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Although the Mid-Atlantic region supports exceptional investing opportunities and new business growth, it has never had a dedicated technology-focused investment bank of size. That’s why CEO Doug Schmidt and CTO Alden Hart co-founded Chessiecap: to provide the region with the highest and most comprehensive level of services to support the burgeoning technology community.
Doug’ s career as an investment banker spans nearly 20 years, working both on Wall Street and in the Mid-Atlantic region.. For the past 13 years, he has been a pioneer in establishing technology investment banking in the Mid-Atlantic region – launching and scaling the technology banking practices first at Ferris, Baker, Watts and then at Legg Mason. He is well known and highly respected throughout the region and has been active with influential organizations such as the Mid-Atlantic Venture Association (MAVA), the Greater Baltimore Technology Council, and others.
In the following “Frequently Asked Questions” piece, Doug Schmidt discusses Chessiecap , Inc. – what it is, why it’s different, and why clients gain an advantage in the market and in executing transactions by working with Chessiecap.
What is Chessiecap?
Chessiecap is an investment bank built to serve the transaction needs of technology companies in a completely new way. Rather than just doing transactions for whatever value seems possible at the time, Chessiecap works with companies to maximize the value of transactions. We do this by first analyzing a company to find the areas that will drive a high value transaction. Then Chessiecap consultants, who bring deep expertise and experience in technology, product development, strategy, and marketing, work with management to improve those areas. Finally, we employ the best bankers in the region – bankers who know technology and are very process driven – to execute transactions that realize that value. It’s a unique approach, and it’s especially attractive for companies in our target market -- growth and middle market companies, private equity backed companies, and divisions of major corporations that are candidates for a spin-out or sale.
Why did Alden and you create Chessiecap?
All of us at Chessiecap are in the prime of our professional careers and at that wonderful point in life where experience, judgment and enthusiasm intersect. The investment banking world shoots itself in the foot every ten years, almost like clockwork. We look out on this broken landscape and say that there is a better way to work with companies. There is a way to return to a client-focused investment bank and not a transaction-focused one – but you have to stand the model on its head. You have to change the incentives. Otherwise, the investment bank just pays lip-service to “client-driven” as it manically pursues transaction revenue. You have to give the client more than just transaction ideas, and we have the resources to do that. We do it not with retired executives and advice givers. We do it with experienced, process driven professionals that the client can look up to.
That’s a long-winded way of saying that, once or twice in life, you come up with a really good, new idea, because you see things clearly. We see how the right team with the right services can add tremendous value to companies in this region. That’s the vision that all of us at Chessiecap share.
How does Chessiecap differ from traditional investment banks?
Traditional investment banks have employed a banker-analyst model. The banker executes transactions, and the analyst tracks market segments and follows companies that trade in the public markets. The banker uses the analyst to show how smart the firm is about an industry and competing companies. The problem is, most analysts know how to look at the financials of public companies, but they’ve never held an operating job. They’ve never sold software, developed a product, or run a data center. Their world is made up of trends and statistics, as it should be. As tenuous and hands-off as it was, the analyst driven model was the primary differentiator for investment bankers. However, the SEC has now weighed in pretty heavily on analyst practices and the banker-analyst relationship. That model, which was used to excess in 1990s, is now dead.
Chessiecap’s Value Generation Model is different. We replace the analyst function with real world experience and execution that can make a big, daily difference for clients and drive higher value transactions. Our CTO and Co-Founder, Alden Hart, was the Chief Architect and VP of Product Development of the Cybercash network, and he’s led efforts to build many other successful, large-scale systems. He has been a valued advisor in the region to several private equity groups as well as several nationally known service and management consulting firms. Our head of strategy, Peter Buchanan, has built business plans and strategies that have driven twenty-three successful transactions in the last five years. And our head of technology consulting, Rick Garvin, has likewise been a valued advisor to major firms in the region and has successfully scaled a profitable professional services organization to hundreds of people in a short period of time. Our skills are current, our processes are proven, and our clients want and need what we have.
Why should my company work with Chessiecap?
Traditional investment banks spend their time trolling for transactions. At Chessiecap, we spend our time looking for and working with companies that want to be great and do the right transactions at the right time. We look for strong management that wants to get better, good products that could become great, and companies that want to become market leaders. We apply our banking and consulting resources to help make these things happen. So, if a company wants personal attention, expertise and passion for its cause, we’re an excellent partner.
Are you regionally focused?
Our core market is the Mid-Atlantic region, and our aim is to become the dominant technology investment bank in the region quickly. We think that technology companies in the region are radically underserved by the financial community.
Since 1990, the Mid-Atlantic region – led by the Washington, DC, area – has outperformed every region in the US except Silicon Valley. Our venture backed technology companies rank second in IRR to VCs at 18.6 percent – far ahead of New England, New York, Austin, or Research Triangle. As a result, between 1998 and 2002, VCs invested $15 billion in Mid-Atlantic companies. On the M&A front, between 1998 and 2002, in-region middle market technology companies executed well over $7 billion worth of transactions. And we’ve been home to some of the largest and most visible transactions in high tech, such as : America Online – Time Warner, Yuri Systems – Lucent, Bell Atlantic – GTE, MCI – Worldcom, UUnet – MFS, Verisign – Network Solutions, and OTC – Legato. These big transactions changed the technology landscape, and they were driven by the value that Mid-Atlantic companies created.
