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Strategic PartnershipsNovember 8, 2001

Mark Leslie

650/[email protected]


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A Brief History of Major Dealswe did at Veritas

19821989: Tolerant Systems Veritas

1990: AT&T SVR 4 UNIX Agreement

1991: Renegotiate AT&T Agreement

19911993: Industry Standard File and Disk Mgmt60 companies licensed (including IBM)

1993: Sun, HP

1996: Microsoft

1997: Oracle, Sun II, HP II1997: Veritas / OpenVision Merger

1999: Veritas / Seagate Merger

2000: IBM, VOS, Seagate II


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Why do Strategic Deals?

Small number of companies determine industrydirection Intel, Microsoft, Sun, IBM, Oracle, Cisco, HP, EMC, VERITAS,

etc

Strategic Alliances Align you with industry

Legitimize technology

Access to Markets

Credibility with Wall St. Increase revenue directly and indirectly

Not sure if you could build a bigcompany withoutthem


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Many forms of a strategicrelationship

Strategic Investor

OEM customer

Distributor / ResellerTechnology licensing Outbound or Inbound

Merger and Acquisition

Substantive AlliancesMarketing Agreements

Combinations of the the above


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Strategic InvestorEquity investor along with other relationship Usually willing to pay higher price

May or may not want board representation

Some commercial transactions call forwarrants to strategic partner Becomes equity investor without paying

Sometimes down-payment on future

acquisition Acquisition right of first refusal?

Often times larger company invests $ tocover custom development

What is wrong with this approach?


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Strategic InvestorWhat is the rest of the relationship? OEM

Reseller

Co-sales

What does larger company do for you besidesdollars? Special access to future technology?

Marketing stuff?

Access to sales force?

Access to customers


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Strategic InvestorIssuesWhat parts of the market does thisrelationship preclude?

What are your responsibilities when the newmoney runs out?

Can you rely on the partner keeping hiscommitments? What can you do if he does not?

How do you support your customer, AND hiscustomer?

How do you avoid getting designed out?

Is the company still saleable?


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OEM (original equipmentmanufacturer) Customer

A company incorporates your technology inthe design and/or construction of a newproduct Your product may or may not exist in new

product Your brand is invisible

May be technology buy-out One time revenue

Avoids equity round

Not an ongoing stream


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OEM CustomerAlternate structure is design-win plus per unitor royalties Customer perceives his per-unit cost or royalty

payment as cost of goods

Customer is price sensitive, putting pressure onprices

Software OEM royalties may be up to 99%discount!!

Per unit margins are minimal Annual royalty stream is capped by internal

development alternative

May or may not get benefit of propagating

your product in the market Invisible brand


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Distributors / Resellers

What is the difference?

Distributors Will stock your product

Do small transactions with resellers

Extend credit to less credit-worthy

List / catalogue your products

Do NOT create demandsimply fulfills demand

Driven by their own margin Reliability of product and service

But, NOTnot by best product or customer need


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Distributors / Resellers

What is the difference?

Resellers

Close to customer

May stock your product Integrate your product into end-user solutions

Extend credit to less credit-worthy

List / catalogue your products

May creat demandmay simply fulfill demand Driven by their customer solution / own margin

Reliability of product and service

But, NOTnot by best product or customer need


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Multi-tier channel pricing(software model)

End-user: 1020%

Reseller: 2540%

Distributor: 5055%

Binary OEM: 6070%Source OEM

Unbundled: 8085%

Bundled: 9095%

Very large OEM: 9599%

F1000 corporate: 4060%


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PartnershipM&A

Strategic (Transformational) mergers OpenVision

Seagate NSMG

Tactical Mergers TidalWave (FirstWatch VCS)

ACSI (Media Manager)

Windward Technology (Predictive FaultTechnology)

OpenVision Australia (Distributor)

TeleBackup (NBU Professional)

NuView (ClusterX)


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Technology licensing

Outbound Covered under OEM discussion

Want to get as much per unit for as long as

possible

Inboundacquiring necessary technology Faster time to market

IP ownership issues

You are the OEM

Want to pay as little as possible, both up front andespecially in per unit royalties

The shoe is on the other foot!


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PartnershipAlliances

Partnering Up Larger companies

Dominant in some market

Exercises some market control

Partnering Down There may be smaller companies, or non strategic

companies where you help them more than they

help you

Partnering Equal Equal leverage companies

Combining to offer solution to market

Create a virtual critical mass


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Organizing for BusinessDevelopment

Tactical M&A

Venture Capita

Inbound /outbound licensing

OEM

Channels operations


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Whos Got the Leverage

The big guys have it

The bad news

They know it They use it

Assuming reasonable competence ofboth parties, an agreement shouldaccurately reflect the underlyingleverage


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Whos Got the Leverage

The good news

You do have some unique IP

You can negotiate You can hold out for critical issues

You can argue:

Fairness

win-winThe objective is not to be liked, or easy todo business with


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Doing the deal

Be focused and relentless

Dedicate the resources

Did I ever tell you how I met my wife? NEVER, EVER, EVERtake NO for an answer

Build the relationship

Be prepared to invest for a long time

Top level executive commitmentCreate the need


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Doing the deal

Shape the deal

Shape it early -- the earlier the better

Shape it often

The big issues are OVER long before yousit down to negotiate the contract


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Doing the deal

Negotiate the deal

NEVER, EVER, EVERnegotiate yourself

Do not be afraid to ask for the moon

Dont be surprised if they do

Keep the give and take

Be creative

Use their new issues to get what is importantAlways ask them why you should agree


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Doing the deal

Close the deal

Have a party!

PR the dealExecute the deal

Make sure they execute their part

Set up weekly meetings

Put one person in charge of it


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Key Issues

NEVER, EVER, EVER give away your IP Maybe there is no deal here

Any non-revenue or low revenue licenseshould be a socketfor you to add on to You need multiple channels to capture the value

Your leverage gets better over time

shorter agreements are better than longer onesBusiness developments executives are veryrare, hard to find Sales is tactically oriented

Business development is very strategic


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More Key IssuesNote: Lawyers do not do dealsbusinesspeople do deals, and lawyers memorializethem in contracts

The deal PR is extremely valuable to youdo

not trade itPlan on your partner executing badly or notat all on their commitments to you

You have to execute anywaywho said lifeis fair

Think long term (they do) The value of your company in 510 years may

be based on the quality of these early deals


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Guest Speaker:Peter Levine

Ex-EVP Business Development,VERITAS Software


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Strategic PartnershipsNovember 8, 2001

Mark Leslie

650/[email protected]

Date post:	02-Jun-2018
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