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San Francisco, July, 2015
Successful “Date Certain M&A” of Raydiance, Inc., its Assets and Intellectual Property
Steven R. Gerbsman, Principal of Gerbsman Partners, Kenneth Hardesty and James Skelton, members of Gerbsman Partners Board of Intellectual Capital, announced today their success in maximizing stakeholder value for a venture capital and venture lending backed manufacturer of precision solutions enabled by femtosecond laser technology.

Gerbsman Partners provided Crisis Management and Investment Banking leadership, facilitated the sale of the business unit’s assets and its associated Intellectual Property. Due to market conditions, the board of directors made the strategic decision to maximize the value of the business unit and Intellectual Property. Gerbsman Partners provided leadership to the company with:

1.  Crisis Management and technology domain expertise in developing the strategic action plans for maximizing value of the business unit, Intellectual Property and assets;
2.  Domain expertise in maximizing the value of the business unit and Intellectual Property through a Gerbsman Partners targeted and proprietary “Date Certain M&A Process”;
3.  The ability to “Manage the Process” among potential Acquirers, Lawyers, Creditors Management and Advisors;
4.  The ability to Communicate with the Board of Directors, senior management, senior lender, creditors, vendors and all stakeholders in interest.
About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. Since 2001, Gerbsman Partners has been involved in maximizing value for 89 Technology, Medical Device, Life Science, Solar; Digital Marketing and Social Commerce and Fuel Cell companies and their Intellectual Property and has restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception in 1980, Gerbsman Partners 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, Boston, New York, Orange County, Washington, DC, McLean, VA, Europe and Israel.

GERBSMAN PARTNERS
Email: steve@gerbsmanpartners.com
Web: www.gerbsmanpartners.com
BLOG of Intellectual Capital: blog.gerbsmanpartners.com

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With money in their pockets and change on their minds, some 700 angel investors flocked to the Angel Capital Association Summit in San Francisco this week.

Alexander Klein/Agence France-Presse/Getty Images

Along with macro issues like best practices for syndicating rounds and navigating the Series A crunch, attendees buzzed about the JOBS Act, new funding platforms and other recent changes to the $20 billion a year marketplace of private investing. One of the most popular panels however, focused on a topic that’s always been near and dear to investors: exits.

“We don’t know if we’re investors until the exit occurs–until then we’re merely donors,” said Ohio TechAngel Funds Founder John Huston, eliciting laughter and some wistful sighs in the packed conference room. The panel–“8 Steps to Lucrative Exits”–was one of five devoted to the topic, with Huston suggesting all angel investors set up a process for achieving an exit before they ever enter a deal.

Huston focused entirely on exits through acquisition–a topic worthy of tutelage given the sluggishness of late. According to a recent report by Dow Jones VentureSource, M&A activity declined 44% during the first quarter of 2013 compared with the previous quarter, with the most recent quarter being the lowest since the first quarter of 2009. Huston advised investors to set exit expectations with founders from the onset and build the company for acquisition–not shareholder value.

“If you are on the board then it’s incumbent upon you to drive the exit. All the other angels are counting on you,” he said, adding that if VCs are on the cap table “then you’re neutered unless you drove the VC selection process.”

He said simply growing revenue, although nice, was too slow a process to incite high bids.

To maximize buyer value he suggested compiling a hit list of the top five strategic acquirers based on their willingness and ability to do a deal. Determining which customers they’d like to secure [and then beating them to it] and mapping their organization chart to sell the deal should also be part of the process, he said.

“Your goal is to move the strategic acquirers from greed to fear mode which is ‘Wow, I sure hope my biggest competitors doesn’t acquire them first.’ We only hire bankers [to run the sale process] if we are convinced they can do this and run the process with multiple bids,” Huston said.

Greg Sitters, managing director of New Zealand-based Sparkbox Venture Group, said he began using a similar process about four years ago and has had four of his 40 companies exit so far. Striking a balance between growing each company with additional capital and securing a solid exit has been key.

He said: “If we can get companies to exit without VCs than that’s what we’re trying to do.”

Teresa Esser, managing director of Winsconsin-based angel group Silicon Pastures, said her group is constantly trying to bring more of a science to the exit process.

