Slide 1 Tom Kosnik Fenwick and West Consulting Professor Stanford Technology Ventures Program Copyright © 2008 by the Board of Trustees of the Leland Stanford Junior University and Stanford Technology Ventures Program (STVP). This document may be reproduced for educational purposes only. “Most Mergers and Acquisitions Fail.” ~ Conventional Wisdom and multiple empirical studies. Mergers and Acquisitions Session 15

Slide 2 Agenda A.Announcements B.Palm Openings C.Palm 1995 Discussion D.Epilogue E.Takeaways

Slide 3 How to assess a market opportunity - before a market exists Sources: Moore (2002), Crossing the Chasm, Moore (2002), Inside the Tornado. How big is the market? Chasm Early Market Bowling Alley Tornado Total Assimilation Innovators Early Adopters Early Majority Late Majority Laggards

Slide 4 Whole Product: The 100% Solution (“Ecosystem” of Partners) Software Program Platforms Support Consulting Installation & Training Connectivity Etc. Reference: Ted Levitt, Bill Davidow Key Decisions: Which Pieces Do We Do and Which Do Our Partners Do?

Slide 5 How to evaluate your sources of funding 1.Legally Qualified: They satisfy any legal requirements. 2.Fit: Their selection criteria fit our investment opportunity. 3.No conflicts: Their other investments do not compete with us. 4.Aligned: Their objectives are aligned with our objectives. 5.Connected: They can give us access to customers, other investors, government officials, etc. 6.Well funded: They have the capacity to invest now, and in the future if needed. 7.Smart: They have expertise and experience that will help us to succeed. 8.Trustworthy: They are honest. We trust them & vice versa. 9.Autonomy/Control: They will allow us to control our business 10.Good value: Their valuation, terms & conditions are fair. Adapted from Kosnik (2000) guidelines on selecting investors for AVAcore Technologies.

Slide 6 How to evaluate your sources of funding CriteriaABC VCAlpha CPUUSROther Qualified Fit No Conflicts Aligned Connected Well Funded Smart Trustworthy Autonomy/ control Good Value Total score

Slide 7 What partners can give and get in a partnership Adapted from: Kosnik (2000), “Managing a Portfolio of Polygamous Partnerships?” Talk for Stanford Center for Professional Education, January 26, 2000

Slide 8 Just as “dating” is used across a broad range of personal relationships… Depth of Commitment & Exclusivity ShortUnknownLong Shallow/ Usually Polygamous Blind Date Playing the field Platonic Friendship Deeper/Often Polygamous Puppy Love Going Steady Living Together Deepest/Usually Monogamous Romeo & JulietEngagementMarriage Expected Length of the Relationship

Slide 9 “Partnership” is used across a broad range of institutional relationships Depth of Commitment & Exclusivity ShortUnknownLong Shallow/ Usually Polygamous Single Transaction (not a partnership) Renewable VAR Agreement 5-Year Sourcing Contract Deeper/Often Polygamous Cooperative Advertising R&D Partnership Joint Venture Deepest/Usually Monogamous 1 year exclusive license Renewable Exclusive Terms Merger/ Acquisition (not a partnership) Expected Length of the Relationship

Slide 10 The Earning-Learning Matrix is a Tool to Evaluate your Portfolio of Partnerships Revenue & Profit Potential from the Partner High Low Partner’s Potential to Help You Develop Your Core Competencies LowHigh Earning Partner Limited Partner Strategic Partner Learning Partner Source: Kosnik and Montgomery (1994), “Managing Cross Cultural Alliances: Can Trust be Achieved in a Polygamous World?”

Slide 11 How to Assess the Difference Between Ownership and Control None All 1% 100% Ownership given up by entrepreneur Control given up by entrepreneur USR buys the company and gives the founders complete autonomy Band of Dentists Passive Investors Company is bought by USR, CEO is replaced A new CEO “buys” 10% of company and takes over Angel Investor Venture Capitalist

Slide 12 Epilogue: Key events in life of Palm USR buys Palm Palm Pilot Ships Palm Pilot leads PDA Mkt. 3Com buys USR Donna, Jeff and Ed Leave 3COm to found Handspring 3com spins off Palm Inc Palm Inc. sets up Palmsource as indep. Subsidiary Palm Inc. Acquires Handspring Palm Inc. Becomes PalmOne (HW) and Palmsource (SW) Access Acquires Palmsource PalmOne buys back Palm name to become Palm Inc. Again. Elevation Partners Acquires 25% stake in Palm Inc.

Both Product families must deliver: Delightful User Experience High Value Top of Mind Awareness To very different segments Epilogue: PalmOne in 2007 had two Business Units – Each with a Portfolio of Products PDA Smartphone = Treo

Time Revenue growth Technology adoption life cycle Early Main Street Mature Main Street Declining Main Street End of life A Fault line! E D C B Dealing With Darwin © 2005, TCG Advisors LLC Epilogue: What happened to Palm’ PDA and Smartphone Categories: The Situation in 1995 The Category Maturity Life Cycle PDA Smart phone

Time Revenue growth Technology adoption life cycle Early Main Street Mature Main Street Declining Main Street End of life A Fault line! E D C B Dealing With Darwin © 2005, TCG Advisors LLC Epilogue: What happened to Palm’ PDA and Smartphone Categories: The Situation in 2000 The Category Maturity Life Cycle PDA Smart phone

Time Revenue growth Technology adoption life cycle Early Main Street Mature Main Street Declining Main Street End of life A Fault line! E D C B Dealing With Darwin © 2005, TCG Advisors LLC Epilogue: What happened to Palm’ PDA and Smartphone Categories: The situation in 2008 The Category Maturity Life Cycle PDA Smartphone

How should you pick your team mates for an entrepreneurial venture? Do I enjoy them? Do I trust them? YES! NO! Soul mates Dream team mates Team mates Play mates Devils’ Advocates Bozos Class mates

Lessons were drawn from 50+ companies Accenture AMS Ernst & Young Farm Credit System Harris Trust Information Week KTH NUS Enterprise SCPD Stanford OTL STVP Yahoo! Apple Computer Applied Materials Applied Komatsu Technologies Cummins Engine Hewlett Packard Nike Reebok Yamaha AI Associates AmiKai Chasm Group Chemdex/Ventro Epitrope Euphorion Gigabeat IPS Mobile Insights Transcape Reactivity RTG Airify AVAcore Erox Handspring Palm Computing PalmOne Palm Inc. Size and Age of Company Older, Larger Companies Younger, Smaller “Startup” Companies Primary Line of Business HardwareServices Electronic Arts Lotus Microsoft Oracle Siebel Access Danger Manac Nuance Orange Gum pcOrder Rapt Saba Trilogy Software Willow Road Software