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Archive for November, 2017


No turkeys in flock of best Bay Area venture returns of all time

By  –  TechFlash Editor, Silicon Valley Business Journal

“Returning the fund” is the phrase used in the venture world for investments whose returns cover all the bets a firm made from a particular fund.

But not all bets that “return the fund” are equal. In a week when Americans gather to thank their blessings, here is a CB Insights ranking of the 10 all-time best venture returns involving Bay Area-based companies.

The returns are based on how much was invested before a company’s IPO or sale, compared to its valuation at the time of the exit.

A few deals by Bay Area investors that returned the fund but involved companies that aren’t headquartered here have been left out.

That includes Groupon (NASDAQ:GRPN), which provided the third biggest venture return of all-time and was backed early by Accel Partners and New Enterprise Associates. It went public six years ago at a valuation of $12.7 billion after raising about $700 million in funding.

It also includes Snapchat parent Snap Inc., which was the fifth biggest return and was backed early by Lightspeed Venture Partners and Institutional Venture Partners. It went public this year at a valuation of about $33 billion after raising about $3.4 billion in funding.

In both those cases, however, the current market caps of those companies are a lot lower than they were on their Wall Street debuts — $3.1 billion for Groupon and $14.9 billion for Snap.

Let that be a reminder that it’s OK to push away from the feast before you overindulge.

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Advantages of ‘Date-Certain M&A Process over Standard M&A’

Every venture capital investor hopes that all his investment will succeed. The reality is, however, that a large percentage of venture investments eventually are shut down.

In the extreme they end in bankruptcy or assignment to creditors. The majority falls into the category of the “living dead.” Such companies are not complete failures, but their prospects do not justify continued investment, yet they are rarely shut down quickly.

Once reality has been recognized, most investors engage investment bankers to sell their investment off through prevailing M&A processes. Unfortunately, seldom with good results.

REASON #1

The main reason for that sad result is a fundamental misunderstanding of buyer psychology. In general, buyers act quickly and pay the highest price only by force of competitive pressure.

Potential buyers of the highest probability are those already familiar with the company for sale, such as competitors, existing investors customers and vendors. Once a sales process starts the seller is very much a diminishing asset. Both financially and organizationally.  Unless compelled to act, potential buyers simply start to draw out the process, submit a low-ball offer when the seller runs out of cash, or try to pick up key employees and customers at no cost.

REASON #2

The second reason is usually a misunderstanding of the psychology and methods of investment bankers.

Most investment bankers do best at selling “hot” companies. Companies whose value is perceived by buyers to be increasing quickly over time, and where there are multiple bidders.

They tend to be more motivated and work harder on such cases because transaction sizes –and resulting commissions– are larger and surrounding publicity can bring in new assignments, among others. They also tend to be more effective in maximizing value in such situations by using time to their advantage, pitting buyers against each other and setting very high expectations.

In a situation where time is not your friend, the actions of standard investment banking practices often make a bad situation much worse. Such actions include assigning less experience B-Teams to smaller transaction size cases, “playing out the process” which works against the seller, and pitting multiple players against each other which can drive away potential buyers who often know far more about the seller than does the banker.

 

THE GERBSMAN PARTNERS ‘DATE-CERTAIN’ M&A PROCESS

The most effective solution in situations where time is not on your side is a Date-Certain Merger and Acquisition Process.

Under this proprietary process, the company’s board of directors hires a crisis management/private investment banking firm (‘advisor’) to wind down business operations in an orderly fashion and to maximize the value of their intellectual properties and tangible assets. The Advisor works closely with board and corporate management to:

  • Focus on Control, Preservation and Forecasting of CASH
  • Develop a Strategy/Action Plan and Presentation to Maximize Value of Assets.
  • Plans to include Sales Materials, Due Diligence access. a list of all possible Interested Buyers for Intellectual Properties and Assets and Identify and Retain Key Employees on a go-forward basis.
  • Stabilize and provide Leadership, Motivation and Moral to all Employees.
  • Communicate with the Board of Directors, Senior Management, Senior Lender, Creditors, Vendors and all other Stakeholders in Interest.

THE PROCESS:

The company attorney prepares a simple “As-Is/Where –Is” asset sale documents. This document is very important and includes a “No-Reps or Warrantee” Agreement, as the board, officers and invertors typically do not want any additional exposure on a deal.

The advisor then follows up systematically with ALL potentially interested parties and coordinates their interactions with company personnel, including on-site visits.

Typical terms for a Date-Certain M&A asset sale exclude representations and warranties and include a sales date –typically four to six weeks – from the point of readying sales materials for distribution, a refundable CASH deposit in the range of $200,000, a strong preference for cash consideration and with the ability to close a deal in seven business days.

Date-Certain M&A terms can be varied to suit needs unique to given situations. For instance, the board may choose not to accept any bids, or to allow re-bids if there are multiple competitive bids, and/or allow early bids.