“This entire conference is really helpful with information and inspiration,” she said. “It’s motivational in reminding us that we are a $20 billion marketplace.”

Write to Lizette Chapman at lizette.chapman@dowjones.com. Follow her on Twitter at @zettewil

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Venture Capital Dispatch

An inside look from VentureWire at high-tech start-ups and their investors.

 

The Daily Startup: VCs Buy In to Mobile Game Maker Supercell

 

Top stories in today’s VentureWire:

 

dailystartup_D_20090806101628.jpgArt by Mike Lucas

 

Eager to own a slice of the wildly profitable Finnish mobile game maker Supercell, venture investors have purchased existing shares totaling $130 million at a $770 million valuation. Index Ventures led the deal with participation from Institutional Venture Partners and Atomico. Founded in 2011, SuperCell is currently the highest-grossing iOS game developer with “Clash of Clans” and “Hay Day” now bringing in $2.5 million of revenue daily.

 

Enlighted raised $20 million in Series C funding led by Rockport Capital for its lighting-controls technology, as it operates in a quickly changing market where the price for lighting emitting diodes is declining. The company makes sensors and software that is installed in commercial spaces and that helps decide when to dim lights. A newer application of the technology would also allow the sensors to measure temperature and occupancy, and control not just lighting but also air conditioning.

 

Also in today’s VentureWire, Reduxio Systems has raised a $9 million Series A round led by Jerusalem Venture Partners and Carmel Ventures. Reduxio is developing storage systems that make use of both flash memory and hard drives…Smart-home startup Zonoff has secured a $3.8 million Series A round for software that makes all kinds of smart-home devices work smoothly together and makes them easier to set up and control…and Crowdtilt has raised $12 million in Series A funding led by Andreessen Horowitz to bring a new twist to crowdfunding. Crowdtilt’s apps give groups an easy way to fund their own initiatives, rather than asking for money from strangers online.

 

(VentureWire is a daily newsletter with comprehensive analysis of all the investments, deals and personnel moves involving startups and their venture backers. For a two-week trial, visit our homepage, scroll to the bottom and click “try for free.”)

 

Elsewhere around the Web:

 

Launching mobile game apps is getting expensive. Case in point: ZeptoLab says it will spend about $1 million to launch “Cut the Rope: Time Travel” but it spent almost nothing to promote the first “Cut the Rope” game’s release in 2010, The Wall Street Journal reports. What has changed is the mobile games business, which is now so competitive that word-of-mouth marketing is no longer enough.

 

 Jon Flint, a founder of venture firm Polaris Partners, got into the hair-care business after his stylist suggested that he take a meeting with a colleague in New York who wanted to start a company. Flint and his partners turned to MIT”s Robert Langer to come up with innovative products. Flint talks with WSJ about the company that resulted, Living Proof, which is co-owned by actress Jennifer Aniston.

 

Silicon Valley startups are increasingly hiring testing companies to vet apps before releasing them to the public, WSJ reports.

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Unknown

Four of Cupcake Digital’s children’s apps were recently named Parent’s Choice Award winners.

The Parents’ Choice Foundation is the nation’s oldest nonprofit guide to quality children’s media and toys. Parents’ Choice Award Seals are  internationally recognized and respected icons of quality. The Foundation’s product evaluation process addresses: developmentally appropriate content and challenges; design and function; educational value; long-term play value; and benefits to a child’s social and emotional growth and well being.

The four apps that received the Parent’s Choice Classic, Fun Stuff Award are “Wubbzy’s Pirate Treasure,” “Wubbzy’s Space Adventure,” “Wubbzy’s The Night Before Christmas” and “Wubbzy’s Train Adventure”. Each of these apps was produced in 2012 for children around the world to interact with one of children’s favorite television characters, Wubbzy.

Cupcake Digital has been lauded as one of the top app companies, winning awards like the AppySmart’s Editor’s Favorite for Wubbzy’s Fire Engine and Wubbzy’s Night Before Christmas, and garnering dozens of favorable reviews around the Internet, including iPad Kids, Jellybeans Tunes, Appolicious, Rock-A-Bye Parents, AOL Tech, Wired and many more.

