InterTradeIreland Venture Capital Conference 2012

Entrepreneur turned Investor
Danny Moore – Founder, Lough Shore Investments

w: loughshore.co - Tw: @loughshore

Overview

• Background and the Wombat story

• Lough Shore:

• Northern Ireland business landscape (at least from the perspective
of indigenous tech companies),

• Where Lough Shore fits in.

• Experience, comments, lessons learned.

• Questions.


A little background…
• From Glenavy, Co. Antrim.
• Studied Queen’s University, Belfast.
• Joined First Derivatives Plc in January
2001, with a focus on New York from early
2002.
• Joined Wombat as the second FTE in Jan
2004, based in New York.

• Wombat was acquired by NYSE in 2008.
• Became COO of NYSE Technologies
through to April 2010.
• Founded Lough Shore Investments in
November 2010.
• Won first Oscar in 2012.

Wombat – key facts

• Massive compound organic growth, circa $500k billings in 12 months
before I joined in Q4 2003, business unit circa $40m in 12 months to
Sept 30th 2008.

• Quarterly cash positive Q1 2005 through to exit (Q4 2007). Over 12
months runway on the balance sheet on exit.

• Combative penetrate and up-sell “base-hit” driven business model.
Only a handful of the more than dozen competitors in the sector in
2003 were still around in 2008.

• Maximum deal size (total product value) per customer circa $400k in
2003, $5m in 2008.


Wombat & Belfast

• New York first, Belfast second. The company’s center of heart was
always out and out Wall Street (office in 25 Broad, across the road
from the exchange).

• Engine room was out and out Belfast, 70% of the global team were
sourced through the Belfast office.

• Average age across the company globally on exit – 26 ½!

• Four major Invest NI investments, culminating in its biggest ever ICT
deal in 2009, £10m to secure 550 jobs from NYSE Euronext.

• Virtuous circle continues: CME, Cowen Group, First Derivatives in
Belfast, Lough Shore Capital.

The Dream Team, March 2008


Fundraising - Wombat
• The million dollar secret: the best way to fund a technology business is by selling stuff
to customers with strong margins!

• Merrill Lynch made a circa $3.5m strategic investment in Q4 2005, got returned $55m
in Q1 2008.

• Best deal we ever did, doubled the exit value in my estimation,

• Used the cash to bolster the balance sheet, then buy Harco.

• Auction to sell the company started out as a fundraising round for an MBO. We were
working with twelve suitors through 2007, eight bid in round one.

• The $200m secret; VCs or acquirers will see your projections nine months before a
deal closes; hitting the numbers needs to be in the DNA. You disappoint, you die.

• Invest NI was a great partner – has to be said.

Lough Shore Investments

❝ Our mission is to invest in high potential management teams and
partner with them to build great businesses. Our goal is to bring ten
great companies to exit or IPO by 2025 ❞


Some great NI businesses

Company Year Founded Turnover (2010) Profit Market Cap (03/12)

Randox 1982 £59,695,000 £2,908,000 -

First Derivatives 1996 £25,476,000 £3,787,000 81,000,000

Almac 1968 £250,983,431 £10,721,002 -
Chain Reaction
1984 £109,420,000 £9,527,000 -
Cycles
Andor Technology 1989 £42,719,000 £4,569,000 167,000,000


Elephant in the room

Our mission is to invest in high potential management teams and
partner with them to build great businesses. Our goal is to bring ten
great companies to exit or IPO by 2025.


Lough Shore – Big idea
• Create an outward focused seed investor, specializing in taking local
companies to the US market and raising international capital through
to IPO. Platinum player in a small market.

• Develop strong links in local funding community to help these
companies fully leverage all the assets available.

• Partnership approach, strong focus on developing management
teams and working with them to grow the business with a focus on
investablity.

• Really strong focus on skills, ecosystem and go to market, both
here and in the US.

• Partner with government to address the management skills gap.

Partnering with Management
The Essence of Running a Business

Face time with Building a
Product and InternationalE
customers and Doing Deals Team and
Engineering xpansion
partners Leadership

Always Be Selling / Always Be Closing

The Boring Stuff

Finance and PR and
Legal Go To Market
Admin Marketing

Management
Logistics Governance M&A
Process

Need To Be Doing This Really Well

Strategic planning, execution and tracking using the 8QP

8QP Heatmap shows progress at a glance
❝The 8QP has been a
fantastic tool for helping
me step back and take a
real strategic view on
the direction of the
company❞
Jonathan
Chesney, WorldDesk


Advice to founders
• Have an angle.

• Manage the business, if you don’t need the money they’ll be knocking on your door.
Patience and consistency with careful cash management.

