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Irish Software Association Conference – 2006 – Notes

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Micheal Martin :

  • 25000 graduates employed.
  • Strong culture of investment.
  • Strong sense of partnership.
  • Clusters, mobile, elearning etc.
  • Majority of trade missions are indigenous irish companies.
  • Large attendance, empty front row.
  • Need to get state sector to appreciate qualities that irish companies offer.
  • Public procurement tends to favour blue-chip (american) companies.
  • Create awareness of what is available from Irish companies.
  • 67 CEOs have taken part in EI Sales Star program.
  • Need to reduce regulatory burden.
  • Students are not moving into science/engineering.
  • 2002 stuffed us for IT recruitment into colleges from school.
  • We top the OECD league in terms of science and technology graduates.
  • Tax credit Issue, for R&D?
  • Still committed to 12.5% corporate tax levels.
  • Expanded VC commitment from state.
  • Announcement in next few days.
  • EI commitment to growth and scale for i18n irish companies.

Shaping Business Models for the Future: Andy Malik (Lehman Brothers):
Managing Director : Capital Advisory (Financing Software companies in Today’s Market)

  • Brought Iona and Parthus public.
  • Trends in the industry.
  • Complicated slide.  Microsoft, Oracle, IBM, HP, Sun, EMC, Google, AT&T.
  • Huge M&A activity. Most active Consolidators : McAfee, Microsoft, Oracle, CISCO, CA.
  • Key investment themes for private equity: Several 1bn markets with double digit growth. SAAS being rapidly adopted.
  • Highly scalable business models.
  • Investing spectrum, VC, Growth Equity, Buyouts. Portable Alpha – Alternative investments, LBOs and VCs
  • Very high number of IPOs this year.
  • LBO Example – Safeguard Scentific – huge recurring revenue.
  • IPO requrements :
    • Profitability- now or within one quartery, Revenue Run Rate – bigger the better but at least 15m, Future financing needs – IPO is expansion capital, customer base – broad based with little customer concentration risk, product offerings – Diverse and integrated suite solutions , history of execution.
    • LTM (last twelve months) of revenue 16m.
  • Sarbanes Oxley: 2-3m cost for SOX. (3-4m says Eric Hjerpe)>
  • But SOX compliant may run bettter/do better (jury still out).
  • Listing options : AIM, NASDAQ. AIM is a stepping stone to NASDAQ. Would recommend NASDAQ personally. But will AIM got the way of the NeurMarket.
  • M&A continues to dominate. 1999-2000 45.1% of exits were IPOs. Today 11% of exits are IPO.
  • There is another huge wave of IPOs imminent.
  • Fees are better in the M&A business.
  • 1999 – we “borrowed” IPOs from the future.
  • IPO market follows the stock market.
  • World economy growing at 4%. Awash with liquidity.
  • SAAS is going to make market valuations go up. But can’t grow as quickly as a perpetual license company. How do you measure backlog in this market? You are recognising revenue pro-rated over a year/quarter etc.
  • Don’t run your company with a subordinated goal to go IPO.

Eric Hjerpe: Atlas Venture Partners (Previously at Siebel)
Scale in Software

  • Atlas: I18n VC. 1908 in Amsterdam. 2.4bn fund. Early stage? really. Invested in Globoforce and Performix.
  • Case Study: Siebel.
    • Founded 1993. IP0 1996. 28 qtrs of growth. 2bn quarterly revenue in 2000 with 8000 staff.
    • Bought by ORCL, best of breed goes to Enterprise Software Suite (market cap of 10bn).
    • Big shadow because of  partnership with Anderson Consulting (nee accenture).
    • Enterprise software is difficult to build. Give services revenue to partner while we built sales.
    • Positve inflection: In 1997 we acquired Scopus. (Until then a sales management tool) now we had credibility in the call centre market. Defined a new market, CRM.
    • Negative Inflection: Opportunity to pick an ERP player in 2000. Decided best of breed would dominate (failed to buy peoplesoft).

