www.homesphere.com “we bring it all together” “anatomy of an equity capital raise” jim...
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www.homesphere.com
“We bring it all together”
“Anatomy of an Equity Capital Raise”
Jim Waldrop
President and CEO
HomeSphere, Inc.
“Ask not what your investor do for you, but what you can do for your investor”
University of Colorado 2/14/2007www.homesphere.com 2
TIMELINE
Began solicitation
of firms
9/05
Began drafting private
placement memorandum
(PPM)
Received 1st term sheet
Board approved
PPM
11/05 1/06 5/06 7/06
Decision
9/06
Received 2nd term
sheet
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OVERVIEW
• Capital raise goals
• HomeSphere business overview
• Software capital market overview
• Homebuilding market overview
• Offers received
• Ultimate decisionUniversity of Colorado 2/14/2007
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CAPITAL RAISE GOALS
University of Colorado 2/14/2007
• Raise $6 million preferred equity
• Partner with strong equity partner:– Specialize in similar industry segment– Seasoned business operators, not just finance
• Minimize impact on current shareholder rights
• Mitigate shareholder dilution
CAPITAL RAISE GOALS
• Source of funds:– Venture capital market– Private equity market
• Use of funds:– Enhance our brand and marketing capability – Expand our sales force– Refresh our current Web functionality– Develop new revenue-based Web services
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HOMESPHERE BUSINESS OVERVIEW
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BUSINESS MODEL OVERVIEW
• Provide technology-leveraged supply chain services to the homebuilding industry– Material rebate management– Business intelligence– Sales force collaboration– Collaborative buying
• Use Software as a Service (SaaS) model
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BUSINESS SERVICES OVERVIEW
Material usage
Cost savings rebates
Builder
SUPPLY CHANNEL
Home Buyer
Manufacturer
Dealer Distributor
Builder
Builder’s Desktop®
Subcontractor
GROUP BUYING
SALES FORCE COLLABORATION
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SOFTWARE as a SERVICE MODEL
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SaaS VERSUS HOMESPHERE MODEL
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SaaS HomeSphere
Conclusion: Company should be valued higher
SOFTWARE CAPITAL MARKET OVERVIEW
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VALUATION METRICS
INCLUDES LICENSED and SOFTWARE as a
SERVICE MODELS
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SOFTWARE MARKET TRENDS
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HOMEBUILDING MARKET OVERVIEW
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MEDIA FEEDING MARKET VIEWS
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IMPACT ON BUILDER VALUATIONS
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IMPACT ON BUILDER VALUATIONS
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ANNUAL TOTAL HOUSING STARTS
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
3,000
1959 1966 1973 1980 1987 1994 2001 2008
AN
NU
AL
UN
ITS
(0
00
s)
SINGLE-FAMILY MULTI-FAMILY MANUFACTURED HOUSING
Source: US Census Bureau
HOUSING OUTLOOK STILL SOLID
FORECAST
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NET MARKET EFFECTS
• Homebuilder valuations declining– Near historic bottoms – “guilt by association”– Upside in front
• Software valuations near bottom• Investors focus on risk protection
– Not just valuation offers– But also terms and conditions
• Our future view strong– Market upside ahead– Valuations will increase
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OFFERS RECEIVED
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VALUATION METHODOLOGY
Trailing 12 month revenues (TTM)
$1,000
Times: Multiplier 3x
Equals: Company valuation $3,000
University of Colorado 2/14/2007
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VALUATION METRICS
INCLUDES LICENSED and SOFTWARE as a
SERVICE MODELS
HomeSphere’s Focus
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COMPARATIVE PUBLICS ANALYSIS
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Mean 5.5x
Mean 4.4x
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IMPACT ON COMPANY VALUATION
SaaS UNIVERSE
CRM/MKT SUBSET OFFERS RECEIVED
($Millions) MEAN MEAN 1ST TERM SHEET
2ND TERM SHEET
Trailing 12 Month Rev $13.6 $13.6 $13.6 $13.6
EV/Revenue 4.4x 5.5x 3.2x 2.75x
Public Valuation $60.0 $75.0 $43.7 $37.4
Private Adjustment 75% 75% 75% 75%
Adjusted valuation $45.2 $56.3 $32.6 $28.0
Comparable Valuations 62% 50% 86%
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IMPACT ON COMPANY OWNERSHIP
SaaS UNIVERSE
CRM/MKT SUBSET
SECOND TERM SHEET
($Millions) MEAN MEAN VALUATION
Pre-money valuation $45.2 $56.3 $28.0
Investment $6.0 $6.0 $6.0
Post money valuation $51.2 $62.3 $34.0
Investor’s ownership 11.7% 9.6% 17.6%
Conclusion: Company undervalued by market
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SHAREHOLDER VOTING
PRE-MONEY POST-MONEY
COMMON:
LEAD INVESTOR 15.7% 12.6%FOUNDER 16.2% 13.9% Total 31.9% 26.5%
PREFERRED (LEAD):
SERIES A 13.8% 11.1% SERIES C 14.7% 11.7%
Total 28.5% 22.8%
Total Lead & Founder 60.4% 49.3%
SERIES D (NEW) 17.6%
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DECISION??
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CAPITAL RAISE CONCLUSION
• Stop capital raise– Market undervalues company– Investor fear of homebuilding industry– Re-visit investment opportunity later
• Sell other assets instead– Provided some capital to start plan– Eliminated dilution– Did not require finding desired capital partner
University of Colorado 2/14/2007
Questions and discussion
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