NYC Startup Exit Masterclass 2018

1. !1
Startup Exit Masterclass
New York City
Todd Neville
June 2018

2. !2
The world’s incumbents own the most valuable sources of
data: the 80 percent not on the Web 10 of the largest
global banks and
9 of the top 10
retailers use IBM
Cloud-as-a-
Service
87 percent of all
credit card
transactions and nearly
$8 trillion in payments
are supported by
IBM Z systems
50-qubit
prototype
quantum system
debuted
Half of the world’s
telecommunications
IT infrastructure
managed by IBM
Services
22 of 25 of the world’s
largest banks protected
by IBM Security with
60 billion security events
monitored each day
1,400+ artificial
intelligence patents
and 1,900+ cloud-
technology patents
awarded in 2017
58 cloud data
centers across
19 countries
#1 Fastest
supercomputer in
the world:
200 quadrillion
calculations per
second

3. !3
Acquisitions are not all we do
How do we choose?
Invest in an
Existing External
Entity
Minority
Investments
o VC Fund Investment
o Direct Minority
Investment Venture
o Direct Minority
Investment Commercial
o Equity for Value
Accelerators &
Incubators
Public-Private
Partnerships
Create a
New Business
Joint Ventures
o GTM Joint Venture
o Captive Joint Venture
o Captive IT Subsidiary
o Build / Operate /
Transfer
Spin out / spin off
Divestitures
Strategic
Outsourcing
Create a
Relationship
Strategic Alliances
o Joint Development
Agreement (JDA)
o First of a Kind (FOAK)
o Go To Market Alliances
o IP Partnerships (IPP)
Consortia
License
o IP License
o Data Access
Agreements
o Franchise
Acquire a
Business
Acquisitions
o Equity purchases
o Asset purchases

4. !4
Example considerations
Gives/Gets
Exit
Control
Transfer
Consolidation
Freedom of
Action
Equity Structure
Royalties Liability
IP Ownership/Rights
Competition
Risks
Scalability
Remediation
Trust & Compliance

5. !5
Delivering on M&A: A multipart challenge to find the right company
The
Landscape
• Opportunity
• Companies
• Alternatives
• Valuations
• Differentiators
• Risk (company
and segment)
Alignment
With Buyer
• Overall strategy
• Who/where
would own P&L?
• Who would sell?
• Who would
benefit and how/
why?
• What synergies or
conflicts exist?
The Company
Today
• Projected
baseline business
case for Target
alone for next 5
years
Value
Expansion!
• “Secret Sauce”
• How does the
new combined
business expand
together?
• Qualitative
assumptions
• Quantitative
assumptions
The New
Combined
Business
• Final combined
financial case
• Accretive when?
• Cash payback
when?
• Investment rate
of return?
• Assumptions &
Risks

6. !6
Illustrative Example
Landscape Summary Initial High Level Screen
Name Description
Opp.
Size (B)
Opp.
CAGR
Risk Synergy
Opp.
Size
Fit
Possible
Properties
Total
Rev.
Op PTI
Margin
CAGR
Total
EV
Tech/
Process
Data Skills Channel
Example
Opportunity
Description
of
opportunity
$10B 10% L M M H
Acquisition 1 $50 10% 40% $300M H M H H
Acquisition 2 $110 28% 15% $500M M H H M
Current Plan $12 (0%) 220% N/A H L L M
Example early 2005 investment letter from Sequoia Venture Capital for
Youtube:
http://milesgrimshaw.com/sequoia-investment-memo/
(they also invested in Apple, Google, Oracle, PayPal, Stripe, Instagram, Yahoo! And WhatApp, among others)

7. !7
Why acquire: When ownership unlocks growth
Sample investment case
Target company standalone business case
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Revenue
Newproducts,channels
oropportunity
Acquire100%targetcompany
New opportunity,
products, customers,
etc
Geographic expansion
Sell with / sell more of current products
The New
Combined
Business
Standalone
Revenue
Value
Expansion
Growth
Revenue
Time

8. !8
Acquiring a company often changes their mission and business case
Standalone Expense
New Expense
Grow
th
Revenue
Standalone Revenue
$$
$$$$
$$$
Growth via
new value
creation
Decreased via
efficiencies
Investment for
growth, integration
Combined
Standalone ExpenseStandalone
Revenue
$
$$$
Company Alone
The
Acquirer’s
Viewpoint

9. !9
Accretion
When does the new business become profitable?
Combined profit margin
How much profit does the new business make over a given timeframe?
Overall business profit margin
What is the impact of the new business on the overall business?
IRR (Internal Rate of Return of the investment)
When do we payback the purchase price, and how much do we make over 5 or 10 years?
Metrics widely used to consider an investment or acquisition

10. !10
Growth
Value 2
Growth
Value 3
Growth
Value 1
Revenue-related
functions
Process-related functions
Compliance-related
functions
Acquired process may be
advantaged for the
acquired company
Build net new or preserve and enhance
through combination of existing and
acquired capability
“deep back office”:
often existing processes
preferred deployed to
acquisition
• Cookie (Order) to Cash
• Customer Support
• Delivery
• Digital and Agile
Marketing
• Pricing
• Sales
• Business Partner Operations
• Contracts
• Development & Offering
• Fulfillment & transaction support
• HR
• Infrastructure compliance
• IT infrastructure
• Legal
• Traditional Marketing
• Procurement
• Real Estate Locations
• Sales Incentives
• Accounting*
• Business Controls
principles*
• Tax & Treasury*
• Communications
• Environmental
• Finance Compliance
• Import/Export
• Insurance/Risk
• IP Law
• Security
The key to success is to aggressively manage
achievement of the overall growth case not simply
functional integration