Strategic Partnerships

November 8, 2001
Mark Leslie
650/527-8500
Mleslie@veritas.com
A Brief History of Major Deals
we did at Veritas
1982 1989: Tolerant Systems Veritas
1990: AT&T SVR 4 UNIX Agreement
1991: Renegotiate AT&T Agreement
1991 1993: Industry Standard File and Disk Mgmt
60 companies licensed (including IBM)
1993: Sun, HP
1996: Microsoft
1997: Oracle, Sun II, HP II
1997: Veritas / OpenVision Merger
1999: Veritas / Seagate Merger
2000: IBM, VOS, Seagate II
Why do Strategic Deals?
Small number of companies determine industry
direction
Intel, Microsoft, Sun, IBM, Oracle, Cisco, HP, EMC, VERITAS,
etc
Strategic Alliances
Align you with industry
Legitimize technology
Access to Markets
Credibility with Wall St.
Increase revenue directly and indirectly
Not sure if you could build a big company without
them
Many forms of a strategic
relationship
Strategic Investor
OEM customer
Distributor / Reseller
Technology licensing
Outbound or Inbound
Merger and Acquisition
Substantive Alliances
Marketing Agreements
Combinations of the the above
Strategic Investor
Equity investor along with other relationship
Usually willing to pay higher price
May or may not want board representation
Some commercial transactions call for
warrants to strategic partner
Becomes equity investor without paying
Sometimes down-payment on future
acquisition
Acquisition right of first refusal?
Often times larger company invests $ to
cover custom development
What is wrong with this approach?
Strategic Investor
What is the rest of the relationship?
OEM
Reseller
Co-sales
What does larger company do for you besides
dollars?
Special access to future technology?
Marketing stuff?
Access to sales force?
Access to customers
Strategic Investor Issues
What parts of the market does this
relationship preclude?
What are your responsibilities when the new
money runs out?
Can you rely on the partner keeping his
commitments?
What can you do if he does not?
How do you support your customer, AND his
customer?
How do you avoid getting designed out?
Is the company still saleable?

OEM (original equipment
manufacturer) Customer
A company incorporates your technology in
the design and/or construction of a new
product
Your product may or may not exist in new
product
Your brand is invisible
May be technology buy-out
One time revenue
Avoids equity round
Not an ongoing stream
OEM Customer
Alternate structure is design-win plus per unit
or royalties
Customer perceives his per-unit cost or royalty
payment as cost of goods
Customer is price sensitive, putting pressure on
prices
Software OEM royalties may be up to 99%
discount!!
Per unit margins are minimal
Annual royalty stream is capped by internal
development alternative
May or may not get benefit of propagating
your product in the market
Invisible brand
Distributors / Resellers
What is the difference?
Distributors
Will stock your product
Do small transactions with resellers
Extend credit to less credit-worthy
List / catalogue your products
Do NOT create demand simply fulfills demand
Driven by their own margin
Reliability of product and service
But, NOTnot by best product or customer need

Distributors / Resellers
What is the difference?
Resellers
Close to customer
May stock your product
Integrate your product into end-user solutions
Extend credit to less credit-worthy
List / catalogue your products
May creat demand may simply fulfill demand
Driven by their customer solution / own margin
Reliability of product and service
But, NOTnot by best product or customer need

Multi-tier channel pricing
(software model)
End-user: 10 20%
Reseller: 25 40%
Distributor: 50 55%
Binary OEM: 60 70%
Source OEM
Unbundled: 80 85%
Bundled: 90 95%

Very large OEM: 95 99%

F1000 corporate: 40 60%
Partnership M&A
Strategic (Transformational) mergers
OpenVision
Seagate NSMG
Tactical Mergers
TidalWave (FirstWatch VCS)
ACSI (Media Manager)
Windward Technology (Predictive Fault
Technology)
OpenVision Australia (Distributor)
TeleBackup (NBU Professional)
NuView (ClusterX)

Technology licensing
Outbound
Covered under OEM discussion
Want to get as much per unit for as long as
possible
Inbound acquiring necessary technology
Faster time to market
IP ownership issues
You are the OEM
Want to pay as little as possible, both up front and
especially in per unit royalties
The shoe is on the other foot!

Partnership Alliances
Partnering Up
Larger companies
Dominant in some market
Exercises some market control
Partnering Down
There may be smaller companies, or non strategic
companies where you help them more than they
help you
Partnering Equal
Equal leverage companies
Combining to offer solution to market
Create a virtual critical mass
Organizing for Business
Development
Tactical M&A
Venture Capita
Inbound /outbound licensing
OEM
Channels operations

Whos Got the Leverage
The big guys have it
The bad news
They know it
They use it
Assuming reasonable competence of
both parties, an agreement should
accurately reflect the underlying
leverage
Whos Got the Leverage
The good news
You do have some unique IP
You can negotiate
You can hold out for critical issues
You can argue:
Fairness
win-win
The objective is not to be liked, or easy to
do business with
Doing the deal
Be focused and relentless
Dedicate the resources
Did I ever tell you how I met my wife?
NEVER, EVER, EVER take NO for an answer
Build the relationship
Be prepared to invest for a long time
Top level executive commitment
Create the need
Doing the deal
Shape the deal
Shape it early -- the earlier the better
Shape it often
The big issues are OVER long before you
sit down to negotiate the contract
Doing the deal
Negotiate the deal
NEVER, EVER, EVER negotiate yourself
Do not be afraid to ask for the moon
Dont be surprised if they do
Keep the give and take
Be creative
Use their new issues to get what is important
Always ask them why you should agree
Doing the deal
Close the deal
Have a party!
PR the deal
Execute the deal
Make sure they execute their part
Set up weekly meetings
Put one person in charge of it
Key Issues
NEVER, EVER, EVER give away your IP
Maybe there is no deal here
Any non-revenue or low revenue license
should be a socket for you to add on to
You need multiple channels to capture the value
Your leverage gets better over time
shorter agreements are better than longer ones
Business developments executives are very
rare, hard to find
Sales is tactically oriented
Business development is very strategic
More Key Issues
Note: Lawyers do not do deals business
people do deals, and lawyers memorialize
them in contracts
The deal PR is extremely valuable to you do
not trade it
Plan on your partner executing badly or not
at all on their commitments to you
You have to execute anyway who said life
is fair
Think long term (they do)
The value of your company in 5 10 years may
be based on the quality of these early deals

Guest Speaker:
Peter Levine
Ex-EVP Business Development,
VERITAS Software
Strategic Partnerships
November 8, 2001
Mark Leslie
650/527-8500
Mleslie@veritas.com