Cupcake Digital’s apps blend entertainment with learning moments in fun stories about Wubbzy and his friends. Recent Wubbzy apps include games and activities designed help prepare preschoolers to meet the Common Core State Standards required for kindergarten and first grade. Each Wubbzy app comes packed with extras, from the much-lauded “Grown-Up’s Corner” that encourages discussion about the story between an adult and child to bonus music videos and coloring pages.

We take great pride in being awarded the 2013 Parent’s Choice Class, Fun Stuff Award!

Read more about the award here. 

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Your Business CAN Avoid The Series A Crunch – Here’s How

Jim Andelman, my Partner at Rincon Venture Partners, aptly describes the genesis of the Series A crunch, stating that: “Over the next 12-to-18 months, a lot of good companies that have been Seed financed are going to have a tough time raising a Series A from a new outside lead. This is due to a fundamental disconnect between the increased activity of high-volume seed investors (that fill out lots of Seed rounds) and the relatively small number of Series A investors, who only make 1 or 2 investments, per partner, per year.”

Turtle Eggs And Startups

I was in a board meeting recently at Connexity when Dave Gross, the company’s Co-Founder and CEO, made an insightful observation regarding the shortage of Series A funds. He joked that it is akin to turtles hatching on a beach and running in mass toward the ocean. Thousands of turtles are hatched, but only a fraction evades the grasp of predatory birds and reach the safety of the water.

Once in the water, another significant percentage of the baby turtles is quickly devoured by hungry sea creatures. The nasty and brutish  deaths of the unfortunate turtles are disquieting , but the process ensures that  the survivors are (on average) strong, healthy and able to capitalize on the ecosystem’s resources.

There is a similar Darwinian aspect to venture capital investing. Companies that exhibit the greatest prospects are those that attract the necessary capital to survive. Non-performing companies (unless they are artificially propped up by a Washington bureaucrat with tax dollars) are usually unable to garner adequate financing. Their demise, albeit painful in the short term, frees the employees (and in some cases the underlying technology) to pursue more productive opportunities.

There are no villains in the current Series A drama. The rapid growth of seed investments is the natural result of a number of industry trends, which continue to drive down the cost of launching and operating a web-based business. Some seed investors execute over one hundred investments per year, each in the $25k to $200k range. Paul Singh, a partner at the seed stage firm 500-Startups, effectively articulates the market forces driving this investment strategy in his Money Ball presentation.

The other primary factor contributing to the Series A shortfall is the concentration of venture capital funds in the hands of a shrinking number of large firms. This has been driven by venture partners’ desire for larger and larger fees (which are a function of the amount of capital they manage) and institutional investors’ allocation of funds to a handful of VC firms with long (but not necessarily stellar) legacies. This is the “no one ever got fired for buying IBM” approach to investing.

Due to their size, these legacy funds must invest relatively large amounts of capital in each of their deployments, which ill-equips them for participation in most Series A rounds. This flow of funds to large, mediocre VC firms has been widely discussed, usually under the heading, “Is Venture Capital Broken?”

According to Jim Andelman, “These market dynamics combine to leave good companies unfunded, even when they do not need ‘much’ more capital to achieve a good exit. If a venture does not have a reasonably high-perceived chance of a $250 million exit, most Series A investors are passing.  The crunch is especially acute outside of Silicon Valley, as the Bay Area VCs focus on their home market, and the relatively fewer Series A investors in other markets can thus afford to be especially picky.”

Avoiding The Series A Crunch

Many of the unlucky baby turtles are healthy and speedy but still fail to reach the relative safety of the ocean. Similarly, companies with a viable value prop and promising future are finding it challenging to raise  adequate capital. Fortunately, there is a key difference between startups and baby turtles: entrepreneurs can make their own luck.

To this end, some of the tactics entrepreneurs can execute to avoid becoming a victim of the Series A crunch, include:

Take more money at the Seed stage – Although the incremental dilution will be painful, it is prudent to accept 30% – 50% more capital in your Seed round than you would historically, as it will give you a longer runway in which to create value in advance of seeking Series A funds.

