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Strategic Partnerships November 8, 2001

Strategic Partnerships November 8, 2001. Mark Leslie 650/527-8500 Mleslie@veritas.com. A Brief History of Major Deals we did at Veritas. 1982 – 1989: Tolerant Systems  Veritas 1990: AT&T SVR 4 UNIX Agreement 1991: Renegotiate AT&T Agreement

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Strategic Partnerships November 8, 2001

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  1. Strategic PartnershipsNovember 8, 2001 Mark Leslie 650/527-8500 Mleslie@veritas.com

  2. A Brief History of Major Deals we did at Veritas • 1982 – 1989: Tolerant Systems  Veritas • 1990: AT&T SVR 4 UNIX Agreement • 1991: Renegotiate AT&T Agreement • 1991 – 1993: Industry Standard File and Disk Mgmt – 60 companies licensed (including IBM) • 1993: Sun, HP • 1996: Microsoft • 1997: Oracle, Sun II, HP II • 1997: Veritas / OpenVision Merger • 1999: Veritas / Seagate Merger • 2000: IBM, VOS, Seagate II

  3. Why do Strategic Deals? • Small number of companies determine industry direction • Intel, Microsoft, Sun, IBM, Oracle, Cisco, HP, EMC, VERITAS, etc • Strategic Alliances • Align you with industry • Legitimize technology • Access to Markets • Credibility with Wall St. • Increase revenue directly and indirectly • Not sure if you could build a big company without them

  4. Many forms of a strategic relationship • Strategic Investor • OEM customer • Distributor / Reseller • Technology licensing • Outbound or Inbound • Merger and Acquisition • Substantive Alliances • Marketing Agreements • Combinations of the the above

  5. Strategic Investor • Equity investor along with other relationship • Usually willing to pay higher price • May or may not want board representation • Some commercial transactions call for warrants to strategic partner • Becomes equity investor without paying • Sometimes down-payment on future acquisition • Acquisition “right of first refusal”? • Often times larger company invests $ to cover custom development… • What is wrong with this approach?

  6. Strategic Investor • What is the rest of the relationship? • OEM • Reseller • Co-sales • What does larger company do for you besides dollars? • “Special” access to future technology? • Marketing stuff? • Access to sales force? • Access to customers

  7. Strategic Investor – Issues • What parts of the market does this relationship preclude? • What are your responsibilities when the new money runs out? • Can you rely on the partner keeping his commitments? • What can you do if he does not? • How do you support your customer, AND his customer? • How do you avoid getting designed out? • Is the company still “saleable”?

  8. OEM (original equipment manufacturer) Customer • A company incorporates your technology in the design and/or construction of a new product • Your “product” may or may not exist in new product • Your brand is invisible • May be technology buy-out • One time revenue • Avoids equity round • Not an ongoing stream

  9. OEM Customer • Alternate structure is design-win plus per unit or royalties • Customer perceives his per-unit cost or royalty payment as “cost of goods” • Customer is price sensitive, putting pressure on prices • Software OEM royalties may be up to 99% discount!! • Per unit margins are minimal • Annual royalty stream is capped by internal development alternative • May or may not get benefit of propagating your product in the market • Invisible brand

  10. Distributors / Resellers • What is the difference? • Distributors • Will stock your product • Do small transactions with resellers • Extend credit to less credit-worthy • List / catalogue your products • Do NOT create demand – simply fulfills demand • Driven by their own margin • Reliability of product and service • But, NOTnot by best product or customer need

  11. Distributors / Resellers • What is the difference? • Resellers • Close to customer • May stock your product • Integrate your product into end-user solutions • Extend credit to less credit-worthy • List / catalogue your products • May creat demand – may simply fulfill demand • Driven by their customer solution / own margin • Reliability of product and service • But, NOTnot by best product or customer need

  12. Multi-tier channel pricing (software model) • End-user: 10 – 20% • Reseller: 25 – 40% • Distributor: 50 – 55% • Binary OEM: 60 – 70% • Source OEM • Unbundled: 80 – 85% • Bundled: 90 – 95% • Very large OEM: 95 – 99% • F1000 corporate: 40 – 60%

  13. Partnership – M&A • Strategic (Transformational) mergers • OpenVision • Seagate NSMG • Tactical Mergers • TidalWave (FirstWatch  VCS) • ACSI (Media Manager) • Windward Technology (Predictive Fault Technology) • OpenVision Australia (Distributor) • TeleBackup (NBU Professional) • NuView (ClusterX)

  14. Technology licensing • Outbound • Covered under OEM discussion • Want to get as much per unit for as long as possible • Inbound – acquiring necessary technology • Faster time to market • IP ownership issues • You are the “OEM” • Want to pay as little as possible, both up front and especially in per unit royalties • “The shoe is on the other foot!”

  15. Partnership – Alliances • Partnering Up • Larger companies • Dominant in some market • Exercises some market control • Partnering Down • There may be smaller companies, or non strategic companies where you help them more than they help you • Partnering Equal • Equal leverage companies • Combining to offer solution to market • Create a “virtual critical mass”

  16. Organizing for Business Development • Tactical M&A • Venture Capita • Inbound /outbound licensing • OEM • Channels operations

  17. Who’s Got the Leverage • The big guys have it • The bad news… • They know it • They use it • Assuming reasonable competence of both parties, an agreement should accurately reflect the underlying leverage…

  18. Who’s Got the Leverage • The good news… • You do have some unique IP • You can negotiate • You can hold out for “critical” issues • You can argue: • Fairness • win-win • The objective is not to be liked, or “easy to do business with…”

  19. Doing the deal • Be focused and relentless • Dedicate the resources • Did I ever tell you how I met my wife? • NEVER, EVER, EVER take NO for an answer • Build the relationship • Be prepared to invest for a long time • Top level executive commitment • Create the need

  20. Doing the deal • Shape the deal • Shape it early -- the earlier the better • Shape it often • The big issues are OVER long before you sit down to negotiate the contract

  21. Doing the deal • Negotiate the deal • NEVER, EVER, EVER negotiate yourself • Do not be afraid to ask for the moon • Don’t be surprised if they do • Keep the give and take… • Be creative • Use their new issues to get what is important • Always ask them why you should agree

  22. Doing the deal • Close the deal • Have a party! • PR the deal • Execute the deal • Make sure they execute their part • Set up weekly meetings • Put one person in charge of it

  23. Key Issues • NEVER, EVER, EVER give away your IP • Maybe there is no deal here • Any non-revenue or low revenue license should be a socket for you to add on to • You need multiple channels to capture the value • Your leverage gets better over time • shorter agreements are better than longer ones • Business developments executives are very rare, hard to find • “Sales” is tactically oriented • Business development is very strategic

  24. More Key Issues • Note: Lawyers do not do deals – business people do deals, and lawyers memorialize them in contracts • The deal PR is extremely valuable to you – do not trade it • Plan on your partner executing badly or not at all on their commitments to you • You have to execute anyway – who said life is fair… • Think long term (they do) • The value of your company in 5 – 10 years may be based on the quality of these early deals

  25. Guest Speaker:Peter Levine Ex-EVP Business Development, VERITAS Software

  26. Strategic PartnershipsNovember 8, 2001 Mark Leslie 650/527-8500 Mleslie@veritas.com

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