The Second Annual Software Mergers & Acquisitions Forum, hosted by Fulcrum in San Francisco’s tony downtown Nikko Hotel last month (CI 3112), was full of talk of ‘accretive’ versus ‘dilutive’ stock deals, SOP 91-1, mutual risk sharing and reverse triangular mergers. But given that far more of what happens in the Information Technology industry does so because of the egos and personalities of CEOs rather than the cooler logic of their CFOs, the psychological aspects of individuals bartering their companies is just as relevant. Take the flip, but interesting, guide to the four basic entrepreneur mindsets presented by Michael Maloney, President of LA-based investors OpMan Group. These are, based on his experience as a venture capitalist and as a manager (he sold a company he’d been put in charge of, Protellicis, to acquisitive Platinum Technology last year for $15m worth of stock): The Movie Producer; The Good Time Charlie; The Tombstone Cowboy; and The IPO Dreamer. The Movie Producer is like a Hollywood agent with a pile of good scripts he wants to get made. Essentially this entity is going to be a development factory for some hot new product. Probably straight off a situation at his last company where he didn’t get the stock options or other financial rewards he felt he deserved, he has a new script that he wants to get out of the door and get paid well for, rather than build the infrastructure of a real company. These people really don’t like sales and marketing at all – they are wholly technology focused. Platinum Technology has bought an awful lot of Movie Producer type companies, says Maloney. The Good Time Charlie really likes being a CEO – at a trade show mixer party he’s the first one to come and shake your hand and tell you he is one. But of what? The way you know is that in 1984 his company had revenues of $1.2m, and in 1997 it still has revenues of $1.2m, drawls Maloney. We’re talking about niche here – the company that owns Tandem peripheral maintenance, say, or is the king of accounting packages for the chiropody market. The CEO runs it in an extremely risk-averse way, with a very limited company infrastructure, as a lifestyle business, happily cashing his dividend cheques and not moving a muscle otherwise, Until some enormous outside pressure – a major platform move (DOS to Windows, say) he just can’t postpone any longer – forces his hand to seek outside help. They tell you they’re sincere in wanting to sell their company, but what they’re actually really interested in is better distribution arrangements, he believes. The Tombstone Cowboy, meanwhile, is working in an emerging marketplace with a cash-constrained but growing operation, almost always with a single product focus. They are extremely sensitive to having their personal investment rewarded, but hate outside control, and are typically technical but market savvy. This guy doesn’t want to be seen as having created a particular marketplace, and then not having achieved the credit or reward they feel is due, says Maloney. In other words, they want to be remembered as the guy who directed The Godfather, not the man who created a movie studio that later failed. Key word in these people’s minds is divestiture – they want their pile of cash now so they can go off and make Apocalypse Now. The IPO Dreamer, on the other hand, has a broad product vision, proactively seeks help, is more of a realist about his abilities, and is quite keen on surrendering some control to outsiders (usually in the form of venture capital) to make his company grow as big and fast as he wants it to. One gentleman I class in this fashion recently told me, ‘Mike, I look in the mirror and want to see a CEO. Instead I see a dumpy development manager. Help me out here.’ Such individuals would much rather see 20% of a very large number than 100% of a smaller one, and hence are yearning for the right strategic alliance to get them there. Now all this sounds too cute for it’s own good, but it’s strangely useful. Only a couple of days after attending the meeting, your correspondent was be
ing walked through the remaking of a company who shall remain nameless, when a lightbulb flipped on over the old noggin: The founder was a Good Time Charlie. The company had been in a niche market, did well, was failing to deal with a new challenge, and so he had been forced to relinquish control to a new team and outside investors. So which one is your boss – or even you?