23 Sep 2009
“There is more to life than increasing its speed.”
Recently I received a cheque as part of the Maplesoft acquisition and was led to reflect how this was definitely not “How To Get Rich Quick with a Startup“. Last night a Maplesoft co-founder reminded me that this strategic exit was “only 23 years in the making.” (See Cybernet Systems Co., Ltd to acquire Maplesoft in early September 2009)
Why did it take so long?
Way back in the early 1990’s, I had the pleasure to be Maplesoft’s first independent, outside Director. At the time, I agreed to join that Board and committed to invest my time based on the strength of the team and the great product opportunity. Their intellectual property was embodied in a breakthrough symbolic computation engine, spun out of University of Waterloo, that had the potential to revolutionize, through automation, many mathematical, scientific and engineering activities.
Sadly, I had the chance to experience first hand how one of the most promising Waterloo technology companies could become embroiled in, and ultimately paralyzed by, a bad case of founderitis. Put simply, otherwise intelligent founders who have launched a great business, sometimes allow ego and personal agenda to get in the way of the long term interests of the business (and ultimately impede value formation for its shareholders). Usually, this involves blindness to what the real needs of the company are, as well as valuing personal control over business success .
The startup world is littered with cases of founderitis, and sadly some of the worst cases involve university professors. It is ironic that the brightest people in the world can be so colour blind to issues outside their area of academic speciality. At Verdexus, many such experiences have taught us that backing the right team of founders as the most important investment criterion of all. It is interesting that the lessons learned at Maplesoft allowed Open Text Corporation, which shared the same founder, to more easily overcome the founderitis problem, and the value creation there since the 1990’s has been impressive.
While the media have minutely documented how years of stalemate and litigation (both threatened and actual) kept this business in a status quo, it is also notable that a new team of investors and management ultimately triumphed, leading to this very successful exit. They, especially Jim Cooper the current CEO and major investor, are to be commended for persevering, in spite of the founder situation, to turn that around and deliver value to all from a great Waterloo-based technology story.
Some of the key lessons are
- Founderitis (and the even more insidious variant known as Professor Founderitis) can be hard to overcome. This clearly speaks to the length of time for the great Maplesoft opportunity to reach the level today. Too many years were locked up in battles with people who, instead of focusing on building business and market value for shareholders, including themselves, would seem to rather have control even if it meant “going down with the ship.”.
- Strategic value can be achieved even in tough economic situations. Although the current investment and exit climate is probably the worst in decades, the company managed to get (assuming completion of earn-out inducements) somehwere around three times LTM revenues. That’s considered a great multiple in normal times, so for 2009 that should be cause for major celebration. In Maplesoft’s case, a long term relationship with Cybernet Systems as a business partner, made it easy for them to see the strategic value in the acquisition. Furthermore, as a distributor, the loss of Mathsoft product distribution rights heightened their awareness of the vulnerability of not owning intellectual property themselves. Hence this is really story of how a great strategic fit, and a strategic valuation, to match made sense. Such a fit is much more independent of the business cycle.
- As much as the media lauds the “quick flip” startup stories, and they do happen, the reality is that building a great business takes time. Business plans never quite work out as expected, and, yes, sometimes, interpersonal issues get in the way of great business value creation. What is remarkable here is that, while undoubtedly Maplesoft lost market share during the period of stalemate to products like Wolfram Research’s Mathematica, the company has managed to forge a strong commercial market, grow market share and ultimately prevail. Clearly this is testament to a great product and a great team of people now driving the Maplesoft opportunity.
Again, congratulations to Jim, his team and the investors who believed in this opportunity. It is rewarding to see, after all these years, this great company deliver a home run.