Copacetic

Micheal Martin :

• 25000 graduates employed.
• Strong culture of investment.
• Strong sense of partnership.
• Clusters, mobile, elearning etc.
• Majority of trade missions are indigenous irish companies.
• Large attendance, empty front row.
• Need to get state sector to appreciate qualities that irish companies offer.
• Public procurement tends to favour blue-chip (american) companies.
• Create awareness of what is available from Irish companies.
• 67 CEOs have taken part in EI Sales Star program.
• Need to reduce regulatory burden.
• Students are not moving into science/engineering.
• 2002 stuffed us for IT recruitment into colleges from school.
• We top the OECD league in terms of science and technology graduates.
• Tax credit Issue, for R&D?
• Still committed to 12.5% corporate tax levels.
• Expanded VC commitment from state.
• Announcement in next few days.
• EI commitment to growth and scale for i18n irish companies.

Shaping Business Models for the Future: Andy Malik (Lehman Brothers):
Managing Director : Capital Advisory (Financing Software companies in Today’s Market)

• Brought Iona and Parthus public.
• Trends in the industry.
• Complicated slide.  Microsoft, Oracle, IBM, HP, Sun, EMC, Google, AT&T.
• Huge M&A activity. Most active Consolidators : McAfee, Microsoft, Oracle, CISCO, CA.
• Key investment themes for private equity: Several 1bn markets with double digit growth. SAAS being rapidly adopted.
• Highly scalable business models.
• Investing spectrum, VC, Growth Equity, Buyouts. Portable Alpha - Alternative investments, LBOs and VCs
• Very high number of IPOs this year.
• LBO Example - Safeguard Scentific - huge recurring revenue.
• IPO requrements :
  • Profitability- now or within one quartery, Revenue Run Rate - bigger the better but at least 15m, Future financing needs - IPO is expansion capital, customer base - broad based with little customer concentration risk, product offerings - Diverse and integrated suite solutions , history of execution.
  • LTM (last twelve months) of revenue 16m.
• Sarbanes Oxley: 2-3m cost for SOX. (3-4m says Eric Hjerpe)>
• But SOX compliant may run bettter/do better (jury still out).
• Listing options : AIM, NASDAQ. AIM is a stepping stone to NASDAQ. Would recommend NASDAQ personally. But will AIM got the way of the NeurMarket.
• M&A continues to dominate. 1999-2000 45.1% of exits were IPOs. Today 11% of exits are IPO.
• There is another huge wave of IPOs imminent.
• Fees are better in the M&A business.
• 1999 - we “borrowed” IPOs from the future.
• IPO market follows the stock market.
• World economy growing at 4%. Awash with liquidity.
• SAAS is going to make market valuations go up. But can’t grow as quickly as a perpetual license company. How do you measure backlog in this market? You are recognising revenue pro-rated over a year/quarter etc.
• Don’t run your company with a subordinated goal to go IPO.

Eric Hjerpe: Atlas Venture Partners (Previously at Siebel)
Scale in Software

• Atlas: I18n VC. 1908 in Amsterdam. 2.4bn fund. Early stage? really. Invested in Globoforce and Performix.
• Case Study: Siebel.
  • Founded 1993. IP0 1996. 28 qtrs of growth. 2bn quarterly revenue in 2000 with 8000 staff.
  • Bought by ORCL, best of breed goes to Enterprise Software Suite (market cap of 10bn).
  • Big shadow because of  partnership with Anderson Consulting (nee accenture).
  • Enterprise software is difficult to build. Give services revenue to partner while we built sales.
  • Positve inflection: In 1997 we acquired Scopus. (Until then a sales management tool) now we had credibility in the call centre market. Defined a new market, CRM.
  • Negative Inflection: Opportunity to pick an ERP player in 2000. Decided best of breed would dominate (failed to buy peoplesoft).

