DAY 2 WASHINGTON, D.C. WEDNESDAY, MAY 15 FRIDAY, MAY 17, 2019 - - PowerPoint PPT Presentation

DAY 2

WASHINGTON, D.C. WEDNESDAY, MAY 15 – FRIDAY, MAY 17, 2019

CEO SUMMIT 2O19

RECAP FROM DAY 1

Daniel Herscovici | Partner David Nevas | Partner

CEO SUMMIT 2O19

NEGOTIATION

Professor Robert Bontempo Columbia University Graduate School of Business

BREAK

CEO SUMMIT 2O19

PSYCHOLOGY OF PERSUASION

Professor Robert Bontempo Columbia University Graduate School of Business

CEO SUMMIT 2O19

SOCIAL STYLES

A FRAMEWORK FOR SELF UNDERSTANDING AND INTERPERSONAL INFLUENCE

Professor Robert Bontempo Columbia University Graduate School of Business

CEO SUMMIT 2O19

SUCCESSFUL TRANSACTION PLANNING

Andrew P. Gilbert | DLA Piper

• Maintain the Following Day-to-Day Practices:
• Keep Good Records: Companies should make sure their records are organized and complete. Buyers will consider it a “red flag” (and

the sale process will undoubtedly be slowed) if a company does not properly maintain its cap table, documentation of granted equity awards, records of board and stockholder actions and copies of executed employment and commercial agreements.

• Track Proprietary Information and Inventions Assignment Agreements: Companies should ensure that every employee signs a PIIA

and every non-employee consultant, contractor and developer signs an agreement containing provisions regarding confidentiality and assignment of IP rights. The most valuable asset of many companies is their IP; it is crucial to be able to demonstrate clear ownership of such IP.

• Resist Contractual Restraints on Business: Companies should try to avoid agreeing to contractual clauses that would impose

limitations on their ability to do business. Contractual restraints like non-competes and most favored nation clauses can chill a prospective buyer’s interest in a company. Contractual provisions triggering termination upon a change of control or limitations on contractual assignment will be problematic.

• Establish Correct Employee Classifications: Properly classifying and paying employees can save companies transaction costs and

reduce indemnity obligations on a sale.

• Review pending and future tax liability: Monitor state sales tax compliance and support for the company’s position.

In an effort to ensure a smooth and successful transaction process, consider the following:

Ordinary Course Best Practice

• Estate planning: Founders/large individual stockholders should consider estate planning in advance of transaction.
• Have the core team (management, Board, major stockholders, lawyer, banker) ready and aligned on goals
• Attention to Term Sheet/Letter of Intent: Companies should assume that provisions agreed to in a term sheet will not be revisited.

Thus, it is important to review any term sheet carefully with counsel before execution. Major economic matters and risk allocation should be agreed on in advance.

• Set a Timetable: Companies should set a realistic timetable upfront to guide the prospective buyer and each side’s respective advisers.
• Ensure Sufficient Funding: Companies should ensure they are sufficiently funded to ensure the company can get to a sale transaction.

Companies should resist assuming a potential transaction is a “done deal.”

• Control of Due Diligence Process: Carrying out the due diligence process in a thoughtful and organized manner can help companies

mitigate disruption to their operations and keep the sale process moving forward quickly and efficiently.

• Run the Waterfall and have model prepared: Know who gets what at various exit prices.

Transactional Preparation

• 1. Preliminary discussions

A transaction usually begins with informal, preliminary and high-level discussions with one or more potential buyers. Many companies may also engage a banker to provide introductions to potentially interested buyers who may be interested and to guide you in these

• discussions. Deal structures are usually not been decided at this stage, which are more focused on value exploration, fit and feasibility.
• 2. Executing non-disclosure agreements

Before engaging in any serious discussions with potential buyers, you will need to provide sensitive confidential information, and it is a best practice to require buyers to execute a non-disclosure agreement before providing. What you want to avoid is disclosing your sensitive information to prospective buyers, who suddenly walk away from the deal and then use your sensitive information for their own

• benefit. You should also consider requesting a non-solicit agreement, so that a prospective buyer does not seek and recruit any of your

team.

