Archive for December, 2009

Reposted from Maple Leaf Angels


By Craig Hayashi

In Friday’s post I spoke with Jim Pullen, partner at Concert Partners about how to engineer value into a company to maximize exit potential. As managing director at Regent Associates; the company studied 250 M&A transactions, and developed a framework to rank and assess a company on various factors that were proven to drive exit valuation. The various categories of the framework are Financial, Market & barriers to entry, Human Resources, Strategic fit and Governance.

Read Part 1 where we discussed Financial and  Market & barriers to entry. Today we look at Human Resources, Strategic fit and Governance.

Human resources

In the category of human resources, the model looks at both technical skills and management skills. “In the early stages of a start-up the founders are the key people that have the technical skill set to drive innovation and the leadership qualities to drive the company forward,” says Jim.

“As companies grow, it is important to distribute these skill sets deeper across the company. Often after an exit, the founders will want to leave, either since they have the largest financial gain or they just prefer to be entrepreneurs rather than work in a large corporation. As such, a buyer will place a premium on a deep management team where the company can continue to innovate and execute even with the loss of the founders.”

Strategic fit

This factor relates to the degree that the company that is being acquired is a strategic fit into the buyer’s product portfolio. “We have seen cases where buyers are willing to pay a 50%-70% price premium for a company that fills out a missing piece of the buyer’s product portfolio and gives them access to the IP and expertise of the company they are acquiring,” says Jim. “That being said, companies should not lose sight of their customers and try to build a company that serves the needs of a few companies they feel may acquire them. There is always the risk the targeted buyers will acquire another company or develop something internally. Partnerships are an excellent way to lay the foundation with a potential buyer. A partnership is a low-commitment way that a potential buyer can start to get deeper experience with a company. If things work out well and strategic synergies start to develop then this can help lead to a deeper relationship such as exclusive arrangement or acquisition.”


The last factor involves good governance. “We have found that a strong board of directors can add a 25% premium to the value of a company,” says Jim. “This is due to the buyer having more assurance that the company was well governed and there will be no unexpected surprises the buyer needs to deal with.”

This talk has focused mainly on an exit via an acquisition because this is the most likely exit scenario. “Even in the 90’s when IPOs were more frequent, we found an exit by acquisition was 15 times more likely than IPO,” says Jim. “In this scenario, companies received valuations in the range of 0.5x to 3x revenue or 8x to 20x EBITDA. These are large potential ranges since the valuation of a private company is very subjective. As such, it is important for start-ups to be aware of the factors that drive exit valuation and to ensure they are building these up as they grow their company. The more deeply rooted that these factors are in a company will put the company in a stronger position once they start to attract acquisition interest.”

Good advice indeed. Whether you are an entrepreneur or investor, if you rank your start-up that you are involved with across these factors, there are probably going to be a few areas you identify that can be strengthened. Starting to strengthen these areas now will help the company operationally in the short term and also provide benefit in the long term by building in stronger value that a buyer will place on the company.

Craig Hayashi is a founding board director of Maple Leaf Angels, Ontario’s largest and most active angel investment group with more than 40 members and approximately $6m in financings closed since the group’s inception in 2007. Follow Craig at www.mapleleafangels.com and www.startupnorth.ca

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Reposted from Maple Leaf Angels


By Craig Hayashi

Entrepreneurs launch, employees get involved, and investors invest in start-ups for a variety of reasons and motivations. Underlying each group’s individual motivations is a desire/dream of hitting it big with an exit and getting a cash-out for the hard work and belief placed in the company. It’s clearly in everybody’s best interest to ensure the company receives the maximum possible value as a result of the exit. But what is the best way to do this and when does this work need to start?

To find out more, I spoke with Jim Pullen, partner at Concert Partners. Jim helps advise entrepreneurs on how to engineer value into a company to maximize exit potential. He also leads workshops on planning for exits given by the ISCM Investment Network. Previously he was managing director at Regent Associates, a European company specializing in mergers and acquisitions for technology companies where he worked in London and then Boston.

A few years ago, Regent Associates did a study of 250 M&A transactions that they were involved within the technology space over a span of 8 years. This covered transactions in Europe, US, and Canada. Specifically they wanted to find out the key areas that buyers looked for in a transaction so they could better advise their clients on how they could best position themselves to drive a higher exit valuation. Based on this study, they developed a framework as to how they could rank and assess a company on various factors that were proven to drive exit valuation.

“A good example of this framework in action is with a client that had approached us wanting to be sold,” says Jim. “We reviewed the company against the framework and felt they would be undervalued based on low scores against some of the framework areas. We advised them to develop these areas of their business and then come back to us. The company successfully improved themselves and when they came back to us 18 months later we were able to sell them for a 40% premium over the valuation we felt they would have received when they first approached us”.

