Growth Strategies in a Tough Economy

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Growth Strategies in a Tough Economy
Venture Association of New Jersey February 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 Americas 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 3X 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

Revenue
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Edisons 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

• 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

Late stage
Early stage
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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
• lt10M 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 30M revenue yields 3-5X
• 100M revenue generates 10X return
• 3-5 big winners per Edison partnership

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10X 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 MA 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, dont 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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Dont 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 Edisons 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