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. Â 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 Â 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. Â 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
- Did I say team
Many of our companies are led by first time CEOs.
- 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
- 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
- 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. Â “Services wave of applications”.
- 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
- 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 Â 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) :
- Digital Workstyle lifestyle
- Stoage in the cloud
- Web 2.0
- 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
- Delivery – compensation, contracts, SLAs, liabilities
- Much better connection to customers
Ecosystem of providers:
- 90% Â 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.
- 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
Fergus Gloster : Senior VP For Salesforce.com
- The end of software
- Our definition of SAAS (OnDemand computing)
- Factors of success
- Safe Harbour statement
- 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 Â 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 -Â ($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 -Â 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, Â Peter Donlon
Gary Moroney – Similiarity Systems
Driving Growth Through Partnerships
- Similarity – Founded 2001, Acquired Informatica 2006. Data Quality Management.
- Top Tier Customer base
- Highly rated by technology analysts
- 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. Â 5.25m
- Exit 2006
- Mgmt hiring
- Sales execution
- Product Postioning
- Reputation building
- 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
- 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
- leading alternative telco in Europe
- 60000 corporate customers in EU
- 140m revenue, 10m profits.
- 2000km network
- MAN networks
- Unbundled local loop in Vienna
- Raised 70m EU
- Principal Share holders: DKW, Argus, Intel, Greenhill
- Eleven successful acquisitions
- Acquired EUnet ofr 20m in Apr 2006.
- 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 Â 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 wereÂ a frog, you suddenly become a prince.
Peter Conlon – 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
- 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