1Bruce Lichorowic

WWHITEHITE && L LEEEE LLPLLP

Soup to Nuts 2001 Soup to Nuts 2001

A Brave New World A Brave New World

January 20, 2001January 20, 2001

Bruce W. LichorowicBruce W. Lichorowic

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Soup to Nuts 2001 Soup to Nuts 2001

PACKAGING THE COMPANY AND PACKAGING THE COMPANY AND

PREPARING FOR FUNDING PREPARING FOR FUNDING

What can you expect?What can you expect?

Bruce W. LichorowicBruce W. Lichorowic

Background…BWLBackground…BWL Focus Focus

Solutions for troubled companiesSolutions for troubled companies IssuesIssues

Funding, operational, marketingFunding, operational, marketing PartnersPartners

VC’s, Angels, Board, EntrepreneurVC’s, Angels, Board, Entrepreneur 20+ years 20+ years

TurnaroundsTurnarounds

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Funding EnvironmentFunding Environment ““So what’s going on?”So what’s going on?”

210 Start-Ups…shut down210 Start-Ups…shut down** $1.5B in venture capital$1.5B in venture capital 60% in Q4, ’0160% in Q4, ’01

Dot com lay-offs…~15,000Dot com lay-offs…~15,000 Investors are Investors are nervousnervous

* Reuters, 1/17/01* Reuters, 1/17/01

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Smart $ Became Dumb $…Smart $ Became Dumb $… Before Mega-fundsBefore Mega-funds

VC’s had time to work with their VC’s had time to work with their companiescompanies

Be active board membersBe active board members Make strategic introductionsMake strategic introductions Contribute to the successContribute to the success

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Smart $ Became Dumb $…Smart $ Became Dumb $… After Mega-FundsAfter Mega-Funds

VC Partner must invest more $VC Partner must invest more $ Carry more DealsCarry more Deals Sit on more BoardsSit on more Boards Spend less time with their CompaniesSpend less time with their Companies

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We Live in Interesting TimesWe Live in Interesting Times““If your looking for $”If your looking for $”

VC’s ActivityVC’s Activity 1 year ago…. 4-5 financings a week1 year ago…. 4-5 financings a week Today… ~4-5 financings a monthToday… ~4-5 financings a month Taking Care…Current PortfolioTaking Care…Current Portfolio

Funds being returned…LLP’s Funds being returned…LLP’s Institutional Investors…On HoldInstitutional Investors…On Hold Possibility of economic recession Possibility of economic recession Reminders of early 80’sReminders of early 80’s

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What does this all mean?What does this all mean? “ “B2B”B2B”

Back 2 BasicsBack 2 Basics Strong…“addressable” marketStrong…“addressable” market Strong Technology…”secret sauce” Strong Technology…”secret sauce” Strong Team…no OJT Strong Team…no OJT Business model…that makes senseBusiness model…that makes sense

Strong business propositon!Strong business propositon! Rethink QuicklyRethink Quickly

Don’t throw everything out!Don’t throw everything out!

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Preparing for Funding…TodayPreparing for Funding…Today1.1. Market…Market…

1.1. Identified the Problem your Fixing IDIdentified the Problem your Fixing ID2.2. TechnologyTechnology

Does it work?Does it work?3.3. TeamTeam

Right PeopleRight People4.4. Business ModelBusiness Model

Holds Water…Holds Water…

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Early StagesEarly Stages FinancingFinancing Need to Identify your StageNeed to Identify your Stage

1.1. Seed Seed 2.2. Series ASeries A3.3. Series BSeries B4.4. Series CSeries C

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Seed RoundSeed Round0-6 months0-6 months

Market/MarketingMarket/Marketing Markets Identified, Web SiteMarkets Identified, Web Site

TechnologyTechnology WhitepaperWhitepaper

Team Team FoundersFounders

Business Model/PlanBusiness Model/Plan One pager Executive SummaryOne pager Executive Summary

FundraisingFundraising Founder/AngelsFounder/Angels

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Rethink… TechnologyRethink… Technology

““Secret Sauce”… Core TechnologySecret Sauce”… Core Technology Underlying technology behind the productsUnderlying technology behind the products Meet customers needs and applicationsMeet customers needs and applications

00 1100 1100 1100 1100

11

00 1100 111111

11Internet

Personalization Technique

Dynamic segmentation

of on-line users

Adaptive response to on-line users

Cooperative Multi-Agent

Search

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Series ASeries A6-18 months6-18 months

Market/MarketingMarket/Marketing Analyst ApprovalAnalyst Approval

VP Marketing, Core Message, PR LaunchVP Marketing, Core Message, PR Launch TechnologyTechnology

VP Engineering, Proof of Concept, AlphaVP Engineering, Proof of Concept, Alpha Team Team

Development, MarketingDevelopment, Marketing Business Model/PlanBusiness Model/Plan

Basic Executive Plan Basic Executive Plan VP Business Development VP Business Development

