Case Study #3

Company Profile

Company has raised $194 million from venture capitalists through four rounds of financing.
The most recent financing occurred 15 months prior to Sherwood’s involvement.
Company provides financial software solutions to the healthcare community.
Customers have great interest in the product, but are hesitant to adopt the software due to concerns about the cost and effort associated with switching from their present applications.

Sherwood Mandate

Review the entire corporate structure as well as the business plan and going forward strategy of the Company.
Negotiate a reduction in Company’s obligations to its landlords.

Financial Situation

Company has $11 million in cash.
Company has no secured debt and minimal trade payables
Company has future real estate lease obligations of $15 million. Monthly real estate lease payments equal $400,000.
Company has a negative monthly cash burn rate of $1.75 million per month
Investors informed the Company that it would need to reduce its real estate lease obligations and further reduce the “burn” rate prior to any future funding

Results

Sherwood initiated a rigorous process of market research, customer interviews and industry research to craft a revised, more focused business plan.
Sherwood initiated new financial practices designed to provide discipline within the organization; including an approval process for cash requests and a system to monitor a department’s performance versus budget.
Sherwood negotiated an amended lease with two of the Company’s landlords and terminated leases with two more landlords (locations that the Company had closed), reducing square footage from 110,000 square feet to 28,000 square feet and reducing monthly rent by 75%. Lease amendment and terminations were achieved through a combination of immediate security deposit drawdowns and termination payments. Company preferred the security deposit drawdown as it allowed them to offset the cost of the settlement through the use of “restricted” versus “free” cash.
Even though the Company had already reduced headcount significantly (from a peak of 190 employees to 80), Sherwood recommended additional reductions in non-critical departments (bringing present headcount to 55 employees).
Monthly cash “burn rate” was reduced to $200,000 a month, allowing the Company additional time to achieve key milestones while seeking funding.

Contact

Sherwood Partners, Inc.

Silicon Valley | Los Angeles | New York

3945 Freedom Circle
Suite 560
Santa Clara, CA 95054

Phone: 650-454-8001
Fax: 650-454-8040

info@shrwood.com

 

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