• 3. Letter of intent / term sheet

Once prospective buyers determine that they wants to move forward with a transaction, they will typically propose the terms of the acquisition in a term sheet or letter of intent. The letter of intent is a non-binding outline of the significant terms of the transaction, including transaction structure (impact on taxes now and in the future), purchase price (and its adjustments), earn-out structure, indemnification and escrow (rep and warranty insurance), special closing conditions and treatment of employees after closing. Often, the letter of intent may also contain an exclusivity or "no-shop" provision, meaning that the target may not engage in discussions with

• ther potential buyers for a certain period of time. Legal review is crucial at this stage, because it may be difficult to reopen agreed deal

points once the letter of intent has been signed. Upon signature of an LOI with exclusivity, a significant amount of leverage moves to the prospective buyer.

What are the stages of a typical transaction?

• 4. Pre-signing period

(a) Negotiation of definitive documents – Buyer, target and their respective legal counsel negotiate the terms of the definitive

• document. Sometimes, deal structures and terms agreed to in the letter of intent may be renegotiated. This process typically takes a few

weeks, sometimes longer. (b) Completion of diligence – During this period, the potential buyer circulates a diligence list requesting certain documents from the target, including, among other matters, corporate formation documents, financing documents, key commercial contracts and a description

• f the intellectual property portfolio. The target typically provides this information in a virtual data room organized in folders that correspond to

the requests in the buyer's list. This is the stage when the potential buyer is looking for skeletons in the closet that may impact the purchase price, result in closing conditions being added and special indemnities negotiated. (c) Population of disclosure schedules – The definitive document will contain pages of representations and warranties about the

• peration of the company (such as that it has no ongoing lawsuits or that it is not in breach of any of its material contracts), and if these

representations are found to be untrue after closing, the potential buyer of a private company may have an indemnification claim. The disclosure schedules are designed to qualify these representations and warranties.

What are the stages of a typical transaction?

5. Signing After the definitive agreement and the forms of certain important ancillary agreements are agreed upon, the documents are signed. Closing may occur simultaneously or, if certain actions must be taken prior to closing (such as obtaining government approvals or

• btaining consents to assignments of key agreements), on a later date.
• 6. Pre-closing period

If there is a period between signing and closing, the target and the buyer will prepare all closing deliverables and satisfy all closing conditions (e.g., obtaining government approvals and third-party consents, getting key employees to sign employment agreements with the buyer, buyer financing). The length of the pre-closing period can vary, depending on the closing conditions that need to be satisfied. 7. Closing When all the closing conditions are satisfied, the deal is ready to close and funds are exchanged. This is the moment when the transaction actually occurs. 8. Post-closing After a deal closes, the buyer goes into full-scale integration of your business and all this entails. Working capital adjustments, earn-outs and indemnification claims will need to be monitored and perhaps negotiated/resolved.

What are the stages of a typical transaction?

LUNCH

CEO SUMMIT 2O19

NEGOTIATION

Professor Robert Bontempo Columbia University Graduate School of Business

CEO SUMMIT 2O19

SOCIAL STYLES

A FRAMEWORK FOR SELF UNDERSTANDING AND INTERPERSONAL INFLUENCE Professor Robert Bontempo Columbia University Graduate School of Business

CEO SUMMIT 2O19

MOLLY FLETCHER

KEYNOTE SPEAKER

The Molly Fletcher Company

THE MOLLY FLETCHER COMPANY

MOLLY FLETCHER

@mollyfletcher | www.mollyfletcher.com

CEO SUMMIT 2O19

Q&A

Molly Fletcher

BREAK

CEO SUMMIT 2O19

PRICING FOR GROWTH

• Z. John Zang |The Wharton School

• Prof. Z. John Zhang

Pricing for Growth

• Prof. Z. John Zhang

Professor of Marketing Tsai-Wan Tsai Professor Director of Penn Wharton China Center

zjzhang@Wharton.upenn.edu

29

• Prof. Z. John Zhang

F

• ur Pro fit Drive rs

30

• Prof. Z. John Zhang

Va lue Cre a tio n vs. Va lue Ca pturing

31

• Prof. Z. John Zhang

4

• Prof. Z. John Zhang

Pricing in action: your call?

