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No Sand Between Our Toes 2012

No Sand Between Our Toes (2012)

But our LPs are very happy that we don't have summer tans.

This is the fifth edition of our summer blast. OK, it should be titled "Some Sand Between Our Toes". We've actually had the fortune of enjoying both a busy period and a highly efficient back office, operations and professional mitigation staff that is running like a well-oiled and glowingly-tanned sunbather. After 11 years of taking over troubled fund assets and doing diligence on funds and deals, we have comfortably created an effective process that makes our clients more liquid and we, at Semaphore, smiling at both our good fortunes. In fact we've just spent this past month officially closing down a Venture Fund after intervening some five years ago.

It may not be a breezy beach read but here is the story. The North Shore Fund (name changed to protect the guilty) was a moderate sized venture fund with two General Partners investing from a syndicate that included many of America's most well-known banks and several larger state pension funds, each with approximately $40 million in committed capital. It was a second fund run by well-educated but under skilled managers. You'll have to wait for the movie but suffice it to say, returns were less than generous. More accurately, they were outright awful. While few get fired for poor performance alone, you will get fired for willful destruction of value, cutting governance corners along the way and playing just on the edge of fraud. The LPs had spent the better part of two years fighting with the GPs about their misbehavior while paying 2 full points in management fees. Litigation had been filed and discovery was ongoing. There was not a no-fault divorce clause in the Limited Partner Agreement and some several hundred thousand had already been spent on litigation. An LP who had previously worked with Semaphore introduced us to the syndicate. We promised three things: 1.) Get the GP out the door without litigation. 2.) Take control of the fund and let the partnership know what had gone wrong. 3.) Tell the truth about whether we could fix it.

We were not very welcome when we walked in the GPs door to introduce ourselves as the folks who were going to replace the very individuals who greeted us. Governance was a mess, portfolio companies had been wholly ignored during the protracted fight and fund values were, well, lower than the clams buried deep in the sand we hoped to be trodding this summer. In fact we ended up taking over Fund I as well, whose value had wholly eroded. We mercifully buried the fund and secured complete liability protection for the LPs.

Back to Fund II: Bottom line is, we fixed it. Semaphore walked the GPs out the door without further litigation; straightened out governance; righted portfolio businesses; sought and received third party reparation; and replaced a third of portfolio company management teams. Ultimately, Semaphore returned 3.1X of value – all without drawing down another nickel of the then available unfunded capital commitment when we intervened.

Oh yeah, we got paid a piece of the action – real carry from a fund destined to be written down to zero. This, of course, meant that our LPs received significant newly-found liquidity. For the rest of the story give us a ring. I will promise to call you back from the beach. Then again, the phone just rang and it's a client with a recalcitrant GP who is acting badly. Maybe next summer...

Hope summer is affording you some respite. If you have any fund worries keeping you from enjoying the surf, lake, forest cabin, poolside, living room or wherever it is you should be happily vacationing - then kick the problem to us.

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 six 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 inBoston with principal offices inNew York andLondon.

Topics: troubled funds, operations, Venture Capital, investment, venture funds, private equity funds, Venture Capital, general partners, limited partners

A New BOSS Comes to Town

Hello,

We have all had a new boss in our life.  This is an announcement concerning a different sort of BOSS.  We here at Semaphore are excited to let you know more about our Business Operations/Strategy Service and the addition of David Friend, M.D., MBA as part of our advisory team.  Let us know how we can help – and say “hello Friend”.

Every now and then it’s healthy to get a new boss - someone who can lead a previously moribund operation. A person not weighted down with institutional memory and tired culture.  A person who can not only articulate a vision but is not freighted with excuses as to why a goal has not and cannot be reached.  Rather a person who understands and has the skills to get you across the success line.  Such success can only be achieved with the insights of senior, knowledgeable and committed leadership.  Success is determined by process and the unique skills of the person leading the effort.

 That is why Semaphore’s Business Operation/Strategy Service (BOSS) is expanding.  “We are thrilled to announce that David Friend, MD, MBA is joining our advisory team,” announced Semaphore CEO Mark S. DiSalvo. “David brings years of sterling hands-on and real-world practitioner skills to our already robust practice assisting companies and funds in our strategic/operational business advisory practice,” he noted.

 “Joining Semaphore’s Team allows me to bring diagnostic, operational and mentoring skills earned by decades of turning around troubled entities and accelerating success in working but stagnant companies,” noted Dr. Friend.  “As a trained physician and experienced turn-around CEO I can assure, along with my Semaphore colleagues, true and real change management in tying strategic clarity to sustained operational success, “ promised the long time work-out executive.

