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Board Knowledge and Perspective

Posted by Cris Miller on Thursday, September 23, 2010 @ 10:45PM 

I field calls from GPs and CEOs all the time.  Invariably they are doing a deal, whether investment or acquisition, and need either verification that the technology and/or markets targeted are real or a product exists and someone wishes to buy it in the future.  Less often we get calls from Board of Directors.  Those calls are less exact as to what the caller requires.  A lot of it is because the Board member making the call carefully ensures that they have not lost confidence in the CEO (even if that is not the case) and are fulfilling independent diligence on the company itself, the markets or an acquisition opportunity.  

A while ago we had a call for help from the Board of Directors of a growth stage technology company.   After discussion, it was evident there was agreement that the firm needed to conduct both technology and market due diligence for their company.  Initially the request was for a technology review to determine the viability of commercializing the core platform technology upon which two successful products had been built. 

The CEO was a technology wizard while the Board was comprised of non-technologists and retired business people.  After Semaphore’s chief technologist had reviewed the platform product’s architecture, patent and documentation, we had a review session with the CEO.  The discussion immediately dropped into techno-jargon only the brightest geeks could comprehend and appreciate.  The conclusion was that the product was adequate for internal use but was deficient in form and substance for outside consumption.

The CEO reviewed the findings with the Board who had market/business questions about the size of the market for such a product, the competition for such a product and the value of the product.  Our market research/strategy group took the baton and came back with some interesting results that were presented directly to the Board.  It was intuitively obvious to the casual observer that:

  1. The product in its current condition was a non-starter
  2. The market for the product if it were “cleaned up” would have 5 world class competitors and 10 mid-market competitors
  3. The product in its new state would be woefully deficient in features, so much so  that its value would be difficult to sell at any price
  4. The effort should be scuttled

The lesson learned here was in order to get the correct answers, the Board needed to be educated to the best of its understanding.  To accomplish that education, independent technical and market due diligence was necessary.  The readily available technical answer alone was not sufficient since the product could have been improved.  It took the market diligence, in concert with an agreed technology product plan, to make the business case not to proceed with the questioned direction. 

Crispin Miller is the head of the Diligence Practice at Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Technology and Marketing diligence, and Private Equity funds-under-management services.  Semaphore currently holds fiduciary obligations as General Partner for seven Private Equity and Venture Capital funds, a New Markets Tax Credit lender and advises General and Limited Partners as well as corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York and London.

Topics: Semaphore, diligence, technology, technology diligence, market diligence, Technology Assessment, due diligence, investment

Good Fortune, Dan

Posted by Mark DiSalvo on Tuesday, September 14, 2010 @ 1:45PM 

I think I was subscriber number 293 – certainly somewhere under one thousand.  That got me the privilege of sharing a Dim Sum meal in Boston’s Chinatown with the curly haired, lightening talking, quick-fire questioning editor of what was then known as PE Week Wire.  In those days Dan Primack would meet with anyone.  Witness his suffering me gnawing on Fung  Zao (chicken feet steamed in black bean sauce—don’t knock it till you try it) and learning that the young scribe was a former political activist, community newspaper reporter and editor as well as failed federal level campaign manager.  I kept thinking to myself “he’s just like me (politically) except with hair and actually is able to write – and he really does speak intelligently about the fund business”.   It was odd that we both started our careers in politics for it was abundantly clear, in my case anyway and I’ll bet Dan’s, that early in our community oriented activism that neither of us could spell PE. 

Dan has not since shared a meal with me (showing excellent judgment) but has offered countless insights on our business sector spiced with an open and undeniably irreverent style.  It seems his corporate overlords, as he respectfully touted his employer, could look past bald political opinion, an undeserved mistrust in the initial coaching abilities of Doc Rivers, a penchant to encourage nationwide betting on college basketball and a desire to increase his own subscribers’ income taxes.  He also shared, in a disarmingly intimate manner, absolute love for his wife Jen along with the tests of that affection including a grueling trek up Machu Picchu, frequent trips away from home in the “trusty” (read “death trap”) old Pontiac – and now the blessings of soon-to-be fatherhood. 

I learned to appreciate the aggregation of content, saw the business blogosphere grow up in front of me, witnessed the creation and explosion of the peHUB brand, the wisdom of contrarian thought, and most particularly appreciated the daily news that would occasionally set up an insight or future knowledge base that would occasionally get me a gig.  The day just plain required that 10am Primack fix.

Dan’s announcement begs the many questions of an ever curious investor. What prompts a founder’s departure?  Was there a fatal flaw in whatever the relationship/agreement was with Thompson Reuters?  Was he pushed because of cost cutting?  Did he jump for better security and/or more cash?  Is this next gig an entrepreneurial adventure (and did I miss the opportunity to participate!)? What can I learn from his experience to cement my own portfolio relationships?  I suspect we will yet learn the answers to those queries as Dan himself will be as revelatory as one could expect and present his own valedictory.

This fund manager and advisor will continue to be a reader of peHUB and hopes its next editor will bring the same irreverence and a unique perspective to the marketplace.  The entire Semaphore team and I wish Dan Primack all good fortune(.com). 

               

Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Private Equity funds-under-management and technology diligence services. Semaphore currently holds fiduciary obligations as General Partner for seven Private Equity and Venture Capital funds, a New Markets Tax Credit lender and advises General and Limited Partners as well as corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York and London.

Topics: VC, Venture Capital, private equity funds, Venture Capital, equity, investment

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