Keys to Scale:

  • Improve of a world class team – Hire for two years in the future. Impose culture on staff or they impose it on you. Clear role definitions. Pay top percentile more, move out the bottom.
  • Find an open niche in a growing market – Need future oriented markets (rapidly growing). Need to be physically present in your largest market. Live, compete and focus there. Made top reports in Siebel move to Europe on a 6 month rotation.
  • Build great products – Most products are crap. Need reliability, manageability, installation etc. Need feedback loop directly into product engineering. Innovate, eat your young.
  • Focus maniacally on customer success – Siebel had 70 reference sites for customers. Make your reference executives heros via advertising.  Measure customer satisfaction.
  • Establish and maintain market leadership – Need to be No. 1 in every product category we compete in. No 1. gets 50% of the revenue. Assimilate other markets via acquisition. Create a partner eco-system.

VC Investment Criteria

  • We are money managers – invest capital for pensions etc.
  • Cash on Cash business – we must have liquidity
  • Don’t want to sell on multiples of revenue – want obscene returns
  • Team
  • Team
  • Team
  • Team
  • Did I say team

Many of our companies are led by first time CEOs.

  • Market
  • Customer validation
  • Barriers to entry – IP works. Patents help. Eco-systems, partners etc. Hard to dismantle.
  • Alignment details – Need people who can meet your capital requirements.

Whats in vogue?

  • SAAS, recurring revenue models.
  • B2C is back – advertising based business models are hot. Ad revenue is moving offline to online.
  • B2B – compliance and security
  • … Anything but enterprise software! – Selling for 4-5 times revenue is not appealing.

Melinda Ballou : IDC

Leveraging Disruption in the Software Industry for Business Adaptability

Key trends;

  • Compliance – gGlobal 2000
    • SOX, Basel II
    • Revenue generation
    • Business Practice
  • Rise of distributed development
    • The norm
    • Decentralized IT
    • Follow the sun support
    • Collaborative development
    • US 25% increase in offshoring
  • Rise of Global Teams
  • SAAS
    • Hosted application management
    • Software OnDemand
    • Key issue – consistent and recurring revenue
  • Whats different now
    • Reliable bandwidth
    • Software designed for web delivery
    • Firms understand SAAS
  • SAAS vendors need data centre infrastructure (24 x 7 support)
  • SAAS customers need stable bandwidth
  • SAAS is for everybody (31% of small business use it) (<99 staff).
  • Customers 38% are more likely to spend more on software
  • Even Bill Gates gets it.  “Services wave of applications”.
  • SOA
    • Key strategy for major vendors
    • IDC predicts 23% of web services market using SOA.
  • Open Source
    • User benefits – try before buy, better support options.
    • Vendor benefits – reducing development, testing costs. Eclipse generated 200m additonal revenue for IBM,
    • Collabnet – productised Subversion.
  • OSS Model
    • Owners, Community, Commercializers
  • OSS V2.0 – Dual licensing. Monetization. Commercial product retirement. Giving back to the community.
  • Loopback from commercial use back to development community.
  • Implications for Overall IT Industry
  • Guidance
    • New set of business rules, SOA and Open Source.
    • Find differentiated niche

Top three tips for dealing with analysts;

  • Proactively work with analysts.
  • Don’t waste  my time
  • Develop relationships with people you like to work with them
  • Look at research they are coming out with.

Sean Foley : Microsoft (Ex CTO of Cognotec) :

Industry Megatrends

  • Performance
  • Wireless
  • SOA
  • Digital Workstyle lifestyle
  • Stoage in the cloud
  • Web 2.0

Technology Trends

  • Broadband
  • AJAX
  • Media consumption
  • Broadband penetration in US approaching 50%
  • Use of web as an entertainment medium

Software and the Ad Market

  • Softare 131bn dollars
  • Ads 520bn dollars
  • Online 17bn in 2005
  • Half of that 17bn was spent on software services (that was given away for free)
  • Good enough will extinguish high cost perpetual license software
  • Amazon 4000 item queueing software
  • MSN, Google or Yahoo may buy you
  • Mashups – Google maps and Flickr photos

What are microsoft doing in this area?