10

Suppose a chemical plant uses O-rings to seal the valves on pipes that carry corrosive materials. The plant pays $5 for each O-ring. You develop a new O-ring that has twice the corrosive resisting power at a cost of $1 each. How much should you price it for?

• Prof. Z. John Zhang

Common Pricing Approaches

 Cost plus pricing  Competition based pricing  Consumer based pricing

34

• Prof. Z. John Zhang

Smart Value Pricing?

35

Determine what drives value for your customers, how much value they place on your product, how you could enhance them how best you could communicate value to your customers, and then design pricing policies and metrics to capture a fair share of that value

• 1. Measure value
• 2. Enhance value
• 3. Communicate value
• 4. Capture value

• Prof. Z. John Zhang

SVP 3.0

36

Margin

Brand image

Brand image

• Prof. Z. John Zhang

SVP 3.0

 force your customers to admit the value of your product  avoid unnecessary price competition  avoid commoditizing your product  focus on product and service innovation and differentiation that matter the most to your customers  establish long-term mutually beneficial relationships with your customers  achieve a higher price or/and higher volume

37

By doing so, you would

• Prof. Z. John Zhang

Value pricing: measure and enhance value

38

Identify value drivers and quantify product value

• Prof. Z. John Zhang

Pricing in action

10

Suppose a chemical plant uses O-rings to seal the valves on pipes that carry corrosive materials. The plant pays $5 for each O-ring. You develop a new O-ring that has twice the corrosive resisting power at a cost of $1 each. How much should you price it for?

• Prof. Z. John Zhang

Value Pricing

 A rational consumer forms his or her willingness to pay for a product on the basis of the following three components:

» reference value » positive differentiation value » negative differentiation value

40

What is economic value analysis?

• Prof. Z. John Zhang

Value Pricing

41

Re fe re nc e Va lue Po sitive diffe re ntia tio n va lue Ne g a tive diffe re ntia tio n va lue Total Economic Value

• Prof. Z. John Zhang

Value Pricing

42

Suppose a chemical plant uses 200 O-rings to seal the valves on pipes that carry corrosive materials. The plant pays $5 for each O-ring and must change them every two months. The cost of shutdown is $5,000. A new O-ring has twice the corrosive resisting power at a cost of $1 each. However, to install the new O-rings properly, an adhesive must be applied to each O-ring, which costs about $1,000 per change. What is the economic value of this new O-ring?

• Prof. Z. John Zhang

In What Ways Is EVA Valuable? What price to charge? Whom to sell first? How to communicate and sell value? How to enhance value? How to capture value (pricing structure)?

43

• Prof. Z. John Zhang

Pharmacoeconomics

44 Before discounts, Gilead’s hepatitis medicine Sovaldi costs $84,000 for a 12-week course of treatment, and Harvoni, which combines Sovaldi with another medication, taken as a single pill, costs $94,500 for 12 weeks. Viekira Pak’s listed 12-week price is $83,319.

