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The Bidding Process, Procedures for the Sale of certain Assets and Intellectual Property of Raydiance, Inc. – Gerbsman Partners

Posted in "Date Certain M&A Process", Date Certain M&A, Distressed Intellectual Property, Distressed IP, Inetellectual Property, Kenneth Hardesty, Raydiance, Technology, Venture Capital, tagged , , , , , , on June 15, 2015| Leave a Comment »

The Bidding Process, Procedures for the Sale of certain Assets and Intellectual Property of Raydiance, Inc..

Further to Gerbsman Partners previous e-mail and sales letter of June, 2015, regarding the sale of certain assets of Raydiance, Inc., (Raydiance), I attach the form of agreement (“APA”) that we will be requesting the bidders for certain Assets and Intellectual Property of Raydiance execute and deliver in connection with such transaction. The Raydiance Assets have been previously supplied, as outlined in the Raydiance sales letter. Also attached is Exhibit B, an updated Patent list. Ken, Jim and I will be following up to review the Bidding Process.

Gerbsman Partners (http://www.gerbsmanpartners.com) has been retained by Raydiance, Inc. (http://raydiance.com) to solicit interest for the acquisition of all or substantially all of Raydiance’s assets, including its Intellectual Property (“IP”), in whole or in part (collectively, the “Raydiance Assets”).

Any and all the assets of Raydiance will be sold on an “as is, where is” basis and will be subject to “The Bidding Process for Interested Buyers”, outlined below.

Prior to the bid date of July 9, 2015., I would encourage all interested parties to have their counsel speak with Cecily Dumas, Esq. of Pillsbury Winthrop, counsel to Raydiance. She is available to discuss any questions or comments of a legal nature relating to the transactions contemplated by the APA. 415 983 1641 office, 415 542 8730 cell cecily.dumas@pillsburylaw.com
The Bidding Process for Interested Buyers
Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the Raydiance Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners or Raydiance, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Raydiance and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the Raydiance Assets. Sealed bids must be submitted so that they are actually received by Gerbsman Partners no later than Thursday, July 9, 2015 at 3:00 p.m. Pacific Time (the “Bid Deadline”) at Raydiance office, located at 1450 North McDowell Blvd., Petaluma, CA 94594. Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $250,000 (the refundable deposit will be held in Raydiance’s legal counsel trust account.). The winning bidder will be notified within 3 business days of the Bid Deadline. Unsuccessful bidders will have their deposits returned to them within 3 business days of notification that they are an unsuccessful bidder.

Raydiance reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all of the assets from sale. Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.

Raydiance will require the successful bidder to close within a 7 day period. Any or all of the assets of Raydiance will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Raydiance Assets shall be the sole responsibility of the successful bidder and shall be paid Raydiance at the closing of each transaction. For additional information, please see below and/or contact:

For additional information, please see below and/or contact:

Steven R. Gerbsman
Gerbsman Partners
(415) 456- 0628
steve@gerbsmanpartners.com

Kenneth Hardesty
Gerbsman Partners
(408) 591-7528
ken@gerbsmanpartners.com

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Date Certain M&A of Raydiance, Inc., its Assets and Intellectual Property

Posted in "Date Certain M&A Process", Board Of Intellectual Capital, Date Certain M&A, DFJ, DFJ Growth, Inc., Inetellectual Property, Intellectual capital, Kenneth Hardesty, Samsung, Steven R. Gerbsman, Technology, Uncategorized, Venture Capital, Venture Capital Dispatch, Venture Wire, Venturebeat, tagged , , , , , , on June 9, 2015| Leave a Comment »

Date Certain M&A of Raydiance, Inc., its Assets and Intellectual Property

Gerbsman Partners – http://gerbsmanpartners.com has been retained by Raydiance, Inc. (“Raydiance” or the “Company”), to solicit interest for the acquisition of all or substantially all of Raydiance assets, including its Intellectual Property (“IP”), in whole or in part (collectively, the “Raydiance Assets”).

The sale is being conducted with the cooperation of Raydiance.  Raydiance and its employees will be available to assist purchasers with due diligence and assist with a prompt transition.

IMPORTANT LEGAL NOTICE:

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the Raydiance Assets has been supplied by third parties and obtained from a variety of sources. It has not been independently investigated or verified by Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by Raydiance or Gerbsman Partners (or their respective directors, officers, staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing (the “information”), as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

The Company, Gerbsman Partners, and their respective directors, officers, staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of Raydiance’s or Gerbsman Partners’ negligence or otherwise.

Any sale of the Raydiance Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of, Gerbsman Partners or Raydiance. Without limiting the generality of the foregoing, the Company, Gerbsman Partners, and their respective directors, officers, staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the Raydiance Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum contains confidential information and is not to be supplied to any person without Raydiance’s or Gerbsman Partners’ prior consent.

SUMMARY OF HISTORICAL INFORMATION

Raydiance develops, manufactures and markets precision manufacturing solutions enabled by femtosecond laser technology. The company’s one step all-laser solutions optimize factory work flow, beyond material processing and handling, to radically improve production efficiency and quality with unmatched part-to-part consistency, higher yields and lower costs. Raydiance solutions are deployed in factories of Fortune 500 companies worldwide and readily integrate into customer manufacturing lines or R&D environments, delivering rapid prototyping and transfer to production.

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Production Machine

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Raydiance Femtosecond Laser

Raydiance originated from a DARPA-funded research project at the University of Central Florida. Initial external funding came from entrepreneur Barry Schuler (former AOL CEO), who was recruited by DARPA to commercialize the technology. In 2007, the company moved its headquarters to Petaluma, CA where it is currently occupies a 40,000 ft2 facility. In the course of the last ten years the company has raised $80M in five rounds of financing from prominent investors including DFJ, DFJ Growth and Samsung Ventures. Headcount currently totals 61 full-time employees. The management team and Board of Directors is compromised of:

Executive Management Team Board of Directors
Richard Pierce – President & CEO

Barry Schuler, Chairman, Managing Director, DFJ Growth

John H. N. Fisher, Managing Director, Draper Fisher Jurveston

Jeff Safchik – MD, Greenstreet Partners
William R. Beyer – COO/CFO
Keith Morton– Senior Vice President, Sales
Tim Flood – Vice President, Engineering
Dr. Steve P. Sapers – Vice President, Operations
Dr. Sri Srinivas – SVP, Business Development

Raydiance reported revenue in 2014 of $11m and forecasts 2015 revenue of $21M. The chart below gives a historical perspective of Raydiance bookings and billings (revenue) growth.

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The Company’s business model is product sales-based with ASPs ranging from $275,000 to over $1,000,000. The Company’s product portfolio spans three primary categories: standalone lasers (~$275,000), to laser with beam delivery rail and software (~$525,000) through full production systems (>$1,000,000).

The Xompany is recognized as a pioneer in two key aspects of laser-based micro-machining:

1) development of the world’s first highly reliable, fiber-based commercial grade femtosecond laser and;
2) a world-class applications team that combines knowledge of femtosecond laser programming with the physics of material science to produce economical solutions in automotive, medical and consumer applications.

