Plan/Prepare
• Assemble the deal team– Lawyers, accountants, bankers
• Prepare due diligence materials– Organize the books and records (legal, contracts, IP,
financial statements, NOLs)
• Document the operation– Product description, roadmaps, employees, sales pipeline,
customer listsDocument the operation
• Develop Presentation/Pitch Deck– Non-confidential
– Confidential
63
![Page 64: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/64.jpg)
Documentation for a merger
64
![Page 65: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/65.jpg)
Plan/Prepare:Get Stakeholder Alignment
• Understand the transaction implications
– Change of control provisions
– Vesting, who gets what at different valuations
– Executive compensation
– Retention of key employees
– Effect of recaps or restructurings
• Understand the terms for different “series”
65
![Page 66: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/66.jpg)
Plan: Evaluate the constituencies
Acquirer
� Acquiring business unit
� Executive Management
� Board of Directors
� Shareholders
� Customers
� Wall Street (if public)
� Current Employees
Target - YOU
� Management
� Board of Directors
� Shareholders – by series
� Advisors
� Employees
� Customers
…who are involved at various levels and often have different motivations.
Management needs to understand the shareholder dynamics and proactively influence.
66
![Page 67: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/67.jpg)
67http://info.kpmg.us/ma-survey/index.html
![Page 68: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/68.jpg)
Plan: Before you go
• Establish one spokesperson
• Set fallback plans and walk away points
68
![Page 69: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/69.jpg)
The M&A Process
Close
Plan Shop Bids Term sheet Diligence
69
![Page 70: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/70.jpg)
Shop
• Do’s and Don’ts
– Confidentiality
– Keep the business going
– Management shows concern for employees
– Be able to back-up your forecasts
– Focus on the whole transaction, not just the price
– Robust documentation
70
![Page 71: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/71.jpg)
The M&A Process
Close
Plan Shop Bids Term sheet Diligence
71
![Page 72: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/72.jpg)
Term Sheet/Due diligence:
Process Steps
• Letter of intent/term sheet
• Due diligence
• Definitive agreement
• Board approval
• Shareholder approval
• Regulatory filings
• Closing
• Post-closing filings
72
![Page 73: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/73.jpg)
Terms and Conditions:
What do they mean for you?
• Escrow
• Earn-outs
• Recaps, management holdbacks
• Tax considerations
• Representations and warranties
• Indemnification
• Termination conditions
• Closing conditions73
![Page 74: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/74.jpg)
Considerations
• Federal Securities Laws
• Antitrust Laws
• State Corporate Law
– Fiduciary duty
• State Contract Law
• Tax
• International
74
![Page 75: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/75.jpg)
Fiduciary Duty
• Duty of Care
• Duty of Loyalty
• Duty of Good Faith
• Business Judgment Rule
• “Entire Fairness”
75
![Page 76: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/76.jpg)
The M&A Process
Close
Plan Shop Bids Term sheet Diligence
76
![Page 77: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/77.jpg)
Today’s Presentation
Part 1: Avoid founder frustration
Part 2: Begin with the end in mind
Part 3: The M&A Process
77
![Page 78: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/78.jpg)
Other Resources
![Page 79: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/79.jpg)
79
![Page 80: Mergers & Acquisitions · Business Day 61 SATURDAY, JUNE 4. 2016 The sharpest attack came from Greg Duffy, the founder and former chief executive of Dropcam, the home video camera](https://reader035.fdocuments.us/reader035/viewer/2022070815/5f0e97657e708231d43ffa17/html5/thumbnails/80.jpg)
80