The typical workflow timeline from advisor hiring to transaction close and receipt of consideration is four to six weeks. Such timelines may be extended as circumstances warrant. Upon receipt of considerations, the restructuring/insolvency attorney then distributes funds to creditors and shareholders (if there is sufficient consideration to satisfy creditors), and takes all needed steps to wind down the remaining corporate shell. Typically in coordination with the CFO.

 

PROCESS ADVANTAGES:

Speed:   – The entire Date-Certain M&A Process can typically be concluded in 4 to 6 Weeks. Creditors and investors receive their money quickly. A negative PR impact on investors and board members related to a drawn out process is eliminated. Where required, such timelines can be reduced to as little as two to three weeks, however severely compressing the process often impacts the final value received during asset auction.

Reduced Cash Requirements:  – Owing to the Date-Certain M&A process’ compressed turn-around time, there is a significantly reduced need for any additional investor cash to support the company during the process.

Maximized Value:  – A quick and effective process during wind-down mode minimizes strain and rapid asset depreciation and thereby preserves enterprise value. The fact that an auction will occur on a certain date typically brings truly interested and qualified parties to the table. In our considerable experience, this process strongly aids in maximizing the final value received.

Cost:  – Advisory fees consist of a retainer and a performance fee, which is a percentage of the sales proceeds.

Control:  – At all time during the process, the board of directors retains complete control. For instance, it can modify the auction terms, or discontinue the auction at any point, thereby preserving all options for as long as possible.

Public Relations:  – As the entire sales process is private, there is no public disclosure. Once closed, the transaction can be portrayed as a sale of the company with all terms kept confidential. Accordingly investors can list the company in their portfolios as sold vs. having gone out of business.

A Clean Exit:  – Upon closing of the auction, considerations received are distributed and the advisor, under the leadership of the insolvency counsel, then takes all remaining steps to effect an orderly shut-down of the remaining corporate entity.

 

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in underperforming, undercapitalized and undervalued companies and their intellectual properties. Since 2001, Gerbsman Partners has successfully maximized the values of 102 companies in a wide and diverse spectrum of industries, ranging from technology, life science, medical device, digital marketing, consumer to cyber security, to name only a few.

Since inception in 1980, Gerbsman Partners has successfully restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations, and has been involved in over $2.3 billion of financings, restructuring and M&A transactions

Gerbsman Partners has offices and strategic alliances  in San Francisco, Orange County CA, Boston, New York, Washington  DC, Mc Lean VA,  Europe and Israel.

 

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Veterans Day 2017 What are YOU doing to HELP?

As we begin Veterans Day/Week 2017, we say “Thank You” to the men and woman of our armed services and suggest that it is time for all to “step up” and find ways to support our Veterans. To often we say “thank you for your service” and then do nothing more. Please think about supporting various Veterans groups with donations, food, clothing and moral support. The have “Earned” it and we “Owe” it to them.

In the late summer of 1967, I was on my way back to Basic Training at Fort Dix, N.J. I was in New York City and an older couple came up to me and said “Thank You” for serving and then gave me $ 20 to enjoy a dinner on them. The gentleman said he served in the Korean War and understands and appreciates what men and woman in uniform go through. I said thank you, enjoyed a great dinner and to this day, remember their kind gesture.

On this Veterans Day/Week, our family will support the Wounded Warriors program and will provide moral support and friendship to Afghanistan Veterans. On 11/11/17, I will also continue to remember that couple and honor them by buying dinner for soldiers in uniform. I will ask them to do the same thing, 5, 10, 20 and 40 years later.

May God Bless our troops and provide our leaders with the courage and strength to do what is Right and what is Just.

Please always remember – FREEDOM IS NOT FREE

What are YOU doing to HELP?

With “HONOR AND RESPECT” – Steve Gerbsman

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Here’s why I like Google’s speakers better than the Amazon Echo

google home mini The Google Home Mini in a Google-exclusive “coral red” color. Matt Weinberger/Business Insider

  • This holiday season, Google Home and Amazon Echo will be very popular gifts, with both companies releasing new products in the line.
  • Amazon Echo is great for Amazon fans, with a wide range of hardware and some nifty software.
  • But Google Home is better for most people — Google’s AI and ability to answer even weird questions makes all the difference.

This holiday season, the escalating war between Google and Amazon is coming to a store shelf near you.

Amazon will be pushing its revitalized line of Echo smart speakers, powered by the Alexa voice agent. That includes the ever-popular Echo Dot, now $40, a revamped $99 Echo, the $129 Echo Spot alarm clock, and more Alexa-powered gadgetry, besides.

In the other corner is Google, which is hyping up the $50 Google Home Mini, powered by its own Google Assistant. Also on offer: The original $129 Google Home, and, come December, the $400 block-rocking Google Home Max.