Keys to Scale:

• Improve of a world class team - Hire for two years in the future. Impose culture on staff or they impose it on you. Clear role definitions. Pay top percentile more, move out the bottom.
• Find an open niche in a growing market - Need future oriented markets (rapidly growing). Need to be physically present in your largest market. Live, compete and focus there. Made top reports in Siebel move to Europe on a 6 month rotation.
• Build great products - Most products are crap. Need reliability, manageability, installation etc. Need feedback loop directly into product engineering. Innovate, eat your young.
• Focus maniacally on customer success - Siebel had 70 reference sites for customers. Make your reference executives heros via advertising.  Measure customer satisfaction.
• Establish and maintain market leadership - Need to be No. 1 in every product category we compete in. No 1. gets 50% of the revenue. Assimilate other markets via acquisition. Create a partner eco-system.

VC Investment Criteria

• We are money managers - invest capital for pensions etc.
• Cash on Cash business - we must have liquidity
• Don’t want to sell on multiples of revenue - want obscene returns
• Team
• Team
• Team
• Team
• Did I say team

Many of our companies are led by first time CEOs.

• Market
• Customer validation
• Barriers to entry - IP works. Patents help. Eco-systems, partners etc. Hard to dismantle.
• Alignment details - Need people who can meet your capital requirements.

Whats in vogue?

• SAAS, recurring revenue models.
• B2C is back - advertising based business models are hot. Ad revenue is moving offline to online.
• B2B - compliance and security
• … Anything but enterprise software! - Selling for 4-5 times revenue is not appealing.

Melinda Ballou : IDC

Leveraging Disruption in the Software Industry for Business Adaptability

Key trends;

• Compliance - gGlobal 2000
  • SOX, Basel II
  • Revenue generation
  • Business Practice
• Rise of distributed development
  • The norm
  • Decentralized IT
  • Follow the sun support
  • Collaborative development
  • US 25% increase in offshoring
• Rise of Global Teams
• SAAS
  • Hosted application management
  • Software OnDemand
  • Key issue - consistent and recurring revenue
• Whats different now
  • Reliable bandwidth
  • Software designed for web delivery
  • Firms understand SAAS
• SAAS vendors need data centre infrastructure (24 x 7 support)
• SAAS customers need stable bandwidth
• SAAS is for everybody (31% of small business use it) (<99 staff).
• Customers 38% are more likely to spend more on software
• Even Bill Gates gets it.  ”Services wave of applications”.
• SOA
  • Key strategy for major vendors
  • IDC predicts 23% of web services market using SOA.
• Open Source
  • User benefits - try before buy, better support options.
  • Vendor benefits - reducing development, testing costs. Eclipse generated 200m additonal revenue for IBM,
  • Collabnet - productised Subversion.
• OSS Model
  • Owners, Community, Commercializers
• OSS V2.0 - Dual licensing. Monetization. Commercial product retirement. Giving back to the community.
• Loopback from commercial use back to development community.
• Implications for Overall IT Industry
• Guidance
  • New set of business rules, SOA and Open Source.
  • Find differentiated niche

Top three tips for dealing with analysts;

• Proactively work with analysts.
• Don’t waste  my time
• Develop relationships with people you like to work with them
• Look at research they are coming out with.

Sean Foley : Microsoft (Ex CTO of Cognotec) :

Industry Megatrends

• Performance
• Wireless
• SOA
• Digital Workstyle lifestyle
• Stoage in the cloud
• Web 2.0

Technology Trends

• Broadband
• AJAX
• Media consumption
• Broadband penetration in US approaching 50%
• Use of web as an entertainment medium

Software and the Ad Market

• Softare 131bn dollars
• Ads 520bn dollars
• Online 17bn in 2005
• Half of that 17bn was spent on software services (that was given away for free)
• Good enough will extinguish high cost perpetual license software
• Amazon 4000 item queueing software
• MSN, Google or Yahoo may buy you
• Mashups - Google maps and Flickr photos

What are microsoft doing in this area?

