Archive for July, 2018

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.


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.


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 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 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.



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 103 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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DIGITAL DISRUPTION OF CREDIT SCORING: How developments in the credit scoring space are opening up new opportunities for incumbent lenders

This is a preview of a research report from Business Insider Intelligence, Business Insider’s premium research service. To learn more about Business Insider Intelligence, click here.Traditional consumer lenders, like banks and credit unions, have historically served segments of the population they can conduct robust risk assessments on.

But the data they collect from these groups is limited and typically impossible to analyze in real time, preventing them from confirming the accuracy of their assessments. This restricts the demographic segments they can safely serve, and creates an inconvenient experience for potential borrowers.

This has hobbled legacy lenders at a time when alternative lending firms — which pride themselves on precision risk assessment and financial inclusion — are taking off. These rivals are starting to break into a huge untapped borrower market — some 64 million US consumers don’t have a conventional FICO score, and 10 million of those are prime or near-prime consumers.

Incumbents can get in on the game by tapping into new developments in the credit scoring space, like psychometric scoring, which use data besides borrowing history to measure creditworthiness, and by integrating new technologies, like artificial intelligence (AI), to improve the accuracy of conventional risk assessment methods. There are still risks attached to these cutting-edge methods and technologies, but if incumbent lenders are aware of them, and take steps to mitigate them, the payoff from implementing these new tools can be huge.

In a new report, Business Insider Intelligence looks at the drivers encouraging incumbent lenders to consider adopting new credit scoring methods or innovative technologies that make the lending process more seamless. It also outlines what incumbents stand to gain from adopting alt scoring, the types of models on the market to choose from, the risks still appended to onboarding them, and recommendations on how to mitigate them to add real value to legacy lenders’ businesses.

Here are some of the key takeaways from the report:

  • Alternative lenders are disrupting the credit scoring space in two key ways: by using alternate credit scoring methods and integrating new technologies.
  • There’s a range of methods and technologies incumbent lenders can choose to implement. But the solutions that are best suited for a particular lender will vary based on its specific business needs, the demographics it aims to attract, and its jurisdiction’s regulatory landscape.
  • If executed correctly, the payoff can be huge for incumbent lenders. In addition to boosting financial inclusion and enabling lenders to tap into new demographic segments and markets, new methods and technologies can improve returns on existing demographics.
  • However, disruptions carry both short- and long-term risks that both fintechs and incumbent lenders must navigate. These include inbuilt biases, fraud, conflict with third-party data policies, and poor financial literacy among underserved demographics.

In full, the report:

  • Outlines the drivers behind incumbent lenders’ growing awareness and adoption of credit scoring disruptions.
  • Looks at the current range of methods and technologies changing the face of credit scoring.
  • Explains what incumbent lenders stand to gain by adopting these disruptions.
  • Discusses the risks still attached to these disruptions, and how incumbents can manage them to reap the rewards.
  • Gives an overview of what the credit scoring landscape of the future will look like, and how incumbents can prepare themselves to stay relevant.

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How venture capital is hurting the economy 

Anthony Mirhaydari July 13, 2018

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PricewaterhouseCoopers and CB Insights’ Q2 2018 MoneyTree report highlights the latest trends in venture capital funding globally.



Dollars were up 2% in Q2’18 as a record $23B was invested across 1,416 deals. 45 mega-rounds of $100M or more contributed to the strong quarterly funding total.



Total quarterly funding to Asia-based companies increased 10% in Q2’18 as $21.2B was invested across 1,300 deals.

Silicon Valley deal activity declined to 166 deals in Q2’18, down from 170 in Q1. Total funding increased slightly to $3.9B. While San Francisco deals increased to 271, up from 260 in Q1.


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Steven R. Gerbsman is a mentor at the Stanford University MBA entrepreneurial program and is a guest lecturer at the MBA programs at Berkeley, University of San Francisco and Georgetown.  In October, 2013, I video taped a seminar on “Corporate Governance” and “Early Warning Signs” for venture backed Intellectual Property companies.  This will be for use in the Stanford Engineering School via STVP (Stanford Technology Ventures Program) and SCPD (Stanford Center for Professional Devlopment).  
Please click on link below and you will get to the Stanford presentation. https://vimeo.com/82421069 

Gerbsman Partners is a Restructuring and Private Investment Banking firm that is strategically positioned to assist portfolio companies of equity investors, senior lenders and bondholders maximize enterprise value.  Since 1980, Gerbsman Partners has been involved in over $ 2.3 billion of restructurings, M&A and financing transactions and has maximized enterprise value for stakeholders and shareholders in going concern and highly leveraged, under-performing, under-capitalized and under-valued companies and their Intellectual Property, as well as emerging growth companies.

Since 2001, Gerbsman Partners has focused and been involved in maximizing enterprise and Intellectual Property value for 103 venture capital/private equity backed and /or senior lender financed, technology (software, mobile, telecom, optical networking, internet, digital commerce, clean tech, cyber-security, etc.), life science, medical device, solar, fuel cell, cyber/information security and low tech companies through Gerbsman Partners proprietary “Date Certain M&A Process”.  Gerbsman Partners has also terminated/restructured over $ 810 million of prohibitive real estate and equipment leases, sub-debt and creditor issues.  Gerbsman Partners also assists US, European and Israeli technology, digital marketing, and medical device companies with strategic alliance development, M&A and licensing and distribution of proprietary content.  Gerbsman Partners leverages its domain expertise and extensive experience to the benefit of all stakeholders at interest, both nationally and internationally through our Board of Intellectual Capital.