UnknownHow Femtosecond Lasers Improve Precision Manufacturing

A femtosecond is one quadrillionth of a second. In the world of ultrafast lasers for material processing, light pulsed in the femtosecond regime (meaning pulses that are faster than 1 picosecond) deliver energy without imparting heat, this is athermal ablation.

Femtosecond laser technology enables all-laser precision manufacturing, which eliminates the need for post-processing (such as grinding, etching, sanding or polishing) and greatly reduces operating expenses while significantly improving yields. Manufacturers can simplify and optimize factory workflow to reduce cost and accelerate time-to-market for new innovations. Femtosecond all-laser processing enables utilization of both new product designs and previously difficult to economically process materials, such as metal alloys, brittle materials (Gorilla® glass or sapphire), heat sensitive polymers and other composite materials.
Target Market Opportunity, Focus and Applications

Precision micromachining markets span a wide variety of market segments where precision defines the products. This is true for semiconductors, medical devices, aerospace, automotive and many consumer devices. Also, the world of ophthalmics and precision jewelry and watches depend on very precise processing or machining. In aggregate, the annual worldwide manufacturing market is over $100B with precision micromachining making up approximately 10% of this total or just short of $10B. The opportunity is very large however success depends on focus.

Raydiance elected to focus in three micromachining segments: medical, automotive and consumer. This focus is driven by market size and the economic advantages made possible with femtosecond laser-based processing.

Raydiance has established a defensible position in each of these segments by leveraging its unique applications expertise to develop trade secrets and know-how for complete turnkey solutions for customers in each of the segments outlined below. The common theme in all of these application areas is that laser processing allows for single step machining. In other words, traditional mechanical machining or even other laser processing leaves a rough surface after drilling, milling or cutting. These rough surfaces demand multiple steps and techniques (grinding, polishing, chemical etch) to achieve desired surface quality for precision parts. Femtosecond laser processing achieves desired surface quality in a single step – a major element of the value proposition.

Medical Applications: Unknown Implantable medical devices including metal (nitinol) and polymer (plastic) stents [picture], heart valves, catheter guide wires and surgical needles. Intricate patterns never before achieved have advanced the efficiency of heart stents helping to prolong and save lives. Femtosecond-based laser machining take a metal or polymer tube and cut the intricate patterns in a single pass yielding substantial cost savings.

Automotive Applications: UnknownFuel injector spray nozzles depend on very precise holes that determine the efficacy of both fuel economy and emissions of all engine types, be it automotive, marine, or industrial. Femtosecond-based laser machining is advancing the state of the art by allowing for different shape holes and fashioning the entrance and exit of holes. Instead of making smaller and smaller holes the shape of the holes is now allowing manufacturers to meet government regulations more efficiently.

Consumer Applications: UnknownGorilla Glass™ cutting for smartphones and tablets is a $15B standalone business today. The precision of cut glass edges determines the strength of glass and its tendency to break: a very important quality for all mobile devices. Femtosecond-based laser machining provides single cut quality eliminating the need to polish surfaces. Further, new so-called 3D or shaped glass is very well suited to the flexibility of laser-based cutting.

Customers
Raydiance has strong customer relationship with blue-chip customers across the focus market segments that the company serves. With over 150 systems shipped or installed worldwide, the company is a worldwide leader amongst ultra short-pulse femtosecond suppliers.

In the medical segment, the Company services eight (8) of the top twenty (20) medical device manufacturers worldwide.   Customers will be disclosed upon execution of a nondisclosure agreement.

In the automotive segment, the Company serves six (6) of the top twelve (12) automotive parts suppliers or manufacturers worldwide.  The Company has recently achieved an applications breakthrough to uniquely and efficiently micromachine diesel fuel injectors holes and has pending designs wins with diesel-focused customers.

In the consumer segment, the company serves some of the largest customers including Samsung.   The applications focus is on glass cutting and display repair.

A key factor in Raydiance’s success is the Company’s end-to-end customer support throughout the sales process, providing consultative services for customer application problems and refining or optimizing the efficiency of the machining process. Installation / post-installation support is also an important customer satisfaction element since the Raydiance laser is designed for remote monitoring and diagnostics through an Ethernet connection. Many customers appreciate the preventive maintenance service that can be performed “over the wire.” Raydiance’s knowledgeable team of scientists, who come from an assortment of research disciplines, can provide knowledgeable insight and have “inventioneered” multiple industry applications.

Summary of Intellectual Property

The intellectual property of the Company consists of 33 issued patents and 20 pending patents reflecting a first-to-market position. The patent strategy is both defensive and offensive. The defensive aspect is focused on what’s inside the laser whereas the offensive aspect involves patenting the processing and application know-how that allows the Company to charge for the value that is generated by its applications engineers. The Company’s offensive strategy is designed to not only protect Raydiance’s market leading position but to support the company’s ability to charge a license fee for application knowledge contained in its software embedded in products. The Company includes a royalty free software license with products sold but reserves the right to charge a future recurring revenue stream based on the development of IP for its applications.

 Category                        Issued     Pending    Total

Total                                  33                 20              53

 

Raydiance Patent Summary

In addition to granted patents and patents pending the company has accumulated 230 patentable trade secrets and know-how that are documented in a “Records of Invention” or ROI database. The ROI’s represent the following categories.:

Ultra-short Pulsed Lasers –   178

Consumer Electronics – 24

Medical – 12

General Micro-machining – 11

Automotive –  4

Spectroscopy–  1

Total =230

Summary reasons why the assets are attractive:
1.  Large Market Opportunity – The need for precision manufacturing is growing especially given the need for smaller, lighter cheaper consumer devices. The consumer segment alone is forecast to be a $2.5B market opportunity for precision glass cutting in the next five years.
2.  World class application know-how – Raydiance built a best-in-class applications development team that distinguishes the Company from all other laser manufacturers. Applications knowledge turns standalone lasers into useful, ready-to-use tools.
3.  World class fiber-based laser design and manufacturing capability – Raydiance possesses unique knowledge in what is required to design, build and service fiber-based femtosecond lasers.

4.  Diversified Base of Customers – Raydiance laser-based systems are used in three primary market segments (medical, automotive and consumer) that represents manufacturing application diversity. This diversity also creates cross-selling opportunities between the market segments and customers.

5.  Broad, highly defensible patent portfolio – The Company employs a highly defensible IP strategy, with 33 patents awarded and 20 patents pending in areas related to applications know-how, short pulse technology and power / form factor.

Detailed reasons why Raydiance assets are attractive are:

Raydiance has transformed or pivoted from being a pure laser manufacturer to a company that now delivers the much more than “just the laser.” The Company delivers turnkey packages of ingredients that make femtosecond lasers useful tools. The analogy being that a microprocessor or CPU is a very powerful semiconductor device but unless housed in a smartphone, tablet or personal computer the capabilities remain “untapped.”

The same is true with femtosecond lasers and the programming required to unleash the capabilities for solving unique material problems or precision part fabrication. This programming coupled with the right beam delivery approach is key to the company’s application approach. Depending on the specific application, the package elements vary.