The Semaphore BOSS practice provides senior resources to assess recommend and mentor technology companies in the “Zone of Irrelevance “(ZOI). 

Dr. Friend has most recently served as CEO of The Palladium Group providing global strategy education and consultancy to world-class entities from the Middle East, Asia, Europe and North America.  He previously worked as a turnaround executive with Alverez and Marsal as Managing Director of Healthcare Restructuring and Watson Wyatt Worldwide as Division Chief Executive where he helped guide the business through its successful IPO. He was also COO at High Voltage Engineering and serves on a variety of boards and advisory committees as a qualified Audit Committee Chair.

The BOSS program augments the well known Semaphore Technology Diligence and Market Diligence Practices that offer investors and companies independent verification and validation of products, systems and markets.  Crispin Miller, Technology and Market Practice Leader said “we are excited to have David join our advisory practice team offering vital resources to PE portfolios, owner-run companies and other private, public or non-profit institutions.”

The BOSS practice will focus on companies that have entered the “Zone of Irrelevance” (ZOI).  These are typically companies who have launched, have customers and revenue but have plateaued.  

For many companies hitting this plateau after initial revenue means death.  The ZOI is an all too frequent malady and a difficult thing to avoid.  Very few venture backed companies reach their potential when they fall into the ZOI.   These are the companies who generally have revenue of under $5 million and have not figured out how to get to $20m+ (or companies in the $10m range trying to get to $50m).  Companies challenged by ZOI may have a variety of problems that are directly addressed by a combination of strategic thinking and tactical action.  “At this point employing BOSS affords the prospect of fulfilling the founder’s dreams and an investor’s expectation,” said Dr. Friend.

The BOSS practice provides senior resources to assess, recommend, mentor and/or pitch in with hands-on expertise with companies in the ZOI.  The key points addressed are the ability to link strategy, operations, finance, people and revenue attainment.

David B. Friend, MD, MBA, Business Operations/Strategy Service Practice, can be reached at 781- 296 -6300,  Dfriendmd@sema4usa.com.

Crispin Miller is the head of the Diligence Practice (cmiller@sema4usa.com) 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.  The Semaphore Business Operations/Strategy Service (BOSS) complements both of its other advisory practices.  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: private equity funds, technology diligence, market diligence, operations, Business Operations, Strategy Services, BOSS, business advisory

Thankful to be Working in a Functional Organization

Posted by Louise Martineau on Mon, Nov 30, 2009 @ 01:15 PM

In a time when people are stressed about their jobs and doing what they have to in order to survive, it is a comfort to be working with a select group of individuals who can stay calm under pressure and work as a team to get the job done in a professional manner. My responsibility for leading our back office, operations, and contract teams demands it.

Situations arise from some of our Limited Partners where they are looking for specific information and backup on situations that have happened in the past - sometimes the very distant past.  I am confident when I rally the troops together to discuss the situation, that between all of us, we will be able to give them the answers they need.  Recently, a newer employee from one of our LPs called asking for backup on a situation from 5 years ago regarding the removal of another LP about a fund we took over from a General Partner who needed to be replaced for fraud.  Let's just say the files and records we got were not in the best of order nor were we certain anything documented was necessarily true.  Between all of us, we were able to pull the needed documentation together, verify it and answer the LPs questions with confidence.  This allowed them to close the then outstanding issue and move on to other more pressing needs.  The LP referred to this issue as "archeological" for them and was very happy to be able to tick if off their "to do" list.

When a customer is in need of assistance, a company needs to work together to make sure the necessary agreements, final documents and a commitment to "customer service" are all in place to ensure a smooth future relationship.  Follow-up and willingness to take clients through each step until they are completely satisfied are what makes a successful services company and inspires confidence in our clients to work with us again. You see- establishing good processes and good attitudes is a selfish endeavor and in the end, makes both client and colleague happy.    

I'm the youngest of six sisters and my mother taught us that if you support each other and don't point fingers, it will show in your work.   No one is perfect. You will have dysfunctional moments but working as a team is the best way to show your customers you are competent. Not a bad lesson.  Thanks Mom!  

Louise Martineau is Director of Operations of Sema4 Inc., dba Semaphore (http://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 six Private Equity and Venture Capital funds 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.   You can write to Louise on lmartineau@sema4usa.com.

Topics: general partners, limited partners, operations

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