growth strategies in a tough economy venture association of new jersey february 17, 2009 chris...
TRANSCRIPT
Growth Strategies in a Tough Economy
Venture Association of New JerseyFebruary 17, 2009
Chris Sugden, Managing Partner
2
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
3
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
4
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
5
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
6
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
7
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
8
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
9
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
10
“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
11
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
12
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?!?
13
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
14
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
15
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
16
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
17
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!
18
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
19
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.)
20
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
21
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!
22
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!
23
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