The key elements include the laser, the optics (may include a scanner) to direct the beam, the part holding capability and ultimately the software programming that transforms a standalone laser into an integrated factory floor ready production tool. Raydiance recognized early that to harness the market opportunity one needs to provide turnkey solutions (full packages for customers). Customers are willing to pay for these solutions and prefer turnkey solutions as opposed to needing to contracting/hiring/outsourcing the design and problem-solving aspect of harnessing femtosecond technology.

This unique market approach is what distinguishes Raydiance and leads to these reasons for why the assets are attractive. The timing of the release of subsequent purchase orders under a major customer supply agreement has lead to working capital constraints and the opportunity to acquire all or a portion of Raydiance’s assets to be sold. The acquisition of these assets can enable the purchaser to realize significant short and long term value from the Raydiance assets as Raydiance maintains the ability to quickly scale within the context of sufficient working capital and a stronger balance sheet.

· Large Market Opportunity – The need for precision manufacturing is growing especially given the need for smaller, lighter cheaper consumer devices. The market for laser-based solutions is a subset of the $100 billion industrial manufacturing market and comprised $8.8B in 2014. Worldwide laser sales are projected to increase 6.2% in 2015, reaching a total market size of $9.3B, of which industrial laser material processing is expected to be $2.5B(1). In addition, consumer segment alone is forecast to be a $2.5B market opportunity for precision glass cutting in the next five years.

(1): Strategies Unlimited: “The Worldwide Market for Lasers: Market Review and Forecast 2014”

· World class application know-how – Raydiance has built a best-in-class applications development team that distinguishes the company from all other laser manufacturers. Applications knowledge turns standalone lasers into useful, ready-to-use tools: a fact cherished by Raydiance customers and a primary reason for Raydiance’s market leading position. In addition to building the world’s most commercially reliable fiber-based femtosecond laser, Raydiance has assembled a team of highly skilled optics, material science and machine building expertise that is able to rapidly solve customer problems and provide them a turnkey solution to meet customer requirements.

· World class fiber-based laser design and manufacturing capability – Raydiance possesses unique knowledge in what is required to design, build and service fiber-based femtosecond lasers. The company pioneered the use of real-time computer-controlled pulse stabilization and control, and the amplification techniques to achieve efficient use of fiber for high power, ultra-short pulsed lasers.

· Diversified Base of Customers – Raydiance laser-based systems are used in three primary market segments (medical, automotive and consumer) representing manufacturing application diversity. The diversity also creates cross-selling opportunities between the market segments and customers. Customers are highly dependent on the Raydiance technology today in critical applications where there is no other economical means to produce such high-precision parts is available.

· Broad, highly defensible patent portfolio – The company owns a highly defensible IP strategy, with 33 patents awarded and 20 patents pending in areas related to application development, short pulse technology and power form factor. The company has a long standing history of discoveries and inventions that are pushing the adoption of femtosecond laser technology into a broader set of applications in each of the target market segments.

To learn more about the Company’s technology or products, click on the following links.

1. Precision Machining without Heat – a white paper on the physics of no heat machining.
2. Medical Applications Overview – learn about the economics of femtosecond processing in the medical implantable device market segment.
3. Laser Spec Sheet – an overview of the technical aspects of the key component of Raydiance solutions.
4. R-Drill Spec Sheet – learn how Raydiance packages the needed pieces together to turn a standalone laser into a useful tool.

Safari does not work with the above links

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the Raydiance Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners or Raydiance, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Raydiance and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the Raydiance Assets. Sealed bids must be submitted so that they are actually received by Gerbsman Partners no later than Thursday,  July 9, 2015 at 3:00 p.m. Pacific Time (the “Bid Deadline”) at Raydiance office, located at 1450 North McDowell Blvd., Petaluma, CA 94594. Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $250,000 (the refundable deposit will be held in Raydiance’s legal counsel trust account.). The winning bidder will be notified within 3 business days of the Bid Deadline. Unsuccessful bidders will have their deposits returned to them within 3 business days of notification that they are an unsuccessful bidder.

Raydiance reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all of the assets from sale. Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.

Raydiance will require the successful bidder to close within a 7 day period. Any or all of the assets of Raydiance will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Raydiance Assets shall be the sole responsibility of the successful bidder and shall be paid Raydiance at the closing of each transaction. For additional information, please see below and/or contact:

For additional information, please see below and/or contact:

Steven R. Gerbsman
Gerbsman Partners
(415) 456- 0628
steve@gerbsmanpartners.com

Kenneth Hardesty
Gerbsman Partners
(408) 591-7528
ken@gerbsmanpartners.com

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Successful “Date Certain M&A” of AxioMed Spine Corp. it Assets and Intellectual Property – Gerbsman Partners

Posted in "Date Certain M&A Process", AxioMed Spine Corp, Blog of Intellectual Capital, Board Of Intellectual Capital, Crisis Management, Date Certain M&A, Distressed Intellectual Property, Distressed IP, Gerbsman Partners, Inetellectual Property, Intellectual capital, Medical Device, Motti Abramovitz, Steven R. Gerbsman, Uncategorized, Venture Capital, tagged , , , , on November 17, 2014| Leave a Comment »

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San Francisco, November, 2014
Successful “Date Certain M&A” of AxioMed Spine Corp. it 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 senior lender backed spine medical device company.

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 and senior lender 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, Advisors and the Receiver;
4.  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 87 Technology, Life Science, Medical Device, Solar, Fuel Cell and Digital Marketing/Social Commerce 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, Europe and Israel.

 

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GERBSMAN PARTNERS
Cell: +1 415 505 4991
Email: steve@gerbsmanpartners.com
Web: www.gerbsmanpartners.com
BLOG of Intellectual Capital: blog.gerbsmanpartners.com

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October, 2014 Date Certain M&A of AxioMed Spine Corp., its Assets and Intellectual Property by Gerbsman Partners

Posted in "Date Certain M&A Process", AxioMed Spine Corp, Distressed Intellectual Property, Gerbsman Partners, Inetellectual Property, Intellectual capital, Medical Device, Steven R. Gerbsman, Venture Capital, Venture Capital Dispatch, Venture Wire, Venturebeat, tagged , , , , on October 2, 2014| Leave a Comment »

Gerbsman Partners (http://www.gerbsmanpartners.com) has been retained by Venture Lending & Leasing VI, Inc. and Venture Lending & Leasing VII, Inc. (together “WTI” http://westerntech.com), the senior secured lender to AxioMed Spine Corp., (“AxioMed”), (http://www.axiomed.com) to solicit interest for the acquisition of all or substantially all of AxioMed’s assets, including its Intellectual Property (“IP”), in whole or in part (collectively, the “AxioMed Assets”). Please be advised that the AxioMed Assets are being offered for sale pursuant to Section 9-610 of the Uniform Commercial Code. Purchasers of the AxioMed Assets will receive all of AxioMed’s right, title, and interest in the purchased portion of WTI’s collateral, which consists of substantially all of AxioMed’s assets, as provided in the Uniform Commercial Code.