Unfortunately, the region’s best companies go out of region to New York, Boston, or Silicon Valley to get their deals done. There’s no go-to technology investment bank here. Chessiecap is going to change that.
Do you have global reach in terms of partners/target acquirers?
Our bankers have done hundreds of transactions and are on great terms with investors and senior executives nationwide and across the globe. Our senior consultants have similar relationships based on years of successful execution in operating positions. We know that we can find and gain the interest of the right investors and transaction candidates.
What value do Chessiecap’s technologists and business strategists bring to companies with which they work?
Our technologists and strategists don’t sit around waiting for transactions. Unlike stock analysts, they’re billable and doing great, value-generating things on a daily basis. A few examples: A security services company that we believe has strong future transaction potential was planning a major product upgrade and needed to improve its infrastructure and product management capabilities to ensure that the upgrade was successful. We parachuted in a team with deep skills in both areas for 90 days. The company’s infrastructure is now much more scalable and reliable, and it has a product roadmap that will serve the company well through several release cycles – not just the next release. Our client has been able to realize huge increases in revenue based on the work we have done there. It is now able to meet customer business continuity requirements and respond rapidly to new requirements.
At Avatech Solutions, which resold and implemented CAD software from a single supplier, Chessiecap helped to reposition the company as a high-value provider of Product Lifecycle Management software and integration services. Based on this effort, Avatech was able to pursue a diversification strategy that resulted in a revenue-generating partnership with Dassault Systemes – the largest PLM software company in the world. Both companies are well positioned for future transactions, which will make our bankers much more effective when the time is right.
What type and size of company is a Chessiecap client?
Our client profile is a technology company or a company driven by technology with:
Does Chessiecap serve a particular industry or industries?
Traditional investment banks tend to do transactions in industries that their analysts cover. Our bankers and consultants have expertise and experience across many industries and many types of products and services. We have processes in place to transfer knowledge and bring new team members up to speed very quickly. We can work effectively in almost any high-tech market segment, but we particularly excel in industries that thrive in the Mid-Atlantic such as software, services, Internet infrastructure, and communications.
How is Chessiecap’s business and technology consulting different from other business consulting firms?
First of all, we’re not a body shop. We don’t make our living putting 20 people on a project for 18 months. In fact, we take pride in just the opposite approach. Our work is highly concentrated and designed to bring almost immediate results. We work in small teams on short engagements – usually 3 to 6 months – that generate increased value for companies. What is a Value Generation engagement? It’s a new strategy and business plan that successfully raises investment capital. It’s a product plan and subsequent release that enables a sales force to sell more. It’s a new technical architecture that reduces operations costs and makes customers more satisfied. It’s preparing a client for due diligence by working with a CTO to build a great technology presentation that will convince an investor to fund a growth strategy. All those things generate value. Our consultants are senior-level experts in their fields – efficient and committed. When a client’s underlying business is running well and showing demonstrable promise, then it will have no trouble attracting attention in the capital markets.
Why would a company want business consulting services from an investment bank?
Plain and simple, our consultants understand what it takes to generate increased value. We apply them to tasks that increase value, and we do it quickly with high quality and the highest levels of integrity. For things that really matter and need to get done rapidly, our consulting team has all the skills to do the job. I’d put them up against any consulting firm in the region for value generating engagements.
Are the same people who are doing the consulting also involved in the transactions and visa versa? Is that good?
Bankers transact and consultants consult. What they do is fundamentally different. Having said that, our consultants add tremendous value to the transaction process. For example, when it comes time to write a business plan for a company that is for sale or wants to raise money, our strategists are crucial to success. All of them have extensive operating experience in marketing and business development. They really understand the client’s markets, products, distribution strategy, competition, and financials. They do a great job of preparing and packaging the client in advance of the transaction – much better than traditional investment banks. Our technologists can advise our client on the merits of a target’s underlying technology or lead a client through technical and product due diligence. Few investment banks —boutique or large – have these capabilities in-house. These transaction support capabilities give our clients a decided advantage in the transaction process. In fact, these capabilities are core to our Value Generation Model.
Who is on the Chessiecap team?
There are four people on our management team. I am a co-founder and run investment banking. Alden Hart, our other co-founder, is our CTO and a Managing Director. He is a breakthrough thinker in technology and in bringing better products to market faster. Rick Garvin is our Managing Director, Technology Consulting. He can compete with Alden technically, and he has the rare ability to build a service delivery organization that delivers quality work with maximum efficiency. Peter Buchanan is our Managing Director, Strategy Services. His expertise is in clearly positioning companies in the market and then devising operating strategies that support the positioning. His team also builds the business documents needed to complete transactions. Recently, we added Jeff Bede, who brings private placement capabilities that have never been available in this region. We will continue to add senior and mid-level resources in the coming months to support our investment banking and consulting engagements. I don’t think there is any investment bank in the region that can match this mix of skills and capabilities.