Interview with Chuck Gershman, Founder and Former CEO, Bay Microsystems
Situation: Following a consolidation of equipment suppliers, the broadband network market has matured with a few large players. This potentially reduces diversity and creativity because barriers to entry are now enormous. How do you fund a new venture in a mature market?
Chuck Gershman’s Advice:
- If you can get the venture off the ground, the opportunity is tremendous because competition for new approaches in a mature market is limited. Large players don’t move quickly. Their incentive is to change slowly to lengthen product life cycles.
- The downside is fewer financiers interested in the space because of the barriers to entry, and because the likely exit is an M&A play at low multiples.
- Given this, how do you attract investors?
- In the hardware space, you must demonstrate a convincing go-to-market strategy with modest investment and a moderate cost of market penetration. If the cost of success is high, it requires too much investment and risk before you can accurately assess the possibility of success.
- You must be able to show a substantial total available market.
- You must be able to show that your capability meets the needs of the market.
- You must be able to show that the customer base will respond en masse. This is critical!
- With fewer investors willing to look at your product and technology, it takes more time and work to find interested investors.
- Investors invest on perceived risk, so the task is to show that the risk is manageable.
- In the past, investors were convinced by a committed strategic customer that would finance bringing the product to market.
- In the current market, an effective strategy is to develop an early customer who is a strategic investor in your company from Day 1. This raises the likelihood of an exit, and appeal to investors, but reduces downstream options and ROI.
- Another strategy is to pursue a creative IPO exit. For example, launching the IPO on a smaller foreign exchange. This reduces the long-term payout to founders, but may increase appeal to investors who prefer an IPO to an M&A exit.
You can contact Chuck Gershman at firstname.lastname@example.org
Key Words: Mature Market, Diversity, Opportunity, Investor, Go-To-Market, Risk Assessment, Strategic Partner, Strategic Investor, Exit, M&A, IPOTweet