The sale is being conducted with the cooperation of WTI and AxioMed. AxioMed has advised WTI that it will use its best efforts to make its employees available to assist purchasers with due diligence and assist with a prompt and efficient transition at mutually convenient time.

IMPORTANT LEGAL NOTICE:

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the AxioMed Assets has been supplied by third parties and obtained from a variety of sources. It has not been independently investigated or verified by WTI or Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by WTI or Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing (the “information”), as a statement, opinion, or representation of fact. Please further note that all information provided herein relating to the operations of AxioMed’s business and its market positions relates to periods on or prior to August 31, 2014. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

WTI and Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of WTI’s or Gerbsman Partners’ negligence or otherwise.

Any sale of the AxioMed Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of, WTI and Gerbsman Partners. Without limiting the generality of the foregoing, WTI and Gerbsman Partners, and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the AxioMed Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum is not to be supplied to any other person without Gerbsman Partners’ prior consent. The information contained herein is not subject to the Non-Disclosure Agreement, however any additional requested information will require execution of the attached NDA attached hereto as Exhibit A. Also attached is a detail sales letter, Exhibit B, AxioMed Fixed Asset List (a portion of the fixed asset list is subject to a secured lien by the Ohio Department of Development- Innovation Loan Fund), and Intellectual Property and Trademark summary.

Headquartered in Cleveland, Ohio, AxioMed is a medical device company that has developed innovative, next generation technology for restoring function in the Cervical and Lumbar Spine. The Freedom® Technology platform is a next generation elastomeric based Total Disc Replacement (TDR), which is projected to represent a multi-billion dollar market opportunity. Currently, with minimal marketing efforts the Freedom platform is on track to achieve over $1MM during the next 12 months in the EU.
To date, the Company has received investments from a number of sources totaling over $70,000,000. The Company’s equity investors are led by Thomas McNerney & Partners, Investor Growth Capital, MB Ventures and Primus.

Company Profile

Founded in 2001 AxioMed® Spine Corporation, developed Freedom with the goal of restoring spinal function to patients by adhering to the natural biomechanics of the spine. While current generation discs can provide unconstrained motion and restore disc height, they cannot replicate function, lordotic curve and viscoelastic properties native to a healthy intervertebral disc.

Shown In figures 1 and 2, Freedom Cervical Disc (FCD) and Freedom Lumbar Disc (FLD) are one-piece viscoelastic artificial discs consisting of elastomeric cores bonded to titanium alloy retaining plates. The patented designs include proprietary polymer-metal bonding and morphometric characteristics for optimized fit. Freedom’s design philosophy is to re-establish the function of the spinal segment, working in conjunction with the surrounding anatomy to mimic the biomechanics of a healthy spinal segment.
The FLD was the first elastomeric technology to complete a multi-center study in Europe and receive U.S. Investigational Device Exemption (IDE) approval for a pivotal study. The technology will benefit from a significant time-to-market advantage over competition as it has enrolled more than 400 patients in the randomized pivotal U.S. study and can achieve FDA approval in 2016/2017. As a result, FLD could be the first next generation elastomeric disc approved in the U.S. Combined with CE Mark for FCD, which was received in May 2012, AxioMed’s Freedom is the most complete TDR platform in a potential multi-billion dollar market opportunity for cervical and lumbar TDRs.
AxioMed believes its assets are attractive for a number of reasons:

As a result of concerns related to clinical efficacy and lack of compelling comparative cost effectiveness data, fusion procedures have recently faced mounting reimbursement challenges, which have led surgeons and payers to actively seek an alternative standard of care for degenerative disc disease (DDD). Freedom, along with other TDRs, are poised to take advantage of this opportunity with increasing long term efficacy results and documented economic benefits. To support market launch and favorable reimbursement, AxioMed included economic endpoints in its FDA pivotal study for FLD, including surgical time, length of hospital stay, return to work time, medication usage, quality adjusted life year measurements and cost data for the index procedure as well as any subsequent interventions.
Additional AxioMed has created significant value in:

1.  CE Mark Approval for FCD – Pre-clinical testing and clinical rationale on safety and performance made up the CE Mark Technical File submission for the FCD, an anatomically optimized design that was accepted by the EU Notified Body in conjunction with the receipt of CE Mark approval in May 2012. This pre-clinical testing will also be used for an FDA IDE submission. The FLD experience provides excellent data support and a proven regulatory pathway for an efficient IDE process for the FCD.

2.  Complete FCD European Pilot Clinical Study – AxioMed’s FCD was first implanted commercially in the EU in February 2013, in conjunction with the start of the post-market study in the EU that is collecting clinical data to support an FDA IDE application (estimated for year-end 2014).

3.  Completing FLD Pivotal Clinical Study Enrollment – The Company has completed the IDE Study enrollment with more than 400 subjects, which will place Freedom on track to receive FDA approval in 2016/2017.

4.  Pro-Actively Solicit Expanded Reimbursement for TDRs – Economic data generated from the FLD IDE study will be used to expedite national coverage for FLD as a viable standard of care for DDD. This economic data will support FLD reimbursement in advance of market launch.

5.  Establish Market Awareness of Freedom with Key Opinion Leaders in Europe – Availability of FLD in Europe since 2009 has increased awareness of AxioMed’s clinical approach to TDRs. To date, key opinion leaders in strategic markets have performed TDR procedures with Freedom and have presented positive clinical outcomes data in international spine surgeon symposia.

Impact of the Freedom Technology on the market

Current Market

Industry research and analysts estimate that the current worldwide lumbar TDR market is $350 million1. Similarly, the worldwide cervical TDR market is estimated to be $600 million[1]and analysts expect growth to exceed 25%[2]. Current estimates, however, emphasize the limitations of and challenges faced by first generation TDR technologies and thus, have not fully considered the impact that next generation technologies will have in addressing third party payer and surgeon concerns, in management’s opinion. In addition, current market estimates do not fully appreciate the concept that Freedom’s pivotal study economic data will have an influential effect on the reimbursement landscape by proving to third party payers that a new technology is available to them with as good or better clinical outcomes and significantly better economics.

Limitations of Fusion

In contrast to fusion, first generation TDRs were designed to allow motion in the diseased segment and possibly provide greater pain relief, diminished disability and earlier return to activity. Results for fusion, currently the standard of care treatment for symptomatic DDD and a market exceeding $6 billion1, have demonstrated that the procedure may increase intradiscal pressure and motion at levels adjacent to the fusion which may contribute to radiographic and symptomatic DDD at levels adjacent to fusion. As the surgical treatment of choice for DDD for many years, fusion has thus far had a consistent reimbursement history. Published data indicate, however, that only about 75% of fusion patients experience any clinical benefit.[3] Only half of the fusion patients will experience major or complete relief of pain or disability. Anticipated re-operation rates within ten years are reported to be between 10% and 25%.3 Additionally, fusion is believed to cause complications that result in the potential for increased pain and patient disability. Patient and physician dissatisfaction with fusion gave rise to the concept that removal of the symptomatic disc with maintenance of motion (as is done in total knee and hip procedures) is more likely to improve clinical results and reduce or eliminate the incidence of adjacent level disease (ALD).

