Friday, August 13, 2010
Mark Tapling On Language Weaver's Next Chapter
Story by Benjamin F. Kuo
Last month, Los Angeles-based Language Weaver (www.languageweaver.com), the developer of machine translation software, was acquired by SDL, a publicly held, UK-based firm in the language translation business. Having followed the firm since its early days as a spinout of USC, we thought we'd talk with CEO Mark Tapling to get the back story behind the acquisition, and where the firm is going form here.
Mark, thanks for the time today. What's the story behind the acquisition?
Mark Tapling: Starting in March of 2008, Language Weaver really embarked on a growth strategy. That strategy was focused on three things: one, repositioning us as a digital content company; two, further monetizing our current products, which included expanding our government business but making our entry into the commercial market with large, brand name solutions and not just raw code; and third, was to deliver a third general web portal, which we'll be shipping in the next few weeks. We quickly repositioned for digital content, which went quite well, which increased our level of attention and notoriety. Then, for the last seven quarters, we embarked on our strategy of moving into the commercial market, and were quite successful there. We managed to double the company in eight quarters, and added companies like Dell, Intel, Adobe, Expedia, TripAdvisor, Siemens, and Rockwell and lots of other great global brand names as customers. They were quite attracted to Language Weaver and started to deploy our solutions. As a result of that, in August of 2009, I gained agreement from our board to go out and consider fundraising.
We prepared a presentation to go out to the private equity community, to investigate opportunities to put money into Language Weaver. I'm happy to say, that at the turn of the year we had several offers for investment, both from local and Silicon Valley oriented funds. We were flattered, but it turned out we had to consider the dilution effect on the current investors in the firm. We had first raised money in 2002, and then raised more in 2004, but hadn't raised anything else for a long time. While the valuation from the investors was attractive, a number of our original investors and funds were moving on, and it was difficult for them to make an investment in the current timeframe. So, on a parallel track, we had continued to have conversations with SDL as a partner. They were quite attracted to Language Weaver, and ultimately, SDL made an attractive cash investment. That was a very responsible outcome for us, both for our current investors and common shareholders. We closed that $42.5M cash transaction on July 26th. In the interest of protecting our common sharesholders and early investors, we decided to finance our growth plan from the balance sheet of a public company.
It's interesting you mention fund life. How much discussion was there about that aspect of your funding?
Mark Tapling: It was heavily considered. Those funds have had to manage the expectation of their limited partners, and those LPs had been in the funds for a long time, and funds need to bring a return to their limited partners. Even though we never used much of that capital--all of that funding was on the balance sheet, and we'd been self-funded from the beginning--it was a delicate decision. Language Weaver was happy to have many alternatives, including bank financing, operating lines, and equity investors willing to make pure equity investments, and even venture debt firms, who were willing to do a combination of equity and operating line of credits. We had every flavor to consider, which is a compliment to the company. There are many companies who have not been fortunate enough to be able to raise money, or be in a growth situation--where it's a little more difficult--and they can't even get to the number four option, which is an exit from a partner willing to make a cash offer. We were fortunate to have all of those scenarios to consider. In the end, we could decide to finance the company with a venture investment, finance our plan through a bank line, finance our plan through a venture debt firm with a combo of equity and an operating line, or we could finance our plans on the balance sheet of a public company. While our investors may look at this as an exit, for the rest of us, this really is a financing strategy which allow us to pursue our growth plan on the strength of a public balance sheet.
So what is the future of the business here and operations in the area?
Mark Tapling: This really is complementary, which is one of the things we were attracted to. Every single person, starting with myself and through Daniel and Kevin, the founders, down to our engineering, field, sales, are remaining in their roles, down to the phone numbers and emails. We've built a development team in Romania, which SDL is going to continue to grow. Our headquarters remains in Los Angeles in the Howard Hughes center. I now report directly to the CEO of a global company, but we operate as an independent business, and will be paying bonuses for achievements. It's pretty much business as usual.
What did you learn from the process?
Mark Tapling: You learn something every time. This is my fifth one, and so in one regard, you know what is coming. But, every market is different. What drives me, as a CEO, is to find a way to finance your plan. You can build a great plan on paper, but if you can't finance it, you won't know if it;s good or not. You also need a plan that provides an outcome for your shareholders, and provides them with choice. If you tell your board you have only one choice, and tell that that's what we have to do, that's bad behavior for a CEO. Investors on a board will really have an allergic reaction to that kind of meeting. So, creating choice is very, very important. The third thing, is you have to manage your cash very carefully. Cash is king. We went out to raise funding when we had money, and didn't wait until we need it to start the process. We had to wait until we had compelling operating results, but we had to have cash on hand. You don't want to end up in an auction where it's a matter of seeing who is willing to wait the longest and when you're in trouble. It's simply a matter of finding the best outcome, and driving toward it.
Was selling the firm on your to-do list when you joined the firm?
Mark Tapling: Not really. I came into this with the idea that we'd be a publicly traded company. In some ways we are, although on an indirect track. I really viewed this as a five year opportunity, which is candidly why I'm staying. We're just now getting to the really fun part. We've done the heavy lifting for the last three years, repositioning and deciding which targets to expand into commercially, and executing against that plan. The fact that the company has achieved an exit for investors really is more like an interim financing, we've just moved into a public company to finance the plan. Our team is staying, and the best is yet to come. We've got a great chance to executive, and as investors might say, it's all up and to the right.