FundraisingFundraising Lead VC with Existing AngelsLead VC with Existing Angels

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$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY

Rethink… Rethink… Cash Required BreakevenCash Required Breakeven

TOTAL TOTAL CASH CASH

REQUIREDREQUIRED

BREAKEVENBREAKEVEN

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Series BSeries B12-24 months12-24 months

Market/MarketingMarket/Marketing Customer Approval Customer Approval

TechnologyTechnology Beta or FCSBeta or FCS

Team Team CEO, VP Sales, Marketing ProfessionalsCEO, VP Sales, Marketing Professionals

Business Model/PlanBusiness Model/Plan Detail Plan Detail Plan

Strategic Partnerships Strategic Partnerships FundraisingFundraising

Syndicate of Investors, Lead VCSyndicate of Investors, Lead VC

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Rethink… Product RoadmapRethink… Product Roadmap

PRO

1.0

Product #1Product #1

Product #2Product #2

Product #3Product #3

Q2 2001Q2 2001 Q3 2001 Q4 2001Q3 2001 Q4 2001 1H2002 1H2002 2H 2002 2H 2002

1.0 2.0

1.0

1.0 2.0

PRO

2.0

PRO

1.0

PRO

2.0

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Series CSeries C18-24 months18-24 months

Market/MarketingMarket/Marketing Key Message…”why are customers buying?”Key Message…”why are customers buying?”

TechnologyTechnology FCS with milestone releasesFCS with milestone releases

Team Team CFO, Audit FirmCFO, Audit Firm

Business Model/PlanBusiness Model/Plan Polished Presentation, Focus Plan, Reference Sites Polished Presentation, Focus Plan, Reference Sites

FundraisingFundraising Syndicate Investors with VC Lead or Syndicate Investors with VC Lead or Mezzanine if IPO is imminentMezzanine if IPO is imminent

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Rethink… Revenue SourcesRethink… Revenue Sources LicensesLicenses HostingHosting Professional Professional

ServicesServices

93%

7%

Licenses & Hosting Professional Services

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19%

41%5%

19%

16%

Contractors & Professional Services Employees & Employee BenefitsRecruiting Fees All other expensesCapital Equipment

Rethink… Annual Cash RequiredRethink… Annual Cash Required

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DESCRIPTION JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV

BEGINNING CASH BALANCE: * $468.6 $520.1 270.8$ 545.9$ $111.9 $932.6 $4,932.8 $7,260.5 $6,118.4 $4,970.7 $3,767.3

CASH FROM INVESTMENTS OR LOANS:• Series B Preferred Financing $250.0 — $503.9 — — — — — — — —• Series B2 Preferred Financing — — — — 1,500.0 5,000.0 3,500.0 — — — —• Credit and/or Lease Line for Capital — — — — — — — 130.0 125.0 112.5 101.5 • Interest Income & Other 1.1 0.8 8.6 3.6 0.7 0.1 1.2 6.2 9.1 7.6 6.2

CASH FROM INVESTMENTS OR LOANS: $251.1 $0.8 $512.5 $3.6 $1,500.7 $5,000.1 $3,501.2 $136.2 $134.1 $120.1 $107.7

CASH FROM REVENUE: 30 days from date of shipment — — — — — — $14.2 $1.6 $15.7 $1.7 $60.2 60 days from date of shipment — — — — — — 32.4 4.0 0.4 4.5 0.5 90 days from date of shipment — — — — — — — 16.2 2.0 0.2 2.2

CASH FROM REVENUE: — — — — — — $46.6 $21.8 $18.2 $6.5 $63.0

TOTAL CASH GENERATED: $251.1 $0.8 $512.5 $3.6 $1,500.7 $5,000.1 $3,547.7 $158.0 $152.3 $126.6 $170.7

CASH REQUIRED FOR OPERATIONS:• Salaries for Employees $54.8 $52.5 $82.4 $185.5 $158.3 $220.0 $371.3 $427.5 $452.5 $495.8 $495.8 • Insurance, Payroll Taxes, Employee Benefits 10.0 6.2 7.3 20.2 15.5 41.6 70.2 80.8 85.5 93.7 93.7 • Commissions 4.2 2.5 2.5 3.7 5.5 5.1 0.6 5.6 0.6 21.5 24.9 • Recruiting & Other Personnel Expenses 7.2 5.9 — 30.0 65.0 55.0 60.0 60.0 52.5 52.5 52.5 • Contractors/Temporary Personnel/Legal/Audit 80.4 119.7 50.8 93.1 260.0 214.1 185.0 190.0 190.0 205.0 205.0 • Cost of Sales/Other Materials/Office Supplies 10.3 1.1 — 0.3 2.0 29.3 31.5 31.5 31.5 29.3 31.5 • Computer Hardware/Software Expenses — — 1.2 — 10.0 38.0 42.8 42.8 52.3 42.8 42.8 • Air Travel/Automobile/Entertainment/Hotel 14.9 5.8 7.8 2.1 25.0 34.0 29.8 34.0 34.0 39.1 39.1 • Advertising/Promotions 12.2 30.6 13.1 28.0 34.0 61.0 86.0 96.0 71.0 36.0 36.0 • Equipment Rental & Maintenance Agreements 2.5 — — — — 23.0 21.0 21.0 24.0 22.0 22.0 • Facilities/Utilities/Communications Costs 0.8 22.4 0.7 6.6 12.5 12.5 26.5 26.5 26.5 26.5 26.5 • Other Expenses — 1.5 0.8 5.9 17.2 16.5 20.5 18.8 18.7 25.2 37.2

