W HITE & L EE LLP Soup to Nuts 2001 “The End Game in a Down Market” May 19, 2001

1. WHITE& LEELLPSoup to Nuts 2001 “The End Game in a Down Market” May 19, 2001 Bruce W. Lichorowic

2. Soup to Nuts 2001 Shopping the Company without a BankerWhat can you expect? Bruce W. Lichorowic

3. Background…BWL Focus Solutions for troubled companies Issues Funding, operational, marketing Partner VC’s, Angels, LP’s, Board, Entrepreneur 20+ years Turnarounds

4. The Environment“So what’s going on?” • Last Year: • Q1, 114 Acquisitions • Venture-back deals…$44.9B • This year • ? • Dot com…Shutting down • Investors are nervous • IPO’s…5, ‘01 • Merge or be Acquired? Source: Reuters, 4/9/01

5. Deciding… • Who decides to sell….? • Board • Investors • Shareholders • Founders • Bankers

6. Getting Ready • Once the decision is made • Prospecting • Pre-Deal • Deal • Post-Deal

7. Prospecting • Business Development • 1st calls to…existing Partners • Tell them your intentions… • Set up a meeting • Investors…VC’s • Look into their existing Portfolio companies • Checking other VC’s with similar technology • Board • Active board members

8. Prospecting • Sales Team • Call key customers interested • Delicate call… • Key Shareholder • Inform shareholder of intent to sell

9. Prospecting • Message…Key • Deliver a “common sense” story • Intend to sell the company • Give period of time • Why…funding, Investors • Tell how you help their future • Be confident • Show leadership

10. Prospecting • Process • Smooth and Continuous • Stay in contact • Don’t drop any prospect until they say: • No Thanks • Who leads the deal • CEO with Business Development….small company • Operating/Unit Manager….larger company • Timing • Key..Don’t rush…

11. Profile your Company 0-6 months • Market/Marketing • Markets Identified, Web Site • Technology • Whitepaper • Team • Founders • Business Model/Plan • One pager Executive Summary • Fundraising • Founder/Angels

12. Profile your Company 6-18 months • Market/Marketing • Analyst Approval • VP Marketing, Core Message, PR Launch • Technology • VP Engineering, Proof of Concept, Alpha • Team • Development, Marketing • Business Model/Plan • Basic Executive Plan • VP Business Development • Fundraising • Lead VC with Existing Angels

13. Profile your Company 12-24 months • Market/Marketing • Customer Approval • Technology • Beta or FCS • Team • CEO, VP Sales, Marketing Professionals • Business Model/Plan • Detail Plan • Strategic Partnerships • Fundraising • Syndicate of Investors, Lead VC

14. Profile your Company 18-24 months • Market/Marketing • Key Message… ”why customer buy?” • Technology • FCS with milestone releases • Team • CFO, Audit Firm • Business Model/Plan • Polished Presentation, Focus Plan, Reference Sites • Fundraising • Syndicate Investors with VC Lead or • Mezzanine if IPO is imminent

15. Pre-Deal…LOI Stage • More deals lost at this stage • Management…Thinks it’s over • General “relax” attitude • Forget take care…Current Customers • Personnel • Feeling of uncertainty • Critical that you keep key employees

16. Pre-Deal…LOI Stage” • Diligence Stage • Business model…that makes sense • Strong business propositon • Revenue model, pipeline • Technical • IP reviewed, architecture • Show the ”secret sauce” • Key personnel intro’s

17. 1 0 1 1 1 1 0 0 1 0 1 1 0 1 0 1 0 Pre-Deal…LOI Stage • “Secret Sauce”… Core Technology • Underlying technology behind the products • Meet customers needs and applications Internet Personalization Technique Adaptive response to on-line users Dynamic segmentation of on-line users Cooperative Multi-Agent Search

18. Pre-Deal…LOI Stage” • Diligence Stage • Identified Market • Customer • Market size • What problems are your fixing? • Review backgrounds • Founders • Sales, Marketing, Engineering

19. Pre-Deal…LOI Stage TOTAL CASH REQUIRED BREAKEVEN

20. Pre-Deal…LOI StageProduct Road Map Q2 2001 Q3 2001 Q4 2001 1H2002 2H 2002 Product #1 PRO 1.0 PRO 2.0 2.0 1.0 Product #2 PRO 1.0 PRO 2.0 1.0 Product #3 2.0 1.0

21. Pre-Deal…LOI Stage • Financial Review • Cash…Burn rate • Sales…Pipeline • Budgets…by Department • Balance Sheet, P&L

22. Pre-Deal…LOI Stage

23. Pre-Deal…LOI Stage Channels Market Segments Direct Sales • Seed Accounts • Early Adopters • Major Accounts Integrators Indirect Sales • Mid-Market • Vertical Markets Business Development Technology Integrators Marketing Partners

24. Pre-Deal…LOI Stage • Licenses • Hosting • Professional Services

25. The Deal • Valuation in today’s Market • Thriving Business…Profitable • ½ to ¼ of the last round of funding • Multiplier of trailing revenues • Business…Out of Cash • Sell the asset or IP • Software Company…need the engineers • Hardware Company…need the engineers • Cents on the $$$

26. The Deal • Heat of the deal • Simplicity is key • ID what needs to accomplished • View what’s reasonable • Build a robust model • Employees • Double Trigger • Change of Control • Change of Job Function

27. Post Deal • Integration Mode • Set short term “attainable” goals • Watch costs • Settle disputes quickly • Form one culture • Merger • Technology, people, cultures & systems

28. Top 10…Must Haves • One Page Business Brief • Value Proposition…10 words • True sustainable pipeline • Find out what they’re looking for… • Don’t announce products in the LOI stage • Get a reference customer ASAP • Calculate to the month…breakeven • Accurately describe…use of funds • Understand their Business model • Business Integrity*

29. Top 10…Personal Checklist • Keep your cool… • Selling the company is a full-time job • Don’t assume VC’s are going to Help • Constantly rethink your strategy • Watch out…sinking ships • Check your ego at the door • Plan on 2-3 rounds of negotiations • Always tell yourself the truth • Know where the “Exits” are • Trust your instincts

30. Bruce W. Lichorowic Specialist for Distressed Companies