Session 16: February 26, 2009

Liquidity Events

 

Guest: Connie Chan (Elevation Partners)

& Sachin Kansal (Palm Inc.)

Quote of the Day

"You gotta know when to hold them, know when to fold them..."   ~ Kenny Rogers

Summary

Jeff Hawkins and Donna Dubinsky, co-founders of Palm Computing, founded a startup in 1993 that was a new entrant in a product category called the Personal Digital Assistant, or PDA. The category was in trouble in 1995, after a disastrous launch of a product by Apple Computer called the Newton, and customers had decided not to buy PDAs by many leading computer companies.  Palm Computing had first developed an operating system for hand held pen based computers, and then decided to build both hardware and software after their hardware partners had failed to develop compelling first generation products. 

In 1995, Palm was struggling to stay alive long enough to ship its first product, the Palm Pilot. Up against the wall and almost out of money, Donna and Jeff have to consider various ways to raise enough capital to take their new product to market. They have entered discussions with venture capitalists and corporate strategic partners.  Then, out of the blue, they receive an offer from the CEO of U.S. Robotics to acquire their company. Jeff and Donna are convinced that their product will be successful, and want to remain in control no matter whose money they take so that they can reinvent the PDA category with the Palm Pilot. In this case we will examine how mergers and acquisitions can be viable paths for entrepreneurs to achieve their mission - not simply a graceful exit.

Note: In class we will walk you through what happened to Palm since 1995. There have been multiple liquidity events in Palm’s history, and our guests will help us think about how and why such events occur.  Tom Kosnik has also coauthored a series of cases on Palm from 1997 to the present (one still in progress), and will share information from those cases as well.  But focus your attention in the case preparation on the decision in the case facing Jeff and Donna “back in the day” in 1995.  Resist the temptation to go to the web to find out “what happened.”  You will definitely find out in class.

Required Readings (Policy on Required Readings.)

• Readings from the Textbooks:
• Technology Ventures (Dorf and Byers): Ch 15 Acquisitions, Mergers and Global Business (Highlights: 15.1-15.2)
• Case:
• Palm Computing, Inc. 1995: Financing Challenges (in course reader)
• Watch the following short video clips:
• Heidi Roizen (Mobius) - The M&A Market
• Judy Estrin (PacketDesign) - Exit Strategies Now and Then
• Elon Musk (SpaceX) - What is the Right Time to Sell?
• Stephanie Tilenius (PayPal) - Acquisition: eBay and Auctionco

Study Questions (Policy on Study Questions.)

• What was Jeffs' mission in starting Palm? Has he achieved it at the time of this case? What stands in his way?
• What experiences have Jeff and Donna had with partners and venture capitalists that might color their receptivity to Zakin's offer? What impressions do they have of US Robotics and why?
• What are the top three reasons Donna and Jeff should reject US Robotic's offer and go it alone?
• Imagine you are an entrepreneur with a relatively successful technology start-up. Several companies are interested in acquiring your company. How would you decide whether to be acquired or not? How would you decide which one to sell to?

Team Online Assignment (Policy on Online Assignments.)

• Put yourself in Jeff Hawkins and Donna Dubinsky's shoes. What are the principle one or two positives and negatives of going it alone versus selling to U.S. Robotics for each of the following constituents:
• The investors
• The employees
• The customers
• You, personally

What would you do if you were Jeff and Donna: go it alone or accept U.S. Robotics offer?