Kauffman fellows 2010-ssp

Kauffman Fellows Program

Harvesting Case Studies

Sanjay Subhedar- Storm Venture

when asked to write the alphabet
by his kindergarten teacher


Key Elements
Three most important decisions for VC’s are
When to Invest
Follow on Investments
When to Exit


Evolutions of Markets
Valuations Market Size

Don’t invest just
because it is “in”
Enterprise
Value
Don’t exit
just because it
is “out”

Time
Technology Peak of Inflated Trough of Slope of Plateau of
Trigger Expectations Disillusionment Enlightenment Productivity

Jumping the gun

Most of us make the mistake of
Investing too early
Harvesting early
Investing decisions are very much based on the firm
Harvesting decisions influenced by
Management team
Syndicate
Competitive Environment
IPO environment


Distribution Choices

Cash or Stock
Timing of Stock Sale or Distribution


Harvesting Case Studies
Stratacom, Inc (NASDAQ-STRM)
Passion, Persistence and Patience Rewarded
Lightera (CIENA)
Early to market, early exit
Etek Dynamics (NASDAQ-ETEK)
Good Timing, Superb Execution, Great Market=Super Returns
Airespace (Cisco)
Early Market leadership creates early exit opportunity
Kidaro (Microsoft)
Company helped define the market, early exit
Sierra Monolithics (Semtech)


Incorporated Feb 1986
VC Funding of $4.3 million in two tranches
Another VC round of $10 million
Corporate Rounds
Motorola $10 million
DEC $10 million
IPO 1992 with a market Cap of $100 million
Merger with Cisco in 1996 at $4.7 Billion


Sold to
Cisco
($ Million)
$5B
$6,000 $350

$5,000 $300
Market Capitalization

$250
$4,000
Frame Relay

Revenue
$200
$3,000 Takes off
$150
$2,000 IPO
$100
Slow growth for
$1,000 many years
$50

$0 $0
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Market Cap Revenue


300x
return
$160
Sold to Ciena
$140 for $550M;
Product FCS
$120
Lightera’s product
$100 represent 30%-35%
$80 Raised of Ciena’s revenues
$10M
$60

$40
Start
$20

$0
Feb-98

Feb-99

Feb-00

Feb-01

Feb-02

Feb-03
Oct-97

Jun-98

Oct-98

Jun-99

Oct-99

Jun-00

Oct-00

Jun-01

Oct-01

Jun-02

Oct-02

Jun-03

Acquisition a huge success for the buyer
Same customer base
Synergistic product line
Did not have the product
Seller’s product was a world leader

Is it repeatable? Yes
Luck – guess right on new technology, new market,
competition and timing
Major lead over the competition
Right buyer – currency and desire


Optical Add Drop Circulators Optomechanical Switches
Modules

Variable Attenuators Wavelength Lockers

Optical Performance Dispersion Equalization
Monitors Modules

Phase I
Founders create value
Phase II
Summit Buys 60% from Founders- Jun1997
Valuation was $200 million
Brings new Management team
Phase III
Recast business for public ownership
IPO in Dec 1998
Phase IV:
Merger with JDS Uniphase in June 2000


Sale to
JDSU
172.7
$19B
IPO
$1.5B

106.9
Recap
$120M 73.1

40.4
(in $ millions) 31.7
14.6
6.5

1993 1994 1995 1996 1997 1998 1999
Fiscal years ended June 30

Price Performance – E-Tek
IPO – Close of Sale
350.0 Transaction closes (6/30/2000) 14,000
Market cap: $17.9bn

300.0 12,000

250.0 10,000
Sale to JDSU announced on
1/17/2000JDSU announced
Sale to
Closing Price (USD)

on 1/17/2000
Market cap: $15.4bn
Market cap: $15,394mm

Volume (000)
200.0 8,000

150.0 6,000
IPO (12/2/1998) price: $12.00
Price at end of day 1 trading: $26.75

Market cap at IPO price: $0.7bn
100.0 4,000
Market cap at end of day 1: $1.6bn

50.0 2,000

0.0 0
Dec-1998 Feb-1999 Apr-1999 Jul-1999 Sep-1999 Nov-1999 Feb-2000 Apr-2000
Daily from 02-Dec-1998 to 30-Jun-2000

Volume E-TEK DYNAMICS INC COM


Market exploded for optical components
Bandwidth demand from internet
Huge telecom build out
Component shortages
Great Execution forces acquisition


Founded by Storm in 2001
Incubated with $500k
Storm wrote plan and hired team

Series B led by Norwest with Battery
Series C led by Fidelity
Key OEM Relationships
Nortel, Alcatel and NEC

Cisco acquires for $450 million , Jan 2005
Total raised $58 million


Kidaro


Founded in 2005, Israeli R&D center
Ex-military IT security, Israel-based team

$4M Series A co-led by Storm and Genesis, 8/05

$10M Series B led by Opus, 12/06
HQ moved to Silicon Valley
Received & declined unsolicited acquisition offer.

Microsoft acquires, March 2008


Kidaro Managed Workspace At a Glance

Leverage machine virtualization technology to
create, deploy and centrally manage
end-user workspaces


Lessons Learned

Thesis: Storm thesis in desktop virtualization has
materialized.
Team: Strong teams will find the right market insertion
point
Kidaro helped the analysts define the space...and they kept
mentioning Kidaro
Timing: Exit was well timed on the curve
Cash in the bank allows investors to time the exit.


Evolutions of Markets

Valuations Market
Size

Enterprise
Value

Time
Technology Peak of Inflated Trough of Slope of Plateau of
Trigger Expectations Disillusionment Enlightenment Productivity

Top 10
Rules For IPO’s or Exits

1. Build for an independent destiny, don’t eliminate options
2. Tactical Value makes an Acquisition/IPO interesting
3. Strategic Value makes an Acquisition/IPO compelling
4. Know and work the ecosystem…don’t create VETO pockets
5. Know the landscape, have realistic expectations
6. Leave money on the table
7. Deliver value to acquirers or stockholders
8. Transactions are forgotten, relationships can endure
9. No surprises!!
10. Companies are “Bought” not “Sold”


A venture capital firm dedicated to building
and creating enduring value.

Thank You
Sanjay Subhedar Storm Venture

Kauffman fellows 2010-ssp

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