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Strategic PartnershipsNovember 8, 2001
Mark Leslie
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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