  • The Live Era
  • People, Data, Devices, Applications – Sofware + services, seamless applications
  • The microsoft live platform – extensions to Office, Windows, XBox, Partners
  • Services have Rich development APIs (calendaring, mapping)
  • Leverage networks of people, information and advertising
  • Presence, permissioning, (MSN pitch)
  • Explosion of digital data (need search services)
  • Business networks
  • See live.com (ideas.live.com) for examples

THe live era, software + services

  • Subscription
  • Transaction
  • Usage
  • Advertising
  • Delivery – compensation, contracts, SLAs, liabilities
  • Much better connection to customers

Ecosystem of providers:

  • 90%  of MS sales are through partners
  • 40000 h/w vendors, 51000 software vendors in EU
  • ISVs that target MS have higher growth rates
  • BBC Smart Client (Vista) Gateway to a weeks content, search, personal space ( you gotta have Vista)

The world is changing

  • Power of technology
  • Digital Lifestyle and Workstyle
  • New business models
  • In Web 2.0 everything is beta.

Unparalleled Opportunities

  • IP Ventures – Access internally developed technologies (SoftEdge systems create photoediting functionality)
  • Empower – Everything Microsoft does for 5 developers at a very early stage.
  • Need recurring revenue opportunities
  • Sean.Foley@microsoft.com

Fergus Gloster : Senior VP For Salesforce.com

  • The end of software
  • Our definition of SAAS (OnDemand computing)
  • Factors of success
  • Safe Harbour statement

Salesforce:

  • 50% share in the OnDemand market
  • 20500 customers
  • 398000 subcribers
  • Rapid growth (exponential)
  • Trusted choice across multiple segments
  • Largest customer 7500 users
  • High repeat use – Continue to use 95%, would recommend  to a colleague 93%, have recommended to a colleague 77%.
  • A lot of shelf ware in the packaged software industry

OnDemand Computing Platform

  • Multi-tenant – Isolate from each other
  • Service Delivery – Customer doesn’t care how you get the service to them (Electricity analogy). Need to be open about problems. Trust.salesforce.com.
  • Meta data driven construction – Impossible to upgrade otherwise
  • Web Services integration – Musn’t build another silo.
  • Enterprise VLO architecture – Very Large Organisations
  • Development Environment – Need a sandbox environment to test changes
  • Multi-application – Need to able to deploy more than just CRM
  • Application Exchange – Directory of applications provided by ISVs

Factors for success

  • Strong Leadership
  • Focus on Success
  • Disruptive Offering -  ($1000 vs $10000 for a CRM seat).Get The Message Out – using PR. Message must be different, must be substantiated.
  • Direct distribution model – We had to do it ourselves (no distributors, no resellers).
  • Strong inside sales model – Sell it ourselves over the web.
  • Viral marketing – Exploit the existing customer base. Cocktail evening in London.
  • Align yourself with the big guys – Throw stones at Siebel.
  • High degree of flexibility –

Key Differences vs Software

  • Customers can leave
  • Instant market reach – people can try the whole product from anywhere.
  • Instant feedback on features and functions
  • Customer trial is a real test
  • Vendor can see the true level of interest via customer’s usage
  • Huge sales productivity
  • Shortened sales cycle
  • Greater understanding of customer base

Salesforce Strategy – AppExchange

  • Expand functionality of offering
  • 18 releases in the past 6 years
  • Normal release cycle for Enterprise Software – Once every 18 months.
  • Consumer web platforms – Google, EBay, Yahoo etc.
  • ON Demand for Business in a similar vein – AppExchange - customise, integrate, create new apps, package apps, install apps.
  • Share an App. Rate it, install it.
  • First 90 days – 200 applications, 7100 installations, 108000 test drives.
  • Deliver 100% of extended CRM and beyond (home grown solutions that live inside companies, written in Excel). Integrate long tail Enterprise Applications.