There are other options, sure. The Harman Kardon Invoke is powered by the Microsoft Cortana agent, for instance, while Apple’s Siri-powered HomePod will likely be on store shelves before Christmas.

But I’m here to make the case that it’s Google, and the Google Assistant, that reigns supreme. There are all kinds of little reasons I believe this, but there’s really one big one: Google Assistant is much smarter than Alexa, Siri, or pretty much anything else on the market today.

Here’s the skinny.

Amazon Alexa is good…

At the most basic level, Amazon Echo and Google Home can do most of the same things. You can set alarms and timers, play music, check your calendar, add items to your shopping list, get the weather, make phone calls, and control your smart-home gear.

Both products also carry some corporate synergies. With an Amazon Echo, you can shop on Amazon, control a Fire TV streaming box and listen to Amazon Prime Music; with a Google Home, you can control Chromecast streaming devices, access Google Play Music, and shop with Google partners like Target and Walmart. It’s a matter of taste.

amazon echo spot Checking your calendar with the Amazon Echo Spot Matt Weinberger/Business Insider

Amazon Alexa has been around for a little longer, and it shows in a few areas: Alexa supports a slightly wider range of smart home appliances, and sports nifty Echo-to-Echo voice and text messaging features. Plus, Amazon keeps releasing new and innovative Echo devices to showcase what Alexa can do. Google Assistant is adding new features to catch up all the time, Amazon has been relentless about improving Alexa.

Okay, so if the two devices are the same in so many ways, why do I like the Google Home better? Well, to answer that, I’m going to have to take a big step back and explain why I like the Google Assistant better than Amazon Alexa.

…but Google is smarter

Because it taps straight into Google’s base of knowledge, both global and personal, Google Assistant can answer lots of questions, even the really obscure ones. “OK Google, what day was the Battle of Hogwarts?”

Here’s a great example of how that translates into a more usable device. If you ask Amazon Alexa if your dog can eat tomatoes (or carrots, or cereal), it gives you a canned response with all sorts of things dogs shouldn’t eat. Ask Google Home if your dog can eat something, and it usually gives you a yes/no answer, with its source cited.

In general, the Amazon Echo can answer some basic questions (“When do the Yankees play next?”). But, despite Amazon’s efforts  to smarten Alexa up over the years, it tends to stumble over anything more complicated (“How do I get rid of a depleted fire extinguisher?”)

google home The $129 Google Home speaker. Hollis Johnson/Business Insider

If you ask a question Alexa doesn’t know, it nudges you towards “skills” that extend its knowledge and functionality — skills for recipes, for games, and trivia, and relaxation. Not every Alexa skill is great, though, and frankly, I don’t always remember which skill I need when I’m just trying to figure out a question.

And that smarts manifests itself in other ways, too. This goes back to those corporate synergies, but it’s nice to be able to say “OK Google, display my engagement photos on the bedroom TV,” and have it grab the relevant imagery from the Google Photos service, and use the Chromecast to put them up on the correct screen.

So, yeah, it’s a matter of taste, especially as more and more smart speakers come online. But in the battle between Amazon and Google, the artificial smarts really make all the difference.

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This GIF nails how the iPhone X could be the foundation for Apple’s rumored smart glasses

In case you haven’t noticed, Apple is slowly but surely pushing augmented reality into the mainstream.

But if you’re wondering how Apple can make the jump from something like the new iPhone X to a pair of smart glasses, this GIF nails how that evolution could take place:

This GIF was a concept made by Leo Costa, which he uploaded to the 3D-sketching “uMake” app for iPad. As you can tell from the GIF, Costa uses the same TrueDepth camera system from the iPhone X — with its front-facing camera and sensors to capture 3D information — to serve as the foundation for Apple’s augmented-reality (AR) smart glasses.

Augmented reality, for those unfamiliar, lets you see virtual images in the real world. As Paul Canetti put it so well recently, AR is like “photoshopping the whole world.” So if you look at the GIF, putting the TrueDepth camera system on the front of a pair of smart glasses would make a great deal of sense, since a pair of AR glasses would need to be able to capture depth information on an ongoing basis to work properly.

For over a year now, we’ve been hearing that Apple is working on a pair of AR smart glasses. Apple laid the foundation in June with the announcement of ARKit, which effectively baked augmented reality into iOS. A few months later, it announced the iPhone 8 and iPhone X, the first iPhones with the A11 Bionic chip that’s capable of producing more detailed AR experiences. Apple even showcased several AR demos at its September event.

Apple isn’t the only tech company invested in AR. Snapchat uses AR for its popular “Lens” feature, which adds special effects to your selfies. Microsoft also makes an AR headset, the HoloLens, which is currently available to developers. And Magic Leap, based in Florida, recently raised $502 million in October to bring its rumored AR glasses to life.

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