Angel Insights Blog
Monday, October 10, 2016
EyeVerify—Overcoming Challenges of a Foreign Company Exit
By Cheryl Isen, Media Relations for Angel Capital Association
EyeVerify is one of three companies that won the Luis Villalobos Award for innovation that also had an exit within one month in 2016. Details on each of the exits are included in three blog posts on October 10.
- Company: EyeVerify Inc., founded 2012; won Luis Villalobos Award in 2014
- Investors/ACA group members: Mid-America Angels, Nebraska Angels, and Women’s Capital Connection
- Acquirer: Ant Financial Services Group (an affiliate of China-based Alibaba) deal value of over$100 million
Eyeprint ID, created by EyeVerify, transforms an ordinary selfie into a key that protects your digital life. One look opens mobile devices, logs you into apps and secures your mobile payments. The patented, software-only biometric solution is 99.99% accurate and extremely scalable. In less than one second, with no add-on hardware, employees and customers can experience password-free mobility. Several large Android device manufacturers and a growing number of notable financial institutions have deployed “Eyeprint ID,” delivering convenient, secure, private authentication to millions of consumers today.
Rick Vaughn, Managing Director of Mid America Angels on the acquisition:
CEO Toby Rush is a serial entrepreneur and EyeVerify is the second of his startups that Mid-America Angels has invested in. The first startup was sold to a private equity group in 2009. Toby sourced the EyeVerify technology at a local university, which maintained a key role in developing the product. The investors liked the idea, but as angels we were also investing in the management team. Toby showed us his ability to execute and put a great team together with his first startup, so we had confidence he could do it again. MAA invested in all five investment rounds, and really supported growth and development of the company.
Dennis Huber of MJH Consulting was MAA’s representative on the EyeVerify board. Here’s his view of how the deal came together:
Ant was a strategic customer of EyeVerify. EyeVerify was making plans to go through another investment round, and was talking to Alibaba and others about investing. During that time inquiries started coming in about buying the company instead of investing. We were very fortunate to have more than one bid come in. Since Ant Financial was already a customer they understood the technology and this eased the discussions.
From an angel investor perspective, the timing for these discussions was also good. The investors were in a like mind that it was the right time to sell. Although a case can always be made to wait for more money, this added risk. For example, the next phase was to operationalize the company, which required adding staff and significant process maturity. This likely would have required more rounds at higher valuations, and might have pushed an exit out two years or more. In considering options, we never lost sight of our goal—to work for the shareholders. We continually asked—which is the right move for shareholders?
For us it was to move forward discussions with Ant Financial. Our first conversations took place at the end of 2015, and within six months we had a letter of intent. However, working with a China-based company brought with it some unexpected challenges.
One of the more surprising aspects as the deal unfolded, were the significant, but not insurmountable regulatory requirements. There were layers of approval we had to contend with to close with a foreign-owned company. For example, the regulatory Q and A process required filing forms and responding within a certain window of time. This led to a few constraints on the deal that we had to make sure Ant Financial agreed to. Although nothing was too onerous, it did slow down the timing to close.
In the end it was well worth the extra effort. The price and deal terms were pretty standard and the return was very positive, ranging from 9X investment in the initial seed round, to 1.77X for the final 2015 bridge note. Equally important, Ant Financial is a great strategic fit for EyeVerify and considerably expands the company’s opportunity for worldwide growth.
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