CASH REQUIRED FOR OPERATIONS: $197.3 $248.2 $166.6 $375.4 $605.0 $750.0 $945.0 $1,034.5 $1,039.1 $1,089.4 $1,107.0

CASH REQUIRED FOR CAPITAL AND OTHER• Prepayment required for lease of a facility — — — — — — — — — — —• Capital Purchases $2.3 $1.9 $70.8 $62.2 $75.0 $250.0 $275.0 $260.0 $250.0 $225.0 $203.0 • Credit and/or Lease Line for Capital Payment — — — — — — — $3.6 $7.1 $10.2 $13.0 • Interest Expense — — — — — — — $2.0 $3.8 $5.5 $7.0 • Taxes payable — — — — — — — — — — —

CASH REQUIRED FOR CAPITAL AND OTHER $2.3 $1.9 $70.8 $62.2 $75.0 $250.0 $275.0 $265.6 $260.9 $240.7 $223.0 TOTAL CASH REQUIRED: $199.6 $250.1 $237.4 $437.6 $680.0 $1,000.0 $1,220.0 $1,300.0 $1,300.0 $1,330.0 $1,330.0 NET CASH FLOW: Positive / (Negative) $51.5 ($249.3) $275.1 ($434.0) $820.7 $4,000.2 $2,327.8 ($1,142.1) ($1,147.7) ($1,203.4) ($1,159.4)

ACTUAL

Rethink… Cash DetailRethink… Cash Detail

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Rethink… Marketing StrategyRethink… Marketing Strategy No Hat-TricksNo Hat-Tricks True sustainable pipelineTrue sustainable pipeline No big splashNo big splash Don’t announce before the Don’t announce before the

product is readyproduct is ready Build on yourself Build on yourself Marketing should grow with the Marketing should grow with the

companycompany Keep in BalanceKeep in Balance

Marketing vs EngineeringMarketing vs Engineering

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Rethink…Channel StrategyRethink…Channel Strategy

• Seed AccountsSeed Accounts• Early AdoptersEarly Adopters• Major AccountsMajor Accounts

Channels Market Segments

Technology Technology IntegratorsIntegrators

Marketing PartnersMarketing Partners

Direct Sales

Indirect Sales IntegratorsIntegrators

Business Development

• Mid-MarketMid-Market• Vertical MarketsVertical Markets

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President

Rethink…TeamRethink…Team Clear roles and responsibilitiesClear roles and responsibilities General management experienceGeneral management experience Morph… functional skillsMorph… functional skills

OperationsOperations Finance & Finance & AdministrationAdministrationSalesSales MarketingMarketing

PresidentPresident

Product/ServiceProduct/ServiceDevelopmentDevelopment

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Top 10…Must HavesTop 10…Must Haves1.1.One Page Business BriefOne Page Business Brief2.2.Value Proposition…10 wordsValue Proposition…10 words3.3.Stay 6-9 months ahead…burn rateStay 6-9 months ahead…burn rate4.4.Hit your established milestonesHit your established milestones5.5.Get a reference customer site…ASAPGet a reference customer site…ASAP6.6.Calculate to the month…breakevenCalculate to the month…breakeven7.7.Accurately describe…use of fundsAccurately describe…use of funds8.8.Hire a respectable management teamHire a respectable management team9.9.Business Integrity*Business Integrity*10.10.Strategic Partnerships*Strategic Partnerships*

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Top 10…Personal ChecklistTop 10…Personal Checklist1.1.Don’t fall in love with the product or Don’t fall in love with the product or the companythe company2.2.Funding is a full-time jobFunding is a full-time job3.3.Don’t assume VC’s are going to HelpDon’t assume VC’s are going to Help4.4.Constantly rethink your PlanConstantly rethink your Plan5.5.Watch out…quick fix consultantsWatch out…quick fix consultants6.6.Check your ego at the door Check your ego at the door 7.7.Plan on 3 near-death experiences Plan on 3 near-death experiences 8.8.Always tell yourself the truthAlways tell yourself the truth9.9.Know where the “Exits” are Know where the “Exits” are 10.10.Trust your instinctsTrust your instincts

26Bruce Lichorowic

Bruce W. LichorowicBruce W. LichorowicSpecialist for Distressed CompaniesSpecialist for Distressed Companies