The various categories of the framework are Financial, Market & barriers to entry, Human Resources, Strategic fit and Governance. When working with clients, Jim typically scores the company in each factor in the framework. These scores are compared to a company’s peers to help focus on the areas where the company can improve to optimize the value a buyer will see in the company.

Today we look at Financial and Market & barriers to entry.


This category includes basic financial metrics such as profitability and revenue growth. Companies with high profit margins and high rates of revenue growth will obviously command a higher valuation.

Other aspects include the type of revenues a company generates. Due to their nature, recurring revenues can add to the valuation of a company as it makes the company’s cash flow more predictable.

“The SaaS model is the example most technology entrepreneurs would think of in terms of a recurring revenue business model,” says Jim.
“However, even if the company does not have a business model that supports SaaS, they can look to adapt their model to provide more recurring revenues. For example, a company that sells big-ticket one-off products could look to build up more of an offering around maintenance and post-sales services for their product where they can sign their clients into multi-year maintenance contracts. This will give the company more of a recurring revenue stream and insulate them from a peaky revenue stream.”

“Companies with strong cash generation are also more attractive to buyers,” says Jim. “Such a company can take on more debt that can be used to finance growth. It also makes a leveraged buy-out an exit possibility.”

Market & barriers to entry

In this category the factors include the strength of customer relationship and degree of uniqueness the company enjoys in its market. “Companies that have a direct and strong relationship with the end users/purchasers of their product will get a higher exit valuation,” says Jim. “If a company sells through a channel and fails to build up a relationship with the end client, they run the risk of the channel swapping them out for another product that may offer the channel partner a better financial relationship. Even if they sell through channel partners, it is important for companies to build up strong relationships with end users.”

“We have also found that a company’s brand plays a large role in the value a buyer is willing to place on a company,” says Jim. “We have found that a strong brand can make up to 70% of the value in a company. Companies should proactively cultivate their brand to ensure they are recognized and well-regarded in their space.”

In terms of barriers to entry, companies should use many mechanisms to defend their position. This can include things such as legal protection though patents and trademarks, relationships through exclusive arrangements with key suppliers, and internal expertise through strategic hiring. “Anything a company can do to make it harder for competitors to enter their space will help command a premium on valuation,” states Jim.

On Monday we continue with Human Resources, Strategic fit and Governance.

Craig Hayashi is a founding board director of Maple Leaf Angels, Ontario’s largest and most active angel investment group with more than 40 members and approximately $6m in financings closed since the group’s inception in 2007. Follow Craig at www.mapleleafangels.com and www.startupnorth.ca

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Re-posted from the Cross-Border Biotech Blog

By Jeremy Grushcow

Tech startups use social media avidly [rabidly?], but biotech companies? Not so much.  Biotech companies should be blogging, tweeting and linking in like mad, though.  Here’s why:

  1. Your customers (pharma companies) do it. More and more pharma companies are active in social media. Take a look at this article in the December issue of Life Science Leader (h/t @FiercePharma) or read the Dose of Digital blog any day of the week and you’ll be directed to interesting information about how products are being developed, tested and marketed. These are things you need to keep in mind as you move through your own product development process. Also, lots of pharma folks are on LinkedIn, so if you are as well, you’ll maximize your ability to reach out through personal connections when you’re building a constituency for your partnering deals.  Here’s my Twitter list of BioPharma news and analysis.
  2. Your investors do it. Check out this Twitter List of Canadian VCs, Angel investors and other funders.  Look at what they’re talking about, and you’ll see you don’t have to tell people what you ate for lunch (or disclose your latest lab results) to convey that you’re doing something interesting that other people are interested in.  Check out the CVCA’s blog, Capital Rants or the Maple Leaf Angels blog.  In Toronto? Stop in at the MaRS blog or the R.I.C. blog to see where investors will be and what they’re thinking about.
  3. Your peers (other startups) do it. If you’re not participating in online conversations, you’re missing a world of good advice and perspectives.  Click over to Rick Segal’s blog or  StartupCFO, Mark MacLeod’s Blog. It doesn’t really matter that these guys aren’t involved in biotech. Lots of startups are facing similar issues to yours — funding, staffing, etc. and getting out of the biotech bubble from time to time can be a good thing.  Plus, being at a startup is isolating, particularly in biotech with its strong incentives to run a virtual company, so go online to find peers, mentors and other resources.

If this all sounds reasonable, but you’re still skeptical, or not interested, then find someone in your organization who’s excited about it, regardless of their actual job, and set him/her loose.  [Not totally loose, of course. Common sense is critical online because it’s hard to hit “undo” on the web, and appropriate confidentiality remains key to biotech ventures.  But all your people have common sense and discretion, right?]

