Strategic Partnerships November 8, 2001A Brief History of Major Deals we did at VeritasWhy do Strategic Deals?Many forms of a strategic relationshipStrategic InvestorSlide 6Strategic Investor – IssuesOEM (original equipment manufacturer) CustomerOEM CustomerDistributors / ResellersSlide 11Multi-tier channel pricing (software model)Partnership – M&ATechnology licensingPartnership – AlliancesOrganizing for Business DevelopmentWho’s Got the LeverageSlide 18Doing the dealSlide 20Slide 21Slide 22Key IssuesMore Key IssuesGuest Speaker: Peter LevineSlide 26Strategic PartnershipsNovember 8, 2001Mark Leslie650/[email protected] Brief History of Major Deals we did at Veritas1982 – 1989: Tolerant Systems  Veritas1990: AT&T SVR 4 UNIX Agreement1991: Renegotiate AT&T Agreement1991 – 1993: Industry Standard File and Disk Mgmt – 60 companies licensed (including IBM)1993: Sun, HP1996: Microsoft1997: Oracle, Sun II, HP II1997: Veritas / OpenVision Merger1999: Veritas / Seagate Merger2000: IBM, VOS, Seagate IIWhy do Strategic Deals?Small number of companies determine industry directionIntel, Microsoft, Sun, IBM, Oracle, Cisco, HP, EMC, VERITAS, etcStrategic AlliancesAlign you with industryLegitimize technologyAccess to MarketsCredibility with Wall St.Increase revenue directly and indirectlyNot sure if you could build a big company without themMany forms of a strategic relationshipStrategic InvestorOEM customerDistributor / ResellerTechnology licensingOutbound or InboundMerger and AcquisitionSubstantive AlliancesMarketing AgreementsCombinations of the the aboveStrategic InvestorEquity investor along with other relationshipUsually willing to pay higher priceMay or may not want board representationSome commercial transactions call for warrants to strategic partnerBecomes equity investor without payingSometimes 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?Strategic InvestorWhat is the rest of the relationship?OEMResellerCo-salesWhat does larger company do for you besides dollars?“Special” access to future technology?Marketing stuff?Access to sales force?Access to customersStrategic 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”?OEM (original equipment manufacturer) CustomerA 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 invisibleMay be technology buy-outOne time revenueAvoids equity roundNot an ongoing streamOEM CustomerAlternate 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 alternativeMay or may not get benefit of propagating your product in the marketInvisible brandDistributors / ResellersWhat 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 needDistributors / ResellersWhat 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 needMulti-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%Partnership – M&AStrategic (Transformational) mergersOpenVisionSeagate NSMGTactical MergersTidalWave (FirstWatch  VCS)ACSI (Media Manager)Windward Technology (Predictive Fault Technology)OpenVision Australia (Distributor)TeleBackup (NBU Professional)NuView (ClusterX)Technology licensingOutboundCovered under OEM discussionWant to get as much per unit for as long as possibleInbound – 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!”Partnership – AlliancesPartnering UpLarger companiesDominant in some marketExercises some market controlPartnering DownThere may be smaller companies, or non strategic companies where you help them more than they help youPartnering EqualEqual leverage companiesCombining to offer solution to marketCreate a “virtual critical mass”Organizing for Business DevelopmentTactical M&AVenture CapitaInbound /outbound licensingOEMChannels operationsWho’s Got the LeverageThe big guys have itThe bad news…They know itThey use itAssuming reasonable competence of both parties, an agreement should accurately reflect the underlying leverage…Who’s Got the LeverageThe good news…You do have some unique IPYou can negotiateYou can hold out for “critical” issuesYou can argue:Fairnesswin-winThe objective is not to be liked, or “easy to do business with…”Doing the dealBe focused and relentlessDedicate the resourcesDid I ever tell you how I met my wife?NEVER, EVER, EVER take NO for an answerBuild the relationshipBe prepared to invest for a long timeTop level executive commitmentCreate the needDoing the dealShape 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 contractDoing the dealNegotiate the dealNEVER, EVER, EVER negotiate yourselfDo not be afraid to