Recent third party payer pushback suggests some degree of uncertainty— calling into question the efficacy of roughly 25% of the overall fusion procedures.3 Additionally, issues concerning biologics (InFuse) and capitated pricing strategies have exerted significant downward pressure on fusion implant pricing. AxioMed believes that the increased scrutiny on fusion reimbursement, recent pricing trends and physician and patient desire for an alternative treatment create a significant market opportunity for a differentiated technology such as Freedom. As an example of recent payer pushback on fusion, Blue Cross/ Blue Shield recently limited fusion procedures in certain circumstances. In addition, CMS bundled pricing on anterior cervical decompression with the associated fusion procedure, which resulted in fusion pricing being essentially equal to cervical TDR reimbursement.2

Other Drivers
A recent market study suggested that approximately 77% of cervical TDR procedures were single-level with the remainder applying to two or more levels.10 This represents a significant upside potential for FCD due to its unique anatomically optimized design, including the FCD’s viscoelastic properties similar to that of a healthy natural disc and the Freedom technology’s ability to reproduce the normal spinal function and alignment.

EU Lumbar and Cervical TDR Market Opportunity

AxioMed’s assessment of the EU market opportunity was developed under similar assumptions as those used to estimate the US opportunity. The main differences are related to the timing of Freedom’s and other technologies’ earlier availability in the EU as well as consideration for the higher adoption rates experienced by new technologies in the EU. Furthermore, medical devices in the EU are typically priced at a discount to those sold in the US. Based on this premise and current pricing data, AxioMed estimated EU average selling prices for FLD and FCD to be $4,200 and $3,200, respectively, with projected prices increasing 3% annually.
European Sales

AxioMed currently markets the Freedom Technology in Europe through a limited distribution network. The primary countries are Germany, United Kingdom and Switzerland. With minimal marketing efforts the Freedom platform is on track to achieve over $1MM over the next 12 months.
AxioMed’s Assets

AxioMed has developed differentiated next generation total disc replacement platform in Freedom. The company has created significant intellectual property and assets. These assets fall into a variety of categories, including:
· 8 US Patents, 3 US patent applications, 20 PTC applications and 3 Registered trademarks

· Complete FLD Pivotal study enrollment. The Company has enrolled more than 400 patients, which will place AxioMed on track to receive FDA approval 2016/2017.

· Technology addressing the multi-billion dollar symptomatic degenerative disc disease market.

· Expanded Reimbursement for TDRs – Economic data generated from the FLD IDE study will be used to expedite national coverage for FLD as a viable standard of care for DDD.

· Asymmetric FLD design to meet the unique morphology of the L5-S1 Disc space

· Unique and clinically relevant patient data

· Market supporting pre-clinical and clinical trials underway

· Next generation product designs

· Product cost reduction designs

· Manufacturing and design equipment

· Surgical product inventory

· Intellectual capital and expertise

The assets of AxioMed will be sold in whole or in part (collectively, the “AxioMed Assets”). The sale of these assets is being conducted with the cooperation of AxioMed. AxioMed and its employees will be available to assist purchasers with due diligence and a prompt, efficient transition to new ownership. Notwithstanding the foregoing, AxioMed should not be contacted directly without the prior consent of Gerbsman Partners.
Next Milestones – by 2015

AxioMed is working towards additional key milestones that will be achieved by years end. These include:
· The FCD 50 Patient Multi-center Post-Market EU clinical Study. Completion of the study enrollment provides:
o Support FCD IDE submission
o Option for clinical journal publication
o Identical sample size to the FLD multi-center European clinical study
o The prospective study, sample size and two year follow up provides significance to the data set
· FDA approved ASC’s supplement to form Clinical Events Committee (CEC). Currently conducting CEC Meetings for the FLD IDE Study. The CEC is responsible for adjudicating all Adverse Events (AE) and Serious Adverse Event’s (SAE) as it relates to the investigational device and control. This is an FDA requirement and a key item in order to begin data analysis for the PMA submission.
o The FLD Pre-clinical (biomechanical/biocompatibility studies) module is complete and AxioMed is also preparing for the manufacturing module for PMA submission.
Management

Patrick A. McBrayer
President & CEO
Mr. McBrayer joined AxioMed Spine as Chief Executive Officer in 2006 and was elected to the Board of Directors at that time. Prior to AxioMed, Mr. McBrayer was Chief Executive Officer of Xylos Corporation, a medical biomaterials company. He is also a Founder of Transave Inc. (now Insmed), a biotechnology company focused on the site specific treatment of lung disease. Prior to joining Xylos, Mr. McBrayer served as President and CEO of Exogen, Inc., a company focused on the non-invasive treatment of musculoskeletal injury and disease, which was acquired by Smith & Nephew, Inc. in 1999. Previously, Mr. McBrayer was President and CEO of Osteotech, Inc., a worldwide leader in tissue technology that was acquired by Medtronic, Inc. Mr. McBrayer began his business career with Johnson and Johnson after service as an officer in the United States Army Infantry.
James M. Kuras
COO
Mr. Kuras is co-founder of AxioMed Spine and has over 25 years of medical device development experience, his primary focus being device and market development in the orthopedic spinal area. He has development experience in the both class II and class III devices and demonstrated proficiency in developing, implementing and executing strategic business plans for the US, Europe and Pacific Rim. He previously held the position of Senior Vice President and Chief Technology Officer with the company, responsible for the development of the FLD System. He also holds a number of key patents in orthopedics. His career includes positions at such notable companies as AcroMed, Sheridan Catheter and North American Instrument Corp.
Gerald Baty
CFO
Mr. Baty joined AxioMed Spine as Chief Financial Officer in 2008 with over 20 years’ experience in finance, accounting, legal, human resources, administration and business operations. He has assisted small pharmaceutical and biotechnology companies raise funding through various vehicles, including public offerings, PIPE’s, private venture financing, debt and grants. Prior to joining AxioMed, Mr. Baty was Chief Financial Officer for Mt. Cook Pharma, a pharmaceutical development company focused in Urology.
Neal D. Defibaugh
VP Clinical and Regulatory Affairs
Mr. Defibaugh joined AxioMed Spine in 2006 and has over 20 years’ of medical device clinical and regulatory experience focused in orthopedic devices. He has clinical and regulatory experience in both class II and III devices obtaining marketing clearance / approval in the US and international markets. Mr. Defibaugh joined AxioMed Spine from Smith & Nephew, Inc., Orthopedic Division, where he most recently served as Director of Clinical Affairs.

Board of Directors

§ Ashley Friedman, Investor Growth Capital
§ Peter Kleinhenz, Chairman, CID Capital
§ James Kuras, AxioMed Spine Corporation
§ Patrick McBrayer, AxioMed Spine Corporation
§ Peter McNerney, Formerly of Thomas, McNerney & Partners, LLC
§ Larry Papasan, BioMimetic Therapeutics Inc.
§ Kathy Tune, Thomas, McNerney & Partners LLC

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the AxioMed Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of WTI, Gerbsman Partners, or AxioMed, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and WTI, AxioMed, and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the AxioMed Assets. Sealed bids must be submitted so that they are actually received by Gerbsman Partners no later than Friday, October 31, 2014 at 3:00 p.m. Pacific Time (the “Bid Deadline”) at AxioMed’s office, located at 5350 Transportation Blvd., # 18, Garfield Heights, Ohio 44125. Please also email steve@gerbsmanpartners.com with any bid. Please bid on the fixed assets that are secured by the Ohio Department of Development- Innovation Loan Fund separately. Detail information is available in the due diligence room.