We’ll be keeping an eye out for biotechs and other bioscience companies that are making good use of social media as part of our Biotech Trends series this coming year.  Other suggestions for 2010 biotech trends?  Let us know

Jeremy Grushcow  is a Foreign Legal Consultant practising corporate law at Ogilvy Renault LLP. He has a Ph.D. in Molecular Genetics and Cell Biology. His practice focuses on life science and technology companies.

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By Sharon Dotan

I recently attended the Canadian Innovation Exchange (aka CIX) and heard a wonderful keynote by Bill Buxton, Principal Researcher at Microsoft Research, and a passionate advocate for innovation.

So what exactly is innovation? We usually think of innovation as an “Aha!” moment, as Oprah would say, that we might experience as an individual.

We think of Alexander Graham Bell and the telephone. We think of Thomas Edison and his many patented inventions (well over 1,000). But is this the reality of innovation? Buxton says no. Most of Edison’s patents in fact, were simply improvements made on an original idea thought up and created by someone else.

Innovation is a team sport! And to be innovative, you need to stack your team with great individuals who contribute a variety of skill sets from across the board. Think of hockey – you can’t just have all the top goalies on your team and expect to be a winning team – no matter how good all those goalies are, you’ll still have a losing team without good forwards and defencemen.

Buxton tells us to build a team with “I” shaped people. Like the letter “I”, these people have their head (the top part of the “I) in the clouds – they are dynamic, creative, and always dreaming up new ideas. Yet, they have their feet (the bottom part of the “I”) firmly grounded in the practical world – they are realistic, hands-on and proactive. And most importantly, they can span all the space between these two worlds.

Finally, with a great team in place, where do we find innovation? Buxton refers to the analogy of gold – you can’t just “make” it – it’s already in the ground. And so, the process begins with prospecting – being able to find the gold in the ground within all that other “dirt”. Once you find the gold, you have to know how to mine it, refine it, and finally goldsmith it – turn the gold into something worth more than its weight in gold.

Sharon Dotan is a student in the Master of Biotechnology program at the University of Toronto Mississauga. Through her internship at the RIC Centre, she has gained a passion for cultivating and promoting innovation. With her background in life sciences, Sharon has been able to assist RIC’’s our Entrepreneur-in-Residence with various client needs, including market research, business plans, and go-to-market strategies. Sharon is also responsible for the Growing Your Business breakfast series as well as maintenance of the RIC website.

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By Hari Venkatacharya

Many of you may not be aware of the world’s largest not- for-profit organization promoting entrepreneurship- TiE (The Indus Entrepreneurs).

TiE was founded in 1992 in Silicon Valley, originally by entrepreneurs of Indian origin, who wanted to give back to their local community, and have global impact. Now, it has more than 16,000 members in a dozen countries, and over a third of the members are non-Indian.

I had the privilege of being President of the Toronto Chapter from 2007 till 2009, and during that period we firmly established TiEQuest as the richest and most impactful business venture competition in Canada. There are more than 450 members in the Toronto Chapter.

TiEQuest started in 2004 with just 17 companies participating, and since 2007 we’ve had over 200 entrepreneurs participating from across North America. The prize money totals over $150,000 annually, and in addition, the major North American VC funds help judge companies, so that the companies who win will have an opportunity to pitch to those VCs and others, for a possible $1 million investment.

Apart from the prizes, which are substantial for an early-stage company, the most important differentiator is that companies that pass the second round of judging have the opportunity to be mentored by TiE Toronto Charter Members, who are very successful entrepreneurs themselves. As you can imagine, more than the money itself, this access to highly accomplished business people is what generates the most value. With more than 50 Charter Members in the Toronto chapter, a broad range of industries are covered including financial services, telecom, IT consulting, accounting, law, healthcare, IP, clean technologies and countless others.

TiE Toronto has helped to fill a significant void in the local ecosystem, and the great additional benefit is that because TiE is a global organization, members have access to entrepreneurs all around the world.

Some of the past winners of TiEQuest include Aeryon Labs (unmanned surveillance helicopters), Echologics (acoustic leak detection),  Certo Labs (homogenization of tissue samples), SkyMeter (automated parking ticketing) and many others. Since its inception, TiEQuest has helped launch and get funding for 22 companies. That’s a very significant impact in the entrepreneurial ecosystem, and TiEQuest proves to be even bigger this year.

While the deadline is January 31, 2010 for applications, I would encourage all those who have companies that have raised less than $2 million to visit the website at www.tiequest.org, and send in your application so that you can have your choice of mentors. TiE Toronto information is at www.tietoronto.org.  TiEQuest is the best opportunity to receive the help you need to take your company to the next level, and increase your chances of success.

Hari is a seasoned entrepreneur with over a dozen years of experience in building and exiting businesses in Canada, US and India.

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By David Pasieka

It must that time of the season! Over the past two weeks I have seen more than thirty (30!) Investor Pitches – some over the plate and some clearly off in foul territory. With Angel, Venture and Government programs gearing up for the end of the year, and “in the spirit of giving,” let’s summarize some of the keys in Throwing the Strike”.