• Prof. Z. John Zhang

Pricing to Grow for Pharma

45

• Prof. Z. John Zhang

SVP 3.0: communicate and also enhance value

46

Value is in the eye of the beholder

Benj amin Franklin, in Poor Richard's Almanack, 1741, wrot e:

“ Beauty, like supreme dominion Is but supported by opinion”

• Prof. Z. John Zhang

Value communication—Birkin bag

47

• Prof. Z. John Zhang

48

Exclusivity is about scarcity

French high-skill, high-cost labor means that the Birkin can’t be mass-produced… ...resulting in a 2-6 year wait for customers and cost upwards of $17,000 Production facts

• Requires over 2,600 stitches
• Requires over 18 hours to

assemble, the same time needed to manufacture a BMW

• Specific craftsmen can

be requested by customers

• Prof. Z. John Zhang

Value communication—Birkin bag

The rare Himalayan crocodile Birkin with white gold detailing and 245 diamonds was bought for $300,168 (£208,175) by an anonymous buyer at a Christie's auction in Hong Kong.” (June 3, 2015, The Telegraph)

$114k

• Prof. Z. John Zhang

Value communication—Michelin Tires

50

• Prof. Z. John Zhang

51

• Prof. Z. John Zhang

SVP 3.0: capture value

money left on the table vs. foregone profit MC

$10 $8 $6 $4 $2

• Prof. Z. John Zhang

SVP 3.0: capture value

• Prof. Z. John Zhang

Variable margins?

C p 1

*

− = ε ε

1 1 − = ε MU AC MU p ) 1 ( + =

• Prof. Z. John Zhang

SVP: capture value

• Prof. Z. John Zhang

Implementation: Versioning

56

Business Class Economy

• Prof. Z. John Zhang

Versioning

57

Consumer Self-Selection: Design your product in such a way that would induce, with proper incentives, consumers to choose what you desire them to choose.

• Prof. Z. John Zhang

Versioning

58

Consumer Self-Selection or firm incentivization?

• Prof. Z. John Zhang

Implementing Price Customization

 Cargo Class?

59

• Prof. Z. John Zhang

Implementing Price Customization

 Cattle Class?

• Prof. Z. John Zhang

Versioning in Practice

61

10 pages 5 pages Priority Overnight Standard Overnight

• Prof. Z. John Zhang

Ho t pric ing mo de ls fo r va lue c a pturing

 Dyna mic pric ing  T

a rg e te d pric ing

 Big da ta , AI

…

MC

$10 $8 $6 $4 $2

• Prof. Z. John Zhang

4

• Prof. Z. John Zhang

An E xa mple

Movie s Watc he d WT P pe r Movie Se gme nt Size

He a vy Use rs 12 $2 20 L ig ht Use rs 5 $3 80

• Prof. Z. John Zhang

Adva nta g e s

Movie s Watc he d WT P pe r Movie Se gme nt Size

He a vy Use rs 12 $2 20 L ig ht Use rs 5 $3 80 $3 $2 $1 400 640 Pro fit Po te ntia l = $1,040 Optima l L ine a r Pric e = $3 Pro fit Ca pture d = $800 Ca pture ra te = 76.9%

Flat Fee Pricing

Units T

• ta l Pa yme nt

• Prof. Z. John Zhang

Wha t F la t Ra te ?

Movie s Watc he d WT P pe r Movie Se gme nt Size

He a vy Use rs 12 $2 20 L ig ht Use rs 5 $3 80 $3 $2 $1 400 640 Pro fit = $860 Ca pture ra te 82.7% Optima l ra te = $15

• Prof. Z. John Zhang
• Prof. Z. John

68

Buffet pricing at AA

For a one-time fee of $250k ($560k in 2018 dollars), this pass gave a buyer unlimited first-class travel for life. A companion pass could be purchased for an additional $150k, allowing the pass holder to bring along anyone for the ride.

• Prof. Z. John Zhang
• Prof. Z. John

69

F la t F e e a t

69

“Last August it lowered the price of its

unlimited plan to $9.95 per month. For less than the price of a single movie ticket in New York City, subscribers could see up to thirty movies a month in theaters. ”

• Prof. Z. John Zhang

T wo Pa rt T a riff

Units T

• ta l Pa yme nt

• Prof. Z. John Zhang

Wha t two pa rt ta riff?