The Irish Experience : Gary Moroney, Pat Brazel, Sean Melly,  Peter Donlon

Gary MoroneySimiliarity Systems
Driving Growth Through Partnerships

  • Similarity – Founded 2001, Acquired Informatica 2006. Data Quality Management.
  • Top Tier Customer base
  • Highly rated by technology analysts

Growth:

  • 4-6 months market definition
  • CTO and development team – 2001 built product. 0.5m
  • 2002 sales prospecting (only in Ireland) (ESB, Eircom) 0.7m
  • 2003-2004 Building an I18n relationship (Selling, partnerships) 2m
  • 2005 raised final round for scaling up.  5.25m
  • Exit 2006

Key Strengths

  • Mgmt hiring
  • Sales execution
  • Product Postioning
  • Reputation building

Partner strategy

  • Customer relationships
  • Sales reach
  • Local/Vertical knowledge – supply vertical markets
  • Market validation
  • Large project access – piggyback on bigger deals
  • Product Integration – Will work with partner offerings
  • More sales opportunities
  • Better conversion rates
  • Larger deal sizes

3 Tier Partner Model

  • Local resellers
  • Global Systems Integrators
  • Complimentary software vendors – e.g. CRM, ERP

Partner Development

  • No local resellers until internationalisation
  • Target english speaking countries (and reseller friendly countries)
  • Targetted all other countries that didn’t need localisation
  • Use BearingPoint, Accenture to define requirements/find customers.
  • Those relationships can be used to extend markets
  • Look for global relationships
  • Position against complementary vendor

Sean Melly – CEO of ETEL

Building an International Business

ETEL

  • leading alternative telco in Europe
  • 60000 corporate customers in EU
  • 140m revenue, 10m profits.
  • 2000km network
  • MAN networks
  • Unbundled local loop in Vienna

Capital Markets

  • Raised 70m EU
  • Principal Share holders: DKW, Argus, Intel, Greenhill
  • Eleven successful acquisitions
  • Acquired EUnet ofr 20m in Apr 2006.

Financial Performance

  • Hard to read slide
  • Gross Margin 40m
  • 5m loss first year
  • 16m peak loss
  • 10m profits this year

How got here

  • Experience in TCL business
  • Applied that to larger market in Eastern Europe – EU membership, Telco deregulation
  • Day 1 focus on international business
  • 550 people in region, 4 in Dublin
  • Experienced nuclear winter in 2001 – Had to change strategy from building business on our own to acquisition
  • Acqusition – simplest way to build scale
  • 11 Acqusitions (bought one very good business for 1 euro).

Comments: What you need

  • Easier to do the more you do it
  • Opportunity to scale
  • Does it have a annuity stream of revenue
  • Can you avoid having to educate the market
  • Can you make what people are doing today better, faster, cheaper

Pat Brazel: Eontec.

Eontec – Recipes for successful acquisitions

  • Don’t do IPOs
  • Started a new Enterprise Software company (won’t get funded, won’t sell)
  • (Two Drunks trying to get home).

When is  company ready to acquire

  • What is the motivation of management? Ego, grass in always greener. Rarely share benefits with company.
  • What is the organisational model? Can’t really maintain independent divisions. Forcing teams together can be difficult.
  • What is your core competence? How will the new company perform. Acquisitions cause confusion.

Ready to be acquired

  • The buyers vision…
  • Skeletons in the cupboard – surviving due diligence, trade buyers know more about your industry than VCs.
  • Earn outs and independence – How you survive post buyout.
  • Impact on shareholders, Employees, Management
  • …and clients
  • Be ready to be surprised – Once you were a frog, you suddenly become a prince.

Peter Conlon – XSIL

XSIL

  • Sell tools to Semiconductor companies
  • price tag 1- 1.5m price tag
  • Started May 2000
  • Build people, technology.
  • No background in high precision engineering.
  • Garage operation
  • 12 Irish Engineers, no experience in industry
  • Experience a crash
  • Offices all over the world
  • 150 employees
  • Profitable
  • Operations in all three continents
  • Target customers – The usual suspects
  • 10 companies control 60% of annual purchases
  • 10 out of 10 are in technical evaluation
  • 60m in revenues (~16m in profit)
  • 100 people based in R&D
  • Global workforce
  • From the outset targetted IPO
  • Always taken in top tier external advisors

Written by Joe

May 18, 2006 at 4:31 pm

One Response

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  1. […] I spent this morning a the ISA Conference 2006. I had hoped to have a bash at live blogging but there was no WIFI so I was reduced to taking notes. It was a fairly sedate affair with only Pat Brazel managing to get a few laughs out the audience. The theme was new models, new approaches but the speakers spoke mostly about old models and old approaches. The topic of new models was addressed much more credibly at the recent Web 2.0 event held by Enterprise Ireland. […]


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