• The Live Era
• People, Data, Devices, Applications - Sofware + services, seamless applications
• The microsoft live platform - extensions to Office, Windows, XBox, Partners
• Services have Rich development APIs (calendaring, mapping)
• Leverage networks of people, information and advertising
• Presence, permissioning, (MSN pitch)
• Explosion of digital data (need search services)
• Business networks
• See live.com (ideas.live.com) for examples

THe live era, software + services

• Subscription
• Transaction
• Usage
• Advertising
• Delivery - compensation, contracts, SLAs, liabilities
• Much better connection to customers

Ecosystem of providers:

• 90%  of MS sales are through partners
• 40000 h/w vendors, 51000 software vendors in EU
• ISVs that target MS have higher growth rates
• BBC Smart Client (Vista) Gateway to a weeks content, search, personal space ( you gotta have Vista)

The world is changing

• Power of technology
• Digital Lifestyle and Workstyle
• New business models
• In Web 2.0 everything is beta.

Unparalleled Opportunities

• IP Ventures - Access internally developed technologies (SoftEdge systems create photoediting functionality)
• Empower - Everything Microsoft does for 5 developers at a very early stage.
• Need recurring revenue opportunities
• Sean.Foley@microsoft.com

Fergus Gloster : Senior VP For Salesforce.com

• The end of software
• Our definition of SAAS (OnDemand computing)
• Factors of success
• Safe Harbour statement

Salesforce:

• 50% share in the OnDemand market
• 20500 customers
• 398000 subcribers
• Rapid growth (exponential)
• Trusted choice across multiple segments
• Largest customer 7500 users
• High repeat use - Continue to use 95%, would recommend  to a colleague 93%, have recommended to a colleague 77%.
• A lot of shelf ware in the packaged software industry

OnDemand Computing Platform

• Multi-tenant - Isolate from each other
• Service Delivery - Customer doesn’t care how you get the service to them (Electricity analogy). Need to be open about problems. Trust.salesforce.com.
• Meta data driven construction - Impossible to upgrade otherwise
• Web Services integration - Musn’t build another silo.
• Enterprise VLO architecture - Very Large Organisations
• Development Environment - Need a sandbox environment to test changes
• Multi-application - Need to able to deploy more than just CRM
• Application Exchange - Directory of applications provided by ISVs

Factors for success

• Strong Leadership
• Focus on Success
• Disruptive Offering -  ($1000 vs $10000 for a CRM seat).Get The Message Out - using PR. Message must be different, must be substantiated.
• Direct distribution model - We had to do it ourselves (no distributors, no resellers).
• Strong inside sales model - Sell it ourselves over the web.
• Viral marketing - Exploit the existing customer base. Cocktail evening in London.
• Align yourself with the big guys - Throw stones at Siebel.
• High degree of flexibility -

Key Differences vs Software

• Customers can leave
• Instant market reach - people can try the whole product from anywhere.
• Instant feedback on features and functions
• Customer trial is a real test
• Vendor can see the true level of interest via customer’s usage
• Huge sales productivity
• Shortened sales cycle
• Greater understanding of customer base

Salesforce Strategy - AppExchange

• Expand functionality of offering
• 18 releases in the past 6 years
• Normal release cycle for Enterprise Software - Once every 18 months.
• Consumer web platforms - Google, EBay, Yahoo etc.
• ON Demand for Business in a similar vein - AppExchange - customise, integrate, create new apps, package apps, install apps.
• Share an App. Rate it, install it.
• First 90 days - 200 applications, 7100 installations, 108000 test drives.
• Deliver 100% of extended CRM and beyond (home grown solutions that live inside companies, written in Excel). Integrate long tail Enterprise Applications.