Movie s Watc he d WT P pe r Movie Se gme nt Size

He a vy Use rs 12 $2 20 L ig ht Use rs 5 $3 80 $3 $2 $1 400 640 Pro fit = $1,000 Ca pture Ra te = 96% Me mb e rship = $10 Co st Pe r Mo vie = $1 = MC

• Prof. Z. John Zhang

T wo T ie r Pric ing ?

Movie s Watc he d WT P pe r Movie Se gme nt Size

He a vy Use rs 12 $2 20 L ig ht Use rs 5 $3 80 $3 $2 $1 400 600 Pro fit = $1,040 Ca pture ra te = 100% T ie r 1 = $15, up to 5 mo vie s T ie r 2 = $24, up to 12 mo vie s

• Prof. Z. John Zhang

SVP 3.0 in Summary

73

• 1. Measure value
• 2. Enhance value
• 3. Communicate value
• 4. Capture value

• Prof. Z. John Zhang

74

CEO SUMMIT 2O19

LEVERAGING YOUR VENDORS: BEST PRACTICES

Brad Ellis | Stifel Bank

LEVERAGING YOUR VENDORS: BEST PRACTICES

The start-up ecosystem is live with resources that CEOs can leverage as part

• f broader service based relationships. Our advice – utilize early and often!
• Investors (Existing and New)
• Audit Firms / Outsourced CFOs
• Law Firms / Attorneys
• Financial Advisors
• Recruiters
• Real Estate Brokers
• Investment Banks (M&A and Capital Raising)
• Commercial Banks

HOW TO LEVERAGE YOUR VENTURING BANKING RELATIONSHIP

Beyond providing non-dilutive and flexible growth capital, venture banks can drive significant value in support of a broader partnership. VENTURE BANK INVESTMENT BANK RESEARCH PRIVATE BANK FUNDRAISING NETWORK

• Source of non-dilutive capital to support

growth, working capital, or acquisitions.

• A partner that is incented to grow with

the business.

• Commercial banking options that are

tailored for growing businesses – advice

• n best practices for payables and

receivables management, asset allocation and yield driving products, and other products.

• Through leveraging your venture

banking relationship, executives and employees can gain access to a multitude of commercial banking products outside of the business environment

• Examples include: asset management,

financial planning, mortgages, securities based lending, real estate finance, etc.

• Strategic discussions (both M&A and

partnership based) start early in a Company’s path. At growth stage – getting to know advisors is beneficial to understanding your competitive environment

• Advisors have a strong pulse on the

market and know both sponsors and strategic investors / buyers that can be beneficial to the business.

• Equity research can be leveraged in a

number of ways, from simply having a better sense for macroeconomic trends, to understanding how competitive businesses are valued, evaluated and discussed on a public basis

• Investment Banks make their research

available to the ecosystem and help to make more informed leadership team

• Venture Banks are constantly talking to

equity and debt sources throughout the industry including follow-on and secondary sources of equity, growth / buyout investors, and subordinated debt

• Your Venture Bank knows your business

and can be helpful in thinking through alternative sources of capital as needed

• Venture Banks cultivate active networks
• utside of financing sources
• Utilize your venture banking relationship

for recruiting, real-estate advisory, accountants, law firms, outsourced accounting and CFO support, etc.

STIFEL OVERVIEW

Premier Growth Focused Investment Bank

Domain Leadership

• Middle market

• Deep strategic

• Leading ECM platform

• Product expertise

• fferings
• Unmatched middle

• Expertise in structuring

• Recognized for advisory

• Extensive experience

• Strong understanding of

• Long-term direct

• Market leader following

• ver the past 12 years
• Distribution capabilities

STIFEL VENTURE BANK

YOUR DEDICATED STIFEL VENTURE BANKING TEAM: Brad Ellis, Head of Venture Banking Managing Director, Founder belllis@stifelbank.com 212-271-3444 Nat Stone National Venture Banking Director, Founder nstone@stifelbank.com 212-271-3445 Alan Faulkner Southeast Coverage Director afaulkner@stifelbank.com 919-645-5904

WRAP-UP

BREAK

Shuttle service provided in lobby at 6:15 PM