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


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Bitcoin has been plummeting in value — but the world’s largest crypto exchange still expects to net up to $1 billion in profits

Changpeng Zhao YouTube
  • The world’s largest cryptocurrency exchange, Binance, expects to bring in as much as $1 billion in profit in the course of 2018, Bloomberg reports.
  • The exchange has netted $300 million in profits since the start of 2018 alone.

Bitcoin, ethereum, and ripple all plummeted in value earlier this year — but their sudden decline hasn’t hurt one key player in the cryptocurrency industry.

The world’s largest cryptocurrency exchange, Binance, expects to bring in as much as $1 billion in profits in the course of 2018 alone.

In an interview with Bloomberg, Binance founder Changpeng Zhao said his company has netted $300 million this year. Already, the company has 10 million users and turns over billions in cryptocurrency exchanges daily, Zhao said.

The success of Zhao’s company is largely unprecedented: Zhao founded Binance just last year in July 2017. It’s snagged the attention of cryptocurrency enthusiasts worldwide with its impressive transaction rates (Binance can handle as many as 1.4 million transactions per second) and emphasis on security.

In a February interview with Forbes— in which he was featured on the magazine’s cover — Zhao said, “No decentralized exchange today can handle our volume, and none are as secure as we are.”

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July Fourth: What I learned from a friend who runs toward the sound of guns

The freedom we celebrate today as Americans, of course, isn’t free. It’s a debt paid forward by brave men and women who, in times of danger, run toward the sound of guns. United States Marines are known for this gallantry, and my friend Rye Barcott, who served in the Marine Corps, is no exception.

Rye is one of a group of men I train with regularly. I’ve written of the Campos previously, of the guys who have changed my life. Rye is one of those guys.

A quick word of caution to any civilian thinking about exercising regularly with a Marine: it’s hard on the ego. They do pull-ups with maddening nonchalance, and can run for, as we say in the South, a month of Sundays. But they’ll make you run with the swift.

This is important to me because “Run with the Swift” is my family’s unofficial motto. It’s how I encourage my daughter in tennis matches, when she battles by playing up a level. I say it to my son for reassurance when he chooses a heavy course load in school. So it was kind of inevitable that I’d be drawn to someone like Rye.

Yes, he pushes me to train harder, that I might keep pace with him on distance runs. But that’s not what really matters. Rye pushes me to be a better man, that I might keep pace with him in the fine example he sets. I’ll get to that more important part below, but first you need to know a little more about my friend.

Rye is one of those guys who saw the larger picture very early on. The saying “youth is wasted on the young” is itself wasted on men like Rye. Since college, he’s been running to the sound of guns.

While an undergraduate at the University of North Carolina at Chapel Hill – which he attended on a U.S. Marine Corps NROTC scholarship – Rye visited Kibera, a slum in Nairobi, Kenya. He wanted a firsthand understanding of the ethnic violence that he’d face in uniform.

Rye didn’t just write a paper on what he saw. In 2001 he co-founded Carolina for Kibera. What started out as a youth center and medical clinic in a ten-by-ten foot shack is now a major non-governmental organization affiliated with his alma mater. Rye spoke proudly about it this past May in Chapel Hill, as UNC’s commencement speaker.

Mike Kerrigan op-ed photos

Rye Barcott speaking at UNC’s commencement  (Courtesy of the author)

After graduation Rye served five years on active duty, attaining a captain’s rank and leading Marines in Iraq, Bosnia and the Horn of Africa. In 2012 he reflected on his dual missions of fighting war while waging peace.

“It Happened on the Way to War – A Marine’s Path to Peace” is a first-rate piece of writing, but don’t take my word for it. Take Bono’s, or Archbishop Desmond Tutu’s, both of whom appear on the book’s jacket.

These days Rye hears the sound of guns not abroad but at home, in a country paralyzed by political polarization. In 2017 he co-founded With Honor, a super political action committee, with political commentator and fellow veteran David Gergen.

With Honor’s mission is simple: to increase the number of next-generation veterans in Congress, and fix America’s broken politics.

The candidates that With Honor supports pledge to put principles before politics, and carry themselves with the same civility, integrity, and courage that they brought to military service. They commit to monthly meetings with a member from another political party, and to co-sponsor bipartisan legislation at least annually.

In their current deployment, these veterans are once again called to put aside differences and come together — from many, one — for our country’s greater good. It might be just what America needs right now.

So back to those important lessons my friend Rye taught me, the ones beyond the fitness. Three morals stand out in importance.

First, you don’t have to be a Marine to run to the sound of guns. Yes, Rye did it as Marine, but he also did it before and after deployment, in Kibera and in Congress. Running to the sound of guns is not so much a battle tactic as the mindset of a mission-oriented life. The trick is to choose the right mission, one worthy of your life – perhaps your Faith, your Family or your Country.

Second, the sound of guns is heard not only on the battlefield. It is heard wherever hatred is sown, and we run to that sound whenever we answer it not with more hatred, but with love. The sound of guns, sadly, can be heard all around us these days. We just need to listen.

Third, the point of all of the physical training that anchors our friendship – the goal of being strong – is to protect the weak. Rye’s life is a testament to a beautiful sentiment Saint Francis de Sales put this way – nothing is so strong as gentleness, and nothing is so gentle as real strength.

We all should have a friend like Rye, a happy warrior who makes you run with the swift. If you have one, be thankful. If you don’t, find one as soon as you can. And remember, someone else is looking up to you for that same kind of leadership.

That’s what I learned from Rye Barcott, my good buddy and a fine American. I’ll thank him here — fittingly on Independence Day — since I doubt I’ll ever catch him in a footrace.

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