Bids should identify those assets being tendered for in a specific and identifiable way.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $250,000 (payable to Venture Lending and Leasing V, Inc.). The winning bidder will be notified within 3 business days of the Bid Deadline. Unsuccessful bidders will have their deposits returned to them within 3 business days of notification that they are an unsuccessful bidder.

WTI reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all of the assets from sale. Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.

WTI will require the successful bidder to close within a 7 day period. Any or all of the assets of AxioMed will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the EGT Assets shall be the sole responsibility of the successful bidder and shall be paid to WTI at the closing of each transaction. For additional information, please see below and/or contact:

For additional information, please see below and/or contact:

Steven R. Gerbsman
Gerbsman Partners
(415) 456-0628
steve@gerbsmanpartners.com

Kenneth Hardesty
Gerbsman Partners
(408) 591-7528
ken@gerbsmanpartners.com

[1] Spine Technology Summit, 2010
[2] RBC Capital Markets 2Q 2011 Spine Survey, pg 19
[3] Christensen FB. Lumbar spinal fusion. Outcome in relation to surgical methods, choice of implant and postoperative rehabilitation. Acta Orthop Scand Suppl. 75 (313); pp 2-43, 2004

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Gerbsman Partners “Date Certain M&A” for the Assets and Intellectual Property of Optify, Inc.

Posted in "Date Certain M&A Process", Digital Marketing, Distressed Intellectual Property, Distressed IP, Gerbsman Partners, Inetellectual Property, Social Commerce, Steven R. Gerbsman, Technology, Uncategorized, Venture Capital, tagged , , , on September 9, 2013| Leave a Comment »

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SALE OF ASSETS OF OPTIFY INC.

Gerbsman Partners (http://gerbsmanpartners.com ) has been retained by Optify, Inc (“Optify”), (http://optify.net) to solicit interest for the acquisition of all or substantially all of Optify’s assets, including its Intellectual Property (“IP”), in whole or in part (collectively, the “Optify Assets”).

Headquartered in Seattle, Washington, Optify is a provider of a SaaS digital marketing suite, inclusive of both inbound marketing and marketing automation functionality, targeted at small to medium businesses and digital marketing agencies.

Optify Inc. is a privately held company.  Optify, founded in 2008, is headquartered in Seattle, Washington.  To date, Optify has secured $10.8 million in equity financing.  The company’s Series A round was led by Madrona Venture Group, with Triangle Peak Partners leading the Series B round.  The company also raised $1.5 million in venture debt from Silicon Valley Bank and an additional $2.0m in a convertible note from its two institutional investors.

IMPORTANT LEGAL NOTICE:

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the Optify Assets has been supplied by Optify and has not been independently investigated or verified by Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing (the “information”), as a statement, opinion, or representation of fact.  Please further note that all information provided herein relating to the operations of Optify’s business and its market positions relates to periods on or prior to August 31, 2013.  Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of Gerbsman Partners’ negligence or otherwise.

Any sale of the Optify Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of, Gerbsman Partners.  Without limiting the generality of the foregoing, Gerbsman Partners, and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the Optify Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum contains confidential information and is not to be supplied to any person without Gerbsman Partners’ prior consent.  This memorandum and the information contained herein are subject to the non-disclosure agreement attached hereto in Exhibit A.

SUMMARY OF HISTORICAL INFORMATION[1]

Optify Inc. is a Software-as-a-Service (SaaS) provider of a digital marketing suite for small to mid-size enterprises and digital marketing agencies.  Optify’s suite is very simple to use and thus accessible by a broad swath of less sophisticated marketers in smaller organizations.

In 2012, coinciding with the launch of its email marketing offering, the company shifted the business from primarily services-led SEO contracts with large enterprises (80% of the revenue in January 2012) to a transactional SaaS subscription revenue business with no attached services except training.  A new CEO started in May 2012 to drive the shift in go-to-market strategy.

For the 12 months beginning August 2012, the transactional SaaS subscription revenue has grown 141% to $160,000 of monthly recurring revenue (MRR).

The transactional SaaS distribution channel has been a direct telesales channel, which can be quickly replicated.  The company grew SaaS subscription revenue to agencies and businesses aggressively with a relatively young group of five telesales reps (average experience 2-4 years from college) at an average sales price of $650 MRR and a 25-day sales cycle via online demos and facilitated free trials.

The product strategy focused on a “simple and integrated” digital marketing suite to combine cross-channel marketing data in a single system without needing to log into multiple point solutions and/or merge spreadsheets constantly.

Optify’s digital marketing suite encompasses both “top-of-the-funnel” (inbound) and “mid-funnel” (marketing automation) functionality.
·       Inbound Marketing: The “top-of-the-funnel” areas of the product suite includes website tracking, persistence, and reporting of all website visitors and their historical behavior discretely for both anonymous and known visitors.  The inbound suite also includes Search Engine Optimization (SEO) tools and an integrated Twitter workflow interface.
·       Marketing Automation: The company’s suite also includes a robust “mid-funnel” set of marketing automation tools including landing pages & forms; email marketing; simple marketing automation & automated form-fill response; and a best-in-class contact manager showing all historical interactions with a contact including website visits, form-fills, and emails.

The company is positioned to capitalize on several industry trends – the migration of direct marketers from offline to online; the increased emphasis on accountability and ROI which has fueled the growth of the digital marketing space; and the increased focus on targeting and segmentation.

Optify Inc. is a privately held company.  Optify, founded in 2008, is headquartered in Seattle, Washington.  To date, Optify has secured $10.8 million in equity financing.  It’s Series A round was led by Madrona Venture Group, with Triangle Peak Partners leading the Series B round.  The company also raised $1.5 million in venture debt from Silicon Valley Bank and an additional $2.0m in a convertible note from its two institutional investors.

Target Market:

The product is applicable to any “generalist marketer” who works across channels each week (blog posts optimized for search, customer emails, social, reporting, etc.  This marketer is typically found in a 1-5 person marketing department of a small to mid-size business.

Given limited marketing resources and an ability to differentiate the brand in a tighter and higher leverage segment, Optify further narrowed it’s primary segment of focus to digital marketing agencies.  Every employee in a digital agency besides the controller fits the “generalist marketer” target user description.  According to Adobe publically available information, there are roughly 120,000 smaller digital marketing agencies in North America with that many again in Europe.

Optify’s product continues to be well suited to small to mid-size marketing departments of operating companies.  According to a 2012 Infotrends study, marketing automation for sub-500 person companies represents a $21 billion market opportunity.

Customers:

Optify has over 350 customers.  The customer base breaks down into two categories:
1.  Roughly 190 are digital marketing agencies utilizing the Optify suite to provide retainer-based services for its clients.
2.  The rest are small to mid-sized marketing departments of companies.

