Mar 9, 2021
Tech Biz from New Tech of AI Sensors to How to Value a Tech Co
- BRT S02 EP10 (57) 03-07-2021
What We Learned This Week:
- Artificial Intelligence (AI) is a regular part of everyday life w/ phones, search, tech equip & cars
- New Cars use AI + Sensors w/ cameras all over the car to enhance driver safety & experience
- Smart Home – sensors on temp, security equipment, pool, A/C, appliances & more
- Valuation Multiples - software co with recurring revenues & IP get higher price
- Strategic Value – how to integrate new company acquired into the buyer company
Guests: David Schie, Founder / CEO of AI Storm
aistorm.ai / www.lineardimensions.com
https://www.linkedin.com/in/david-schie-9b02784
AI Storm is a AI company that makes the sensor tech used in common products for security cameras, traffic devices, and vehicles (cars).
AIStorm is the pioneer and leader in AI-in-Sensor processing, which eliminates the latency, power and cost associated with digital GPU-based implementations at the edge. AIStorm is headquartered in Silicon Valley, with offices in Phoenix & Graz, Austria. The team includes industry veterans responsible for development of thousands of products, as well as for P&L and significant revenue growth at leading semiconductor companies.
David Schie is a tech industry veteran who runs two companies – AI Strom (started 2018), and Linear Dimensions (c 2011) with their HQ in Texas. Prior to staring Linear he worked as a VP at Semtech, and Micrel Semiconductor before that, and worked at Maxim Integrated Products.
Linear Dimensions develops machine learning systems for the fast growing consumer wearables market. Linear is focused on powering and interfacing sensors and microelectromechanical systems (MEMs) for use in industrial, communications, and biotechnology devices. Linear's innovations include flexible analog front ends (AFEs), mixed-signal integrated circuits including ARM based SoCs, and extraction and security algorithms & software.
Linear continues to define the future of the wearables industry, as presented by Linear CEO, David Schie in his keynote speech at CES 2014 - collaborative industry partners such as BodyMedia/Jawbone, Orbital Research, Freescale Semiconductor, and others, bring next generation solutions to market. Product examples include physiological and heart rate monitors, head worn wearable devices, ECG and EEG harnesses and bands, and other sensor based products. In addition to customers in consumer fitness tech and digital health, they support developments for governmental agencies such as NASA, DMEA, Navy, AFRL, and the Air Force.
AI (Artificial Intelligence) common uses in everyday services that people are unaware of, and how the technology works. We also ponder the future uses of AI technology and how many industries it will be a part of in the next decade. AIS Technology is analog and mixed signal tech, and more. The Sensor itself is smart enough to deal with events, make decisions and perform complex analysis.
Notes:
E beam sensor – for garage door, has no intelligence
Marketing/Advertising with AI – Algorithm or voice recognition – ie: auto turn on faucet, or air dryer.
How the tech is being used in security, traffic and vehicles: alerts in traffic, monitor car for dog/baby in car.
Concerns over future use of AI – especially with facial recognition: cell phone companies to open phones. Subway security – watch people.
Niche – Edge, sensors that are low cost. Analog solutions. Camera chip, smart alerts, smart lights. Intelligent camera turns light for people, not animals.
Smart Home – sensors on temp, security equipment, pool, A/C. i.e – oil companies & gas stations – security camera to detect smoking or vandalizing equipment.
IOT – connecting sensors, analytics
Mantis Chip – camera with 10K pixels.
Regulations / Concerns – privacy and laws. Camera in TV – tech is watching you
AR – eyeball tracking, analytics – Wearables - Data and power limits to glasses
HRV Health – ramifications and help – camera and future glasses – fix prescription – liquid crystal looks at the eye.
Foundry Model – make chips millimeters in size
Tower Semiconductor - high value analog semiconductor solutions, specializes in manufacturing analog integrated circuits
Fables – silicon labs connects sensors, wireless IOT
Dave Kauppi , President of MidMarket Capital, a Technology Focused Investment Banking
https://www.linkedin.com/in/kauppi1midmarket1capital
The M&A business of selling software and IT business'. Analyzing the biggest differences of selling a traditional "Bricks and Mortar" business vs selling a technology based business. Why recurring revenue is so important for tech companies, driving up the valuation. This conflicts with business characteristics that drive down the selling price. What mistakes do business owners make when selling their business, and why the owner may not be as vital as believed.
Dave Kauppi, Managing Partner, Business Sales and Acquisitions - Dave began his Mergers & Acquisitions practice after a twenty-five year career with a Multi-Industry background that included banking, high tech, and services. While in the leasing industry he gained a reputation for “finding a better way” through creative deal structure. During one fiscal year, Dave’s region successfully negotiated over $200 million in financing transactions. He was instrumental in negotiating three multi-million dollar strategic partnerships in the service industry and launched and managed a very successfsul division.
