Smartix Evaluation Essay Example

to his questions.” Surprisingly, the conversation did not prompt Vivek to test out his concept at an actual sporting event/arena before seeking funding and strategic partnerships. This would prove a stumbling block later in conversations with Melrose, and more importantly, negotiations with MSG and Accel.

3. Did Vivek continue to incrementally develop and prove out the system or was he looking to jump several steps ahead with a strategic investor? Explain what happened.

Essentially, Vivek chose to surge ahead with his project and obtain a strategic partner and funding, instead of refining and further developing his system. I think from his perspective, Vivek believed that by first testing out his pitch on second tier firms, and only using his most strategic contacts (i.e. Sahlman) when he believed he had perfected his presentation, he was doing the necessary “development work.” He focused the majority of his energies on speaking to VCs and strategic partners, believing he had done sufficient development and had enough data to interest a partner and/or investor. He said of Melrose’s advice to test out the system in a smaller venue first, then to come back to the firm, “Let’s not do it incrementally...If we got Madison Square Garden Onboard, we could basically go to Kleiner Perkins and get this company funded.” His decision to forge ahead with his conversations with MSG before proving out his product 100% would ultimately prove fatal in his ability to negotiate with Accel and MSG.

4. What approach was taken with Krezwick at the Fleetcenter, Keebler at the stadium and with Checketts at MSG? Was it effective in your opinion? Why? or Why not?

Vivek approached the FleetCenter as an early strategic partner and potential investor. He appealed to Krezwick’s operational genius and he proved incredibly supportive. He helped them think through their revenue model and signed a letter of intent before the company had secured any funding. Krezwick was willing to give the team a small sample of their season tickets to test the waters and then, move on from there.

This negotiation would have likely provided enough credibility for the team to approach the VCs for funding. After securing the Letter of Intent from the FleetCenter, Vivek knew that he had what he needed to go to the investors for money, but wanted to first try to secure a partnership with the Madison Square Garden. Based on a talk Checketts had given on campus, Vivek knew he was very interested in beginning to pursue online and ticketing initiatives. He used this knowledge and the relationship one of his professor’s had with Checketts to secure a meeting with the MSG CEO. After his initial meeting with Checketts, Vivek realized that having the FleetCenter on board was an effective bargaining tool—New York did not want Boston to pull ahead of them in terms of new technology.

At one point early in the negotiations, the Garden proposed that Smartix trial the system at a smaller venue in CT, but the Smartix team was not willing to settle for anything smaller than the Garden itself. Discussions continued and the Garden exerted a lot of pressure for the team to yield to their terms. Throughout this process, Vivek relied on an associate from Bear Sterns, Andrew Lundsgarten, for “the inside

scoop.” Vivek trusted Lundsgarten and believed he was getting the necessary inside information to successfully come to an agreement with MSG.

5. Could Vivek have further developed the concept with the Fleetcenter and others before going for a deal with MSG and venture capitalists? How so? Yes, Vivek should have leveraged the FleetCenter’s early interest to test out the product in a setting that would truly prove its effectiveness and provide him with real data. Krezwick was willing to accept the risk in trialing the operation with no strings attached. I think Vivek got a little greedy in aiming to secure MSG and the VCs, and as a result, ended up in over his head.

He thought he was playing it smart by using the FleetCenter as leverage with MSG, but he should have used their facility as leverage--as a testing ground--instead of using it to pressure MSG to agree to a partnership. Vivek had a staunch ally in Krezwick, he had become the CEO of the Worcester Centrum at age 27 and had continued to move up within the industry. He was looking for his next big “win” operationally, making him a perfect partner for the Smartix team. He proposed reasonable terms that would have proved a win-win for everyone involved. While the FleetCenter could not promise Smartix any funding, their early partnership would have likely been enough to convince VCs to invest in their venture.

6. What happened at the end with MSG and Accell as the stakes were very high? (i.e. all or nothing) What would you have suggested he do differently to develop the company and obtain financing?

Smartix used the letter of intent from the MSG as leverage in negotiations with Benchmark and Accel, however, they had not yet reached any kind of an agreement with the venue as to how their partnership would function. This uncertainty would prove disastrous for the team.

Accel came through with a term sheet stating they would provide $6 of the $8 million the team needed to launch their venture, however, they first wanted to speak to Smartix’s potential partners, including the MSG. When the team spoke to Checketts and his team about the deal from Accel, they rejected the proposal. Instead, they suggested that Vivek and his team would become MSG employees and, assuming things went smoothly, would ultimately be spun off as an independent company with an 80/20 split between Smartix and the MSG respectively. This left the Smartix team in a very precarious situation.

Their deal with Accel was contingent upon a relationship with MSG and MSG wanted nothing to do with the Accel funding. MSG continued to push the team and began putting up more and more barriers to the negotiations for the Smartix team. According to Vivek, “As these little things were coming up, they were making these into big issues as negotiating points…We had dug ourselves a hole that was getting way too complicated.” The Smartix team made a few fatal mistakes in their negotiations.

First, I think they should have recruited someone from the leadership team who had more experience negotiating, particularly in the sports industry. I think Vivek thought that Keebler was providing this resource to him, but Keebler himself didn’t appear to bring any

real value to the table, other than his name. He didn’t even think to prepare the team for the logistical questions posed by the operations manager at the Keebler stadium. As Sahlman points out in his article, How to Write a Great Business Plan, “What and whom they know are matters of insight and experience. How familiar are the team members with industry players and dynamics?” He also points out that investors prefer to work with seasoned employees who have experience with suppliers, customers and employees—even if their product is new, the team leading the venture isn’t. Second, they should have used the letter of intent from the FleetCenter and Krezwick’s early support to prepare a 3-D negotiation with the FleetCenter, investors and eventually the MSG. By putting the offer from the FleetCenter on the back burner and focusing on MSG, they exposed themselves to too much risk. MSG knew that the offer from Accel was contingent upon their support and used that to corner the team and fight for the most favorable terms for them. They could have used the FleetCenter as a “guinea pig” in the sports arena world, then approached the MSG for opportunities for expansion.

Instead, they put all their eggs in one basket and sacrificed their ability to negotiate. Finally, as pointed out earlier, the team should have spent more time developing the product and testing it out in the forum for which it was designed. This would have eliminated the MSG argument that they didn’t know if the product would really work in their setting and/or what kind of value it could provide. As a result of these

mistakes, Smartix found itself in a very difficult situation with seemingly very few options to move their venture forward.