Optify’s customer base beyond digital marketing agencies represents a broad set of industries. The monthly MRR billing base of Optify is diverse, as no client represents over 10% of its accounts receivable balance.

Proprietary Digital Marketing Suite and Website Tracking – Intellectual Property:

Optify’s internally developed technology platform currently monitors traffic across more than 1750 websites.  Each visitor, either known or anonymous, is being persisted in a database with their respective visit histories.  The system is architected in a horizontally scalable manner so that additional virtual servers can be added as needed to support additional customers.

Optify vs. Google Analytics: Optify’s site tracking and analytics is well differentiated from industry standard Google Analytics (GA) due to the ability to track and record behavior of discrete visitors, where as GA only provides data in aggregate (how many visits to a page, total visitors, average time on site, etc).

Importantly, Optify’s site tracking is as easy to deploy GA, and therefore much simpler than other website monitoring/analytics solutions like Webtrends or Omniture.  Just like GA, a single java script snippet is required on each web page.  Most Optify customers have both Optify and GA java script snippets on their site.  Optify has also made it increasingly simple to deploy by creating single click installers of the java script for the most common industry content management systems – WordPress and Drupal.

SEO tools and backend: Optify’s backend systems are also running 150,000 – 200,000 keyword analyses per week, effectively imitating searches and scraping resulting search ranks. This large scale search imitation is accomplished via a 3rd party system called Anonymizer to spread the searches across thousands of IP addresses.  The results provide search ranks that are directionally accurate for businesses needing SEO trends and competitor information. Google is making a specific rank nearly impossible to nail down due to local search preferences, search history biasing, etc.

Optify’s email marketing is built on top of Exact Target (now Salesforce.com) plumbing for actually sending the emails.  The entire email marketing interface and user experience is within Optify, however, and the user never knows what plumbing is being used to actually send the email. Since Exact Target is the global standard for high delivery rates, having Exact Target as the Optify OEM email infrastructure provider has proven to be a positive differentiator in the market.

Cross channel data: Optify provides a suite to minimize the number of point solutions, multiple logins, and multiple data sources required to be used today by a generalist marketer.  Because the different feature groups are simple and integrated, the user can seamlessly filter, create lists, execute email campaigns, and run reports with cross-channel data.

An example of utilizing cross-channel data for a segmented list would be a saved list of all known visitors who filled out a certain website form, have opened a certain email, and whose company is in a given state.  This simple filtering would normally require data from 3 different systems (form tracking system, email system, contact management or D&B lookup) and would be far beyond the ability for a typical marketer to merge and execute on any routine basis.

Optify’s product suite contains the following feature groups segmented as either “top-of-the-funnel”  (inbound marketing) and “mid-funnel” (marketing automation) areas of the suite.

Top-of-the-funnel Inbound Marketing feature groups:

1.  Keywords: A tool for analyzing search keywords, checking existing ranks and rank trends over time, selecting competitor websites to compare ranks vs. competitors.
2.  Pages: A tool that can be pointed at any particular page, or many pages, on a site and check SEO rules for a specific keyword(s), what search engine optimization (SEO) opportunities exist for a given page, and an associated task list (H1 tag does not contain keyword, etc) to better optimize the page for SEO characteristics.  Pages uses an Optify-built site crawler which can crawl very complex or simple sites.
3.  Links: A listing of backlinks to a given website.
4.  Twitter for Business: A Twitter interface for sending out tweets and tracking them consistently for reporting purposes and comparison with other cross-channel data inside Optify.
5.  Reporting: A reporting tool with the ability to customize and save reports integrating cross-channel marketing data.
 
Mid-funnel Marketing Automation feature groups:

1.  Lead Intelligence: A summary of all website activity, including both known and anonymous visitors.
2.  Lead Scoring: A user-created score for leads in order to prioritize website traffic. Lead Scoring also sends a daily email of website visitor traffic prioritized or filtered by lead score. The “Daily Lead Mail” is opened by more than 25,000 unique users, many of them sales people, each month.
3.  Landing Pages: A landing page creation and deployment application containing 5 preset landing page templates with many configuration options as well as an iFrame form choice to embed in an existing landing page.
4.  Email: An email marketing section of the app to create emails from existing templates or by pasting in HTML directly.  All key email statistics are provided including opens, click-thrus, hard and soft bounces, etc.  Email can be sent to filtered lists using the same cross-channel filter data available in Contact Manager (see below).
5.  Marketing Automation: Automated response functionality is integrated directly into the “Email” module above. Dynamic, or automated, lists for immediate email responses are integrated into the Contact Manager’s filtering and segmentation tools (see below).
6.  Contact Manager: A best-in-class contact database with automated lookups to D&B and LinkedIn for additional information on each contact along with all historical cross-channel interactions with a contact across website visit history, email history, and previous form fills.
7.  Alerts: The ability to set alerts to individual users (often sales people) based on certain criteria such as company name, specific form completed, etc.

Admin tools: Optify’s administrative tools allow a system admin to move seamlessly between multiple sites with a single login.  This functionality is especially important for digital marketing agencies which manage many clients. These admin tools are highly differentiated against Hubspot and Infusionsoft, both of which were architected from the start to run in single instances against single sites.

FINANCIAL DATA IS PRESENTED FOR INFORMATIONAL PURPOSES ONLY.  PAST PERFORMANCE MAY NOT BE INDICATIVE OF FUTURE RESULTS.  THIS INFORMATION SHOULD NOT BE RELIED UPON TO MAKE FUTURE PERFORMANCE PROJECTIONS OF ANY KIND.  THE COMPANY DOES HAVE AUDITED FINANCIAL STATEMENTS THROUGH CALENDAR YEAR 2012 BASED ON AN AUDIT COMPLETED APRIL 2013. THESE FINANCIAL STATEMENTS ARE AVAILABLE DURING DUE DILIGENCE AND SUBJECT TO AN NDA. (1)

Summary

1.  Strong SaaS Subscription Growth, High Gross Margins

2.  High Growth Industry – Fast growing segment of digital marketing, well-positioned to capitalize on major shifts in marketing strategies and media budget

3.  Mature and Award-winning SaaS Product Suite – Optify’s SaaS digital marketing suite provides a turn key lead generation and cross channel marketing suite, which broadly fits the needs of agencies as well as small to mid-size companies.

4.  Digital Marketing Agency Channel – More than 50% of Optify’s customer base is digital marketing agencies. They are a natural channel into the SMB segment for additional products or services.

5.  Diversified Customer Base with Low Concentration – Optify’s 350 SaaS subscription customers average $450 MRR.

6.  High Traffic B2B Website in Marketing Automation & Digital Marketing: Optify’s website received more than 15,000 unique visitors in July 2013.  Traffic grew more than 10% monthly in the past 2 quarters.

7.  Excellent Brand and Marketing Content within the digital agency space especially.  More than 50 proprietary white papers and other marketing content for lead generation and brand awareness.  Optify’s opted-in house list contains over 40,000 unique email addresses.                  The company twitter handle @optify has over 60,000 followers.

