Presentation on theme: "Growth Strategies in a Tough Economy Venture Association of New Jersey February 17, 2009 Chris Sugden, Managing Partner."— Presentation transcript:
Growth Strategies in a Tough Economy Venture Association of New Jersey February 17, 2009 Chris Sugden, Managing Partner
2 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 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 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 Revenue
5 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
6 Flexible Uses of Capital Early stage Late stage 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 years5X Increase valuation multiple Invest at 1.5X revenue2X 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, dont 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 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
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 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