Active Involvement – When investing in smaller companies, we will seek opportunities to exercise significant influence on the company and guidance in helping the management team build the business. We will maintain a close working relationship with the company’s management by adding value when needed with product and business strategy, management team development, operations overview, and financial planning.
Attractive Valuation – We are aware that substantial new capital has been committed to the science & technology sector over the past few years, and as a result there are concerns that valuations on investments will escalate as sources of capital compete with one another for deals. The primary mechanism to prevent this from affecting Tera’s returns is to have varied and proprietary sources of investment opportunities combined with a set of objective criteria for judging investment returns.
We will consider factors such as a company’s historic and estimated future performance as it relates to revenues, profits, cash flow, future capital and stock needs, industry trends and private and public comparable equity comparisons in determining an acceptable valuation.
Screening and Due Diligence – We have developed a systematic process for screening and evaluating potential investments. This process is structured to identify the most compelling opportunities quickly, and eliminate unattractive situations as early as possible. Tera’s Investment Management Partners, Howard Sutton and Lyle Stein, typically handles initial screenings, with a focus on characteristics of management, market dynamics and opportunity, and product attributes and proposed terms of a deal.
The due diligence will draw upon all available resources, both internal and external, to evaluate the criteria which are important to the success of the investment. This will include:
- full evaluation of the management team;
- review of market factors such as size, growth opportunity, competition and development trends;
- full review of proprietary technology content;
- interviews with customers, professionals, competitors and industry experts;
- full financial evaluation including analysis of historical results and modeling of various projection scenarios;
- review and evaluation of operations including R&D, manufacturing, sales and distribution;
- preparation of a detailed return analysis using several cases of financial performance and exit timing.
Structuring and Negotiating Terms – We structure transactions as simply and straightforwardly as possible, and negotiate openly but firmly. We have considerable experience and expertise in successfully negotiating and closing transactions on favorable investor terms. Focus is maintained on obtaining those terms relevant to valuation and liquidity, and to protecting the client’s interests in the event of future difficulties, rather than relying on elaborate structures or complex financial engineering.
Leadership Role – We will, from time to time, lead the initial round of financing in which the Partnership is participating, as well subsequent financings can be made at varying points in their development.
While we will be able to influence and add value in each investment, our input may vary depending on the stage and circumstances unique to each company. Our team can draw upon a broad range of skills and experience in providing assistance to portfolio companies, including:
- helping build management teams;
- assisting in the development of business and product strategy;
- helping set and monitor priorities and operating goals;
- planning expansion into international markets;
- evaluating and securing strategic partnerships;
- assisting in planning and securing additional financing.
The Principals intend to be active members on the board of directors and key board committees of some portfolio companies. We expect that this process will result in a limit on the number of investments we make.
Investment Liquidity – Our active involvement in companies in our portfolio will be important in managing and influencing the exit strategy and timing appropriate for each investment. We will consider possible exit scenarios as part of each investment immediately from the initial screening and furthermore we will evaluate and plan for liquidity options throughout the investment period.