8.  Opportunity for Future Growth and Margin Improvement – The product can be sold through an alternate channel or into an existing customer base at scale.

9.  High Margin SaaS: Optify has been operating with SaaS gross margins in the 80-83% range the past 2 quarters.

The reasons why Optify’s assets are attractive are:

Optify has experienced strong growth of 141% during the past 12 months in its transactional SaaS subscription business.  This growth has been masked on the topline revenue due to a concurrent reduction in SEO services revenue since 2011 as that business become secondary in priority and the key consultants supporting those clients left the business.

Despite large SaaS subscription growth, recent working capital constraints and an overly leveraged balance sheet have created the opportunity for all or a portion of Optify’s assets to be sold.  The acquisition of these assets can enable the purchaser to realize significant short and long term value from the Optify assets as Optify maintains the ability to quickly scale within the context of sufficient working capital and a stronger balance sheet.

Robust SaaS Subscription Growth: Optify’s SaaS subscription revenue has increased 141% in the past 12 months with only 5 sales reps and a tight 25-day transactional sales cycle.  This success is due primarily to having an integrated product strategy in fast growing marketing with far too many point software solutions.

Market Position: The Company has a known brand and competes well with market leader Hubspot in providing a cross channel digital marketing suite for small and mid-sized businesses.  Optify established this position despite a small marketing team and very light marketing budget.  Optify’s position could very quickly be exploited via an existing go-to-market channel or larger installed base and moderate attach rate.

Proprietary Technology Platform and Simple, Proven Suite: Optify’s digital marketing suite is proven, and easy to use.  SaaS adoption has grown rapidly, with unique users logging in per week more than doubling in the past year, and the number of websites being tracked by Optify’s platform growing 164% during that same period.

Known Brand and Website Assets: Optify is a recognized brand name in digital marketing software.  The http://www.optify.net website receives more than 15,000 unique visitors per month.  Optify is known for high quality digital marketing content and studies, all of which are assets of ongoing value in terms of downloads, lead generation, and brand awareness.  Optify’s house list of marketers contains more than 40,000 opt-in names which recognize the Optify brand, as well as a Twitter handle with 60,000 digital marketing followers.

Diversified Customer Base: The Company has over 350 SaaS customers. More than half of these are digital marketing agencies, which provide a high leverage channel into the SMB market.  Optify’s other customers are engaged in a wide variety of primarily B2B industries. By establishing a broad customer base, the Company’s SaaS revenue is broadly diversified and not subject to large fluctuations based on changes at a few customers.

Digital Marketing Agency Channel: Optify possesses a critical mass of more than 180 digital marketing agencies in its customer base.  These agencies are a natural channel and point of leverage into the broad small to mid-sized business segment.  Nearly all paid media companies (search, retargeting, image advertising) are desiring access to this segment as either or both of an influencer channel or reseller.  Other software vendors also want access to this segment or an established brand like Optify in this channel.
 
Management Team at Optify (for information purposes only)[2]:

Rob Eleveld, CEO: Over 23 years of software sales, go-to-market, and management experience with proven success.  Previously, CEO of Shiftboard, a SaaS online scheduling business, and founder/CEO of Vykor, Inc, a provider of supply chain analytics and design-for-cost SaaS plus services solutions for heavy manufacturing.  Enterprise sales at Onyx Software (client-server CRM) and former submarine officer in the US Navy. MBA/MSE from Stanford and BA Engineering Sciences from Dartmouth.

Doug Wheeler, Chief Marketing Officer:  Over 25 years of experience in marketing from large public companies to startups. Previously CMO at Tappin (acquired by Globalscape), EVP Global Marketing for 3 years at DocuSign, EVP Marketing at Biopassword and Lockdown Networks.  Doug was the co-founder and CEO at ScriptRx.  He also held EVP of Corporate Marketing positions at both Citrix and Compaq. BS Computer Information Services from Purdue University and Executive Leadership program at Harvard Business School.

Chris Hundley, CTO: Started as VP Engineering in 2010, promoted to CTO overseeing engineering, product management, and customer support in 2012. Mr. Hundley was previously in Director of Engineering at Visible Technologies, also in the digital marketing space. He was a managing consultant at K2 Information Services and founder/president of Premiere, a development and system integration firm.  BS Computer Science from Minot State University.

Seeking a buyer of Optify’s assets
Optify’s Board of Directors is seeking a buyer of the Optify’s assets, in whole or in part.  Interested parties may bid on all or any part of Optify’s core technology, digital marketing content, pending patents, and customer contracts, enabling the purchaser to leverage Optify’s core technology, content, and customers and to obtain new sales, enhance revenue streams or accentuate or augment other software products.

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a Confidential Disclosure Agreement (attached hereto as Appendix A) to have access to key members of management and intellectual capital teams and the due diligence “war room” documentation (“Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has had an opportunity to inspect and examine the Optify, Inc. assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Gerbsman Partners (and their respective staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the Optify, Inc. assets. Each sealed bid must be submitted so that it is received by Gerbsman Partners no later than Friday, October 4, 2013 at 3:00pm Pacific Time (the “Bid Deadline”) at Opitfy, Inc.’s office, located at 712 2nd Avenue, Seattle, Washington 98104.  Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way. In particular, please identify separately certain equipment or other fixed assets.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase.  All bids must be accompanied by a refundable deposit in the amount of $200,000 (payable to Optify, Inc.).  The deposit should be wired to Optify, Inc.’s attorneys Murray & Murray, A Professional Corporation.  The winning bidder will be notified within 3 business days of the Bid Deadline. The deposit will be held in trust by Optify’s counsel.  Unsuccessful bidders will have their deposit returned to them within 3 business days of notification that they are an unsuccessful bidder.

Optify, Inc. reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from sale.  Interested parties should understand that it is expected that the highest and best bid submitted will be chosen as the winning bidder and bidders may not have the opportunity to improve their bids after submission.

Optify Inc. will require the successful bidder to close within a 7 day period. Any or all of the assets of Optify, Inc. will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Optify, Inc. assets shall be the sole responsibility of the successful bidder and shall be paid to Optify, Inc. at the closing of each transaction.

For additional information, please see below and/or contact:

Steven R. Gerbsman
steve@gerbsmanpartners.com 

James Skelton
jim@gerbsmanpartners.com

Kenneth Hardesty
ken@gerbsmanpartners.com

[2] THE BIOGRAPHICAL INFORMATION CONCERNING THE CURRENT MANAGEMENT OF OPTIFY IS INCLUDED FOR INFORMATION PURPOSES ONLY.  ALTHOUGH THIS SALE IS BEING CONDUCTED WITH OPTIFY’S COOPERATION, THIS SALE IS STRICTLY AN ASSET SALE OFFERED BY OPTIFY’S BOARD OF DIRECTORS.  OPTIFY INC. HAS NO ARRANGEMENT PURSUANT TO WHICH BUYER OF THE OPTIFY ASSETS COULD BE ASSURED OF THE FUTURE SERVICES OF ANY OPTIFY OFFICERS OR EMPLOYEES.

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