The Irish Experience : Gary Moroney, Pat Brazel, Sean Melly,  Peter Donlon

Gary Moroney - Similiarity Systems
Driving Growth Through Partnerships

• Similarity - Founded 2001, Acquired Informatica 2006. Data Quality Management.
• Top Tier Customer base
• Highly rated by technology analysts

Growth:

• 4-6 months market definition
• CTO and development team - 2001 built product. 0.5m
• 2002 sales prospecting (only in Ireland) (ESB, Eircom) 0.7m
• 2003-2004 Building an I18n relationship (Selling, partnerships) 2m
• 2005 raised final round for scaling up.  5.25m
• Exit 2006

Key Strengths

• Mgmt hiring
• Sales execution
• Product Postioning
• Reputation building

Partner strategy

• Customer relationships
• Sales reach
• Local/Vertical knowledge - supply vertical markets
• Market validation
• Large project access - piggyback on bigger deals
• Product Integration - Will work with partner offerings
• More sales opportunities
• Better conversion rates
• Larger deal sizes

3 Tier Partner Model

• Local resellers
• Global Systems Integrators
• Complimentary software vendors - e.g. CRM, ERP

Partner Development

• No local resellers until internationalisation
• Target english speaking countries (and reseller friendly countries)
• Targetted all other countries that didn’t need localisation
• Use BearingPoint, Accenture to define requirements/find customers.
• Those relationships can be used to extend markets
• Look for global relationships
• Position against complementary vendor

Sean Melly - CEO of ETEL

Building an International Business

ETEL

• leading alternative telco in Europe
• 60000 corporate customers in EU
• 140m revenue, 10m profits.
• 2000km network
• MAN networks
• Unbundled local loop in Vienna

Capital Markets

• Raised 70m EU
• Principal Share holders: DKW, Argus, Intel, Greenhill
• Eleven successful acquisitions
• Acquired EUnet ofr 20m in Apr 2006.

Financial Performance

• Hard to read slide
• Gross Margin 40m
• 5m loss first year
• 16m peak loss
• 10m profits this year

How got here

• Experience in TCL business
• Applied that to larger market in Eastern Europe - EU membership, Telco deregulation
• Day 1 focus on international business
• 550 people in region, 4 in Dublin
• Experienced nuclear winter in 2001 - Had to change strategy from building business on our own to acquisition
• Acqusition - simplest way to build scale
• 11 Acqusitions (bought one very good business for 1 euro).

Comments: What you need

• Easier to do the more you do it
• Opportunity to scale
• Does it have a annuity stream of revenue
• Can you avoid having to educate the market
• Can you make what people are doing today better, faster, cheaper

Pat Brazel: Eontec.

Eontec - Recipes for successful acquisitions

• Don’t do IPOs
• Started a new Enterprise Software company (won’t get funded, won’t sell)
• (Two Drunks trying to get home).

When is  company ready to acquire

• What is the motivation of management? Ego, grass in always greener. Rarely share benefits with company.
• What is the organisational model? Can’t really maintain independent divisions. Forcing teams together can be difficult.
• What is your core competence? How will the new company perform. Acquisitions cause confusion.

Ready to be acquired

• The buyers vision…
• Skeletons in the cupboard - surviving due diligence, trade buyers know more about your industry than VCs.
• Earn outs and independence - How you survive post buyout.
• Impact on shareholders, Employees, Management
• …and clients
• Be ready to be surprised - Once you were a frog, you suddenly become a prince.

Peter Conlon - XSIL

XSIL

• Sell tools to Semiconductor companies
• price tag 1- 1.5m price tag
• Started May 2000
• Build people, technology.
• No background in high precision engineering.
• Garage operation
• 12 Irish Engineers, no experience in industry
• Experience a crash
• Offices all over the world
• 150 employees
• Profitable
• Operations in all three continents
• Target customers - The usual suspects
• 10 companies control 60% of annual purchases
• 10 out of 10 are in technical evaluation
• 60m in revenues (~16m in profit)
• 100 people based in R&D
• Global workforce
• From the outset targetted IPO
• Always taken in top tier external advisors

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