Court Seed Investors with a demonstrated history of participating in a post-Seed rounds – As noted in Extracting More Than Cash From Your Angel Investors, there are a variety of parameters you should use to identify and target potential seed investors. Given the current paucity of Series A funds, the depth of an investor’s pockets should be given special prioritization.

Be realistic about your Series A valuation – Although it may seem counterintuitive, the lack of equilibrium between Seed and Series A investors is causing valuation inflation. Per Mr. Andelman, “The Series A investors are now paying more for businesses they think will have outlier exits.” These high-profile deals, which are covered extensively in the tech press and pursued by numerous investors, contribute to unrealistic expectations among rank and file entrepreneurs regarding a reasonable Series A market-rate.

If your company is not perceived to have the potential of a huge exit, do not expect a major uptick from your Seed valuation. If you are forced to accept a lower value, consider reducing the dilutive impact by raising a mix of equity and debt, as described more fully below.

Consider venture debt – If your business has a predictable, reliable cash stream and you have a high degree of confidence that you can reach sustaining profitability, it might be prudent to supplement a smaller Series A raise with debt. With current interest rates in the low-single digits, the cost of such capital has never been cheaper. Expect such debt to include a modest equity kicker component, in the form of warrant coverage. In addition, be on alert for camouflaged fees.

Customer dollars – Sophisticated entrepreneurs understand that the ideal source of capital is from customers’ wallets. Not only does revenue validate a startup’s value proposition, it results in zero dilution. The sooner you generate customer revenue and internalize paying customers’ feedback, the shorter your path to self-sustainability.

If you follow these tips, you are not guaranteed to avoid the Series A crunch, but you will undoubtedly increase your odds of adequately funding your startup, through its Series A round and beyond.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about double rainbows or that killer burrito I just ate. You can also check out my hands-on startup advice blog HERE.

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UnknownDear Friends,

I’m happy to send this update on the exciting progress at Cupcake Digital, Inc.

Release of New Apps

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March has seen the release of several new apps including Wubbzy, The Superhero, one of our best apps to date. In addition to our new Common Core activities, this title also includes an addictive game hidden within the story. The first two people to find the game and send me a screen shot will get a $25.00 iTunes gift card (Cupcake employees are exempt). Please check it out: http://www.cupcakedigital.com/apps/wubbzy-the-superhero/

We have also released our first faith-based storybook, He is Risen: The Easter Story, for Nest Family apps. To learn more, click here: http://nestfamilyapps.com/press-and-media/

Please watch later this month for more releases, including our first Animal Planet title.

Properties & Pipeline

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I am delighted to announce our partnership with Jim Henson’s Fraggle Rock animated series. Please see our latest press release: http://www.cupcakedigital.com/blog/the-jim-henson-company-licenses-cupcake-digital-to-capture-the-magic-of-classic-fraggle-rock-animated-episode-reimagined-as-enhanced-story-apps/

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I am also proud to announce our partnership with American Greeting’s Strawberry Shortcake. The team is already working on our first Strawberry Shortcake app. I will be sending more news on this property soon.
Continued Accolades for Cupcake Digital Apps

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I am happy to report that four of our children’s apps were named Parents’ Choice Award winners. Specifically: Wubbzy’s Pirate Treasure; Wubbzy’s Space Adventure; Wubbzy’s The Night Before Christmas; and Wubbzy’s Train Adventure.

The Parents’ Choice Foundation is the nation’s oldest nonprofit guide to quality children’s media and toys. Parents’ Choice Award Seals are internationally recognized and respected icons of quality. The Foundation’s product evaluation process addresses: developmentally appropriate content and challenges; design and function; educational value; long-term play value; and benefits to a child’s social and emotional growth and well being.

Cupcake Digital has also been lauded as one of the top app companies, winning awards like the AppySmart’s Editor’s Favorite for Wubbzy’s Fire Engine, Wubbzy’s Night Before Christmas, and Wubbzy’s Space Adventure and garnering dozens of favorable reviews including iPad Kids, Jellybeans Tunes, Appolicious, Rock-A-Bye Parents, AOL Tech, Wired and many more.