In his M&A practice, Dave has completed transactions that range from succession planning exits, to finding strategic buyers for healthy, rapidly growing companies seeking a partner to provide scale, to division divestitures, to troubled companies.
Mr. Kauppi also wrote a book available on Amazon - 'Selling Your Software Company'
Notes:
Multiples & Valuations - No rule of thumb, Tech Unicorns ($1 Bil+) increase price
Strategic Value – how integrate company acquired into buyer company
M&A software – experience $12.1 million to $120 million
Sellers need to create auction marketplace - Need 4-5 buyers – create company with FAQ then CA – Confidentiality Agreement for potential Buyers to sign
Estimates on Values - Software – $1 to 8 mil, IT – $5 to 15 mil, SAAS – could be more
Software companies acquire customer = $0, raises values as ops costs lower
Valuation multiples – recurring revenue is huge in a valuation, not owner dependent
Private Equity tactics, get your Co off market with dual sign NDA / LOI
Quality of Earnings – sustainability of earnings, can new buyer keep sales going $
Due Diligence – Buyers offer low ball price, decrease 30% because off market
Risk in Business Sale – if Selling Co has too few customers, so is dependent on just a few customers
Leverage so important – avoid Earnouts & seller notes and networking cap. – holdover $, want the Buyer to pay the cash at the sale
Unsolicited Offers – auction of 1, low ball offers, then lower price thru due diligence
Compare Business Markets, should not be compared like operating states
Replacement of the Owner or CEO with 2 Executives – may affect costs post sale
3.5x EBITDA – for a Business Valuation
CAC - Cost of client acquisition, limits to net margin.
Costs of traditional business to get product to market.
Pockets of – Strategic Value – where can value be increased post sale
Reasons to Buy a Business -
Strategic Value – how to determine to create valuation multiple
IP – Intellectual Property – R&D or Tech behind the products
R&D – cutting edge technology or adds values to current product.
Cash Flow – profit, Want CF & buy it to keep going
Have government contracts and buy business to get contracts
Buy companies for good sales process of current services / products
Growth by Acquisition – buy another competitor business to increase 1st business
Software companies need $50 million in sales to push meter for Big Tech like Microsoft
Private Equity PE – giving generous multiples because growth EBITDA 8.5 x with $15 million revenue.
Potential leakage in sale of business as you go thru the due diligence & closing steps
Car Dealer example. – no one pays sticker price
FAQ Doc. – MidMarket Capital creates this as part of sale process
Relationships – critical to get meeting with big company
Contractually Recurring Revenue – establish minimum sell price for business – pushes 4-5x revenue
Networking Capital (NWC) – CF averages 2 months worth of fixed expenses (working capital)
Tech Topic: https://brt-show.libsyn.com/category/Tech-Startup-VC-Cybersecurity-Energy-Science
M&A Topic:
https://brt-show.libsyn.com/category/Private+Equity-Valuation-MandA-Franchise-Business+Broker
‘Best Of’ Topic: https://brt-show.libsyn.com/category/Best+of+BRT
Thanks for Listening.
Please Subscribe to the BRT Podcast.
Business Roundtable with Matt Battaglia
The show where Entrepreneurs, High Level Executives, Business Owners, and Investors come to share insight and ideas about the future of business. BRT 2.0 looks at the new trends in business, and how classic industries are evolving.
Common Topics Discussed: Business, Entrepreneurship, Investing, Stocks, Cannabis, Tech, Blockchain / Crypto, Real Estate, Legal, Sales, Charity, and more…
BRT Podcast Home Page: https://brt-show.libsyn.com/
‘Best Of’ BRT Podcast: Click Here
BRT Podcast on Google: Click Here
BRT Podcast on Spotify: Click Here
More Info: https://www.economicknight.com/podcast-brt-home/
KFNX Info: https://1100kfnx.com/weekend-featured-shows/
Disclaimer: The views and opinions expressed in this program are those of the Hosts, Guests and Speakers, and do not necessarily reflect the views or positions of any entities they represent (or affiliates, members, managers, employees or partners), or any Station, Podcast Platform, Website or Social Media that this show may air on. All information provided is for educational and entertainment purposes. Nothing said on this program should be considered advice or recommendations in: business, legal, real estate, crypto, tax accounting, investment, etc. Always seek the advice of a professional in all business ventures, including but not limited to: investments, tax, loans, legal, accounting, real estate, crypto, contracts, sales, marketing, other business arrangements, etc.