The Deck – As cruel as it may sound, the initial investor pitch is about eight to 10 minutes. Many CEOs find this tough to condense years of work into something so concise. A crisp 10-chart presentation will provide the entrepreneur with a flexible template to work within the tight time-frame. If the potential investors really love the story, there will be lots of time for more PowerPoint charts and models. The Charts themselves should be Clean (uncluttered, “less is more”), Consistent (Logo, Font, Colours) and Visual (Pictures, Graphs, embedded Video).

The Story – Your pitch deck should tell a concise story that takes the audience on a journey. The journey needs a Start (opening), a Middle (problem, solution, value proposition, financial model) and a Conclusion (Financial need, why invest in you, expected returns).

Strong Opening – It’s proven that first impressions are lasting ones. With only 10 minutes on the podium it will be difficult to change perceptions if the first 30 seconds are cluttered, rambling or unfocused. Practice, but do not memorize your opening remarks – think about an interesting way to hook your audience such that they are “hungry” for the next chart in the deck.

Educate Me with Simplicity – Many investors have limited knowledge of your industry and target markets. Provide a simplified version of your marketplace and value chains so it’s easy to understand how your products and services fit in.

Demo’s – If you have a demo as part of the pitch, ensure that it has been “canned” or “burned” to a file that makes it foolproof. Do not rely on the being able to connect to the net to access your demo. Be aware that presentation graphics built on Apple may not completely compatible when shown on a PC.

CEO Delivery – The CEO needs to be poised and articulate in the delivery of the key messages. Maintain excellent eye contact with your audience ensuring that your focus is scanning all aspects of the room. You are watching for body language and key hints that the messages are being appropriately received and translated. No “reading” of charts, No “babbling on” in responding to questions and make No “excuses” for the technology not working or the charts being too hard to read.

Strong Finish – Many CEOs forget to  close. “Tell Me what you plan on Telling Me (Opening), Tell Me (Middle) and then Tell Me what you Told Me (Close).” You need to ask for the order and have a convenient way of being contacted to negotiate your next steps.

‘Tis the Season – Let’s hope that these sound bites can improve your probability of throwing a strike across the plate.

David Pasieka is the Entrepreneur-in-Residence at the RIC Centre. Learn more here.  Visit Our Contributors page for more information about David. Read his blog at www.cedarvue.blogspot.com

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Reposted from blogpad

By Jeff Bowman

I oncehad a wonderful experience with a customer service representative from a local store that I frequent. The woman was courteous, smiling, had a sense of humour and seemed to genuinely care about my concerns. The result was that my concern was rectified to my complete satisfaction, in very short order and I left with a much better impression of the store, and here I am telling you about it.

The ideal customer service experience!

The only problem with the entire scenario above is the second word, “once”. I can list a multitude of occasions where my experience has not been so pleasant, and I have left the store or hung up the phone angry, when my original sentiment was slightly displeased.

There is no question in my mind that the ability to communicate globally and online has led to a reversal in the code of customer service conduct, which was so heavily emphasized in the 80’s. It makes a huge difference when you can look someone in the eye and discuss your problems. There is empathy and a shared concern for keeping a customer satisfied. In the 80’s, the competition for your business was fierce, and therefore customer satisfaction ratings were a critical statistic. Employees were well aware how important it was to keep the customer coming back because they had a vested interest, their jobs.

Today, we have online complaint systems and customer service departments that may not even be in the same town or country. What is their vested interest in ensuring your complete satisfaction? Sure, “this call will be monitored….” But that doesn’t tell you if I will ever use your service again, or it I will tell all my friends about the unique experience I had. Try calling your local television service provider or government office, and tell me that you are not angered by the myriad of button pushing and extension dialing you must negotiate your way through before you get transferred or put on hold. How many times must you enter your phone number or account number, only to be asked to verbally recite it again when a live voice greets you?

The age of service will return. It is a cycle. After each economic downturn, it comes back with a vengeance, only to be reduced over time to facilitate technology and cost savings. Well, the rubber has now hit the road, as consumers are turning the tables on businesses using the same technology they use to cut costs and service levels. Customers are bringing their complaints to the web! Facebook, YouTube and the like are now rife with upset customers pulling no punches and naming names.

This will get interesting over the next several months as the economy improves and businesses start to utilize social media more and more as a customer service tool. They need to keep in mind, that the very tools that they will be relying on to create open dialogues with their customers could be used against them if the other areas of customer support are not up to snuff. No longer buyer beware, it is now seller beware!

I’d like to hear about your customer dis-service experiences.

Jeff Bowman is a Sales and Marketing Specialist with The Marketing Pad Inc.. Follow Jeff’s blog at Blogpad or visit www.themarketingpad.com.

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