Distribution Partnerships

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On Friday, March 22, 2013, Wubbzy’s Space Adventure was a top feature in the special free app of the day (“FAD”) promotion for the 2013 anniversary of the Amazon apps platform in the US and EU. We’re very excited about this promotion, and look forward to seeing more customers download this app!

This is the third month in a row that Amazon has featured one of our apps. So far we have enjoyed over 136,000 downloads as a result of this partnership. For more information please visit: http://www.cupcakedigital.com/blog/cupcake-digitals-selection-as-amazons-free-app-of-the-day/

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Our apps have also been prominently featured by Barnes & Noble via e-mail blasts and online for the NOOK tablets. For more information please visit: http://www.cupcakedigital.com/blog/wubbzy-interactive-storybook-app-featured-on-nook-advertisement/
In the upcoming weeks and months I will continue to update you our partnerships with our distribution partners.

Social Responsibly

Be sure to read our latest positioning paper discussing our commitment to social responsibility in the development of entertainment-based children’s apps and how we conduct business. One of Cupcake Digital’s guiding principles is to create apps that balance fun and entertainment with the priorities of safety, privacy and education. To learn more, please visit: http://www.cupcakedigital.com/blog/cupcake-digitals-commitment-to-excellent-and-educational-apps-for-children/

In addition to the positioning paper, we are adding a grown-up’s section to our website. This section provides caregivers with additional fun and educational activities to complement our apps. We have also included a Parent’s Guide that informs caregivers how Cupcake Digital’s apps are designed to be part of a child’s learning and growth process. The grown-up’s section will be updated on an ongoing basis. Plus, we’ll soon be featuring an educator’s guide. For more information, please visit: http://www.cupcakedigital.com/grown-ups-corner/

Make Your Opinion Count: Download & Review a Cupcake App Today

As always, if you have not already done so, please visit http://www.cupcakedigital.com/apps/ and click on the store icon of your choice (iTunes, Amazon, Google Play or Nook) to download our apps on any mobile phone or tablet device.

Give it a test drive and make sure to write a review! Encourage your friends, family and loved ones to do the same. Help us create a bigger viral buzz about the quality of our products.

Thank you for your support! I will continue to update you on a regular basis. In the meantime, please feel free to contact me anytime with questions or comments.

Sincerely,

Brad Powers

Chairman

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San Francisco, March, 2013
Successful “Date Certain M&A” of Medical Device company, its Assets and Intellectual Property
Steven R. Gerbsman, Principal of Gerbsman Partners, Kenneth Hardesty, Philip Taub and  John Andreadis members of Gerbsman Partners Board of Intellectual Capital, announced today their success in maximizing stakeholder value for a venture capital backed medical device company. This company was in the medical device skincare space.

Gerbsman Partners provided Crisis Management and Investment Banking leadership, facilitated the sale of the business unit’s assets and its associated Intellectual Property. Due to market conditions, the board of directors made the strategic decision to maximize the value of the business unit and Intellectual Property. Gerbsman Partners provided leadership to the company with:

1.  Crisis Management and medical device domain expertise in developing the strategic action plans for maximizing value of the business unit, Intellectual Property and assets;
2.  Proven domain expertise in maximizing the value of the business unit and Intellectual Property through a Gerbsman Partners targeted and proprietary “Date Certain M&A Process”;
3.  The ability to “Manage the Process” among potential Acquirers, Lawyers, Creditors Management and Advisors;
4.  The proven ability to “Drive” toward successful closure for all parties at interest.
About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. Since 2001, Gerbsman Partners has been involved in maximizing value for 76 Technology, Life Science, Medical Device and Solar companies and their Intellectual Property and has restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception in 1980, Gerbsman Partners has been involved in over $2.3 billion of financings, restructurings and M&A transactions.

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

Steven R. Gerbsman
Principal
Gerbsman Partners
Phone: 415.456.0628
Fax: 415.459.2278
Cell: 415.505.4991
steve@gerbsmanpartners.com
thegerbs@pacbell.net
http://www.gerbsmanpartners.com

BLOG of Intellectual Capital
http://blog.gerbsmanpartners.com
Skype: thegerbs

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