• Major on proof of traction. The best stories are based around revenue acceleration.
The founding team has already got the business up and running, but need to augment
the balance sheet and invest to scale sales / delivery (inc. globally).

• Be honest and transparent. There isn’t a serious angel investor or VC out there who
hasn’t got sold a pup (or a litter of pups). Many have been on the receiving end of fraud
and other vicious practices. They are cautious and rightly so!

• Be realistic about growth projections and valuation. Take outside advice. Many
eleventh hour collapses stem from investor unease about either the valuation or the
integrity of the founders.

• Seed investing in particular is about partnership.

Compounding = Patience

Einstein considered Buffet’s life story “The
compound interest “the snowball”.
most powerful force in
the universe”.

• To make it big in the medium term, entrepreneurs need to understand the power of
compound growth (including how it relates to building a balance sheet).

• It is a concept that’s fundamental to growing a customer base, cash flow, team,
balance sheet, & retaining equity.

• Small changes in level of debt, revenue growth, margin, return on equity, have
massive impacts on how a business scales in the medium term.

Mr Consistency

• Get the small calls right and grind out the
results, consistently. Day after day, week
after week, year after year.

• It’s all about base hits and RBIs (i.e. take
the base hits and the home runs will
come). Or, as they say in Ireland, take
your points and the goals will come!

• The concept of the “flywheel” is key,
aggregating hundreds of small wins to
build sustainable momentum – Jim
Collins


Compounding Consistency
Decade 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
First Derivatives
Turnover 36.74 25.48 17.55 12.67 9.33 6.31 3.79 2.68 1.65 1.78 1.85
Operating profit (loss) 6.57 6.29 5.94 5.23 2.63 1.64 0.88 0.60 0.42 0.63 0.54
EBITDA 8.58 7.25 6.45 5.56 2.91 1.92 1.13 0.63 0.44 0.65 0.56
EBITDA Margin 23.34 28.45 36.74 43.89 31.16 30.35 29.69 23.52 26.38 36.73 30.18
Return on Common
Equity 24.82 27.46 31.38 44.49 43.65 39.39 29.84 26.81 33.81 100.12
Revenue Growth 37.1% 44.2% 45.2% 38.5% 35.8% 47.8% 66.4% 41.6% 62.5% -7.3% -4.0%
EBITDA Growth 36.7% 18.3% 12.4% 15.9% 91.2% 51.8% 70.2% 78.7% 44.8% -33.4% 16.8%
Andor
Turnover 57.35 42.72 33.11 24.72 21.27 19.24 15.71 11.65 9.21
Operating profit (loss) 8.94 5.73 4.79 2.12 1.35 1.40 0.78 1.24 1.06
EBITDA 11.19 7.42 6.02 2.92 2.14 2.13 1.41 1.53 1.33
EBITDA Margin 19.51 17.37 18.18 11.82 10.08 11.09 8.99 13.09 14.48
Return on Common
Equity 19.10 19.55 24.99 8.90 10.22 17.13 14.38 31.05
Revenue Growth 26.0% 34.3% 29.0% 34.0% 16.2% 10.5% 22.4% 34.9% 26.5%
EBITDA Growth 34.4% 50.8% 23.3% 106.0% 36.3% 0.5% 51.0% -7.3% 14.4%
Apple ($billions)
Revenue 108.25 65.23 42.91 37.49 24.58 19.32 13.93 8.28 6.21 5.74 5.36
Operating Income 33.79 18.39 11.74 8.33 4.41 2.45 1.64 0.35 0.03 0.05 -0.33
EBITDA 35.60 19.41 12.47 8.82 4.73 2.68 1.82 0.50 0.14 0.16 -0.23
EBITDA Margin 32.89 29.76 29.07 23.53 19.26 13.86 13.08 6.03 2.22 2.86 -4.31
Return on Common
Equity 41.67 35.28 30.54 33.23 28.51 22.85 21.24 5.94 1.66 1.62 -0.63
Revenue Growth 36.8% 66.0% 52.0% 14.4% 52.5% 27.2% 38.6% 68.3% 33.4% 8.1% 7.1%
EBITDA Growth 73.0% 83.4% 55.6% w: 41.4%
loughshore.co -
86.4% Tw: @loughshore
76.8% 47.0% 265.1% 261.6% -15.9% -171.0%

The Shore – The Rationale
• Investment was made from the marketing budget.

• Massive alignment of interest (Lough Shore, Shores of LoughNeagh,
CALNI, returning from the US, showcasing NI).

• Terry George, the Entrepreneur:

• Northern Ireland team operating at the highest level in their
industry,

• Crystal clear aspiration, objectives and business plan,

• Cheap / brilliant at sweating the assets.

• Massive brand message if we got the win.

And when it all works out!


Questions


InterTradeIreland Venture Capital Conference 2012

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