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Elizabeth Shea (00:43)

I'm very excited to have Jim Datovech in the office today. Hello, Jim.

Jim Datovech (00:47)

Hello, Elizabeth.

Elizabeth Shea (00:48)

Yes, Jim and I go way back. We've known each other since before I started my company. And we're very excited to hear about your journey with LKC Technologies — how you decided to exit and how you built that company. And it's great to have you here.

Jim Datovech (01:00)

It's great to be here, Elizabeth, and I want to congratulate you. You've had amazing success in the marketing and PR world since we worked together some years ago. And so I congratulate you on your success. And I think your new company and your new strategy is just something that's sorely lacking and much needed in the marketplace. I wish you every success in the future.

Elizabeth Shea (01:22)

Thank you. We're very excited to hear your story. So, let's just start from the beginning. Tell us a little about LKC. I believe you purchased it 20 years ago, something like that, with a partner.

Jim Datovech (01:32)

Right. A business partner and I purchased LKC 20+ years ago. It was a small, kind of tired medical device company in the ophthalmology world that kind of gave the eye an EKG and you could assess the function of the retina of the eye which really helped to assess various disease states.

So, we bought the company and spent the first couple of years trying to understand what we had and also where we might take it so that we could do something really groundbreaking with it. What we decided was we were going to focus on diabetes and diabetic eye disease, the leading cause of working age blindness throughout the world. There are three or four hundred million people with diabetes throughout the world which is growing. The issue with it is you can diagnose diabetic eye disease and stage it with either fundus photography or OCT, but what you can't tell is that I could have one level of disease and you could have the exact same level of disease, but I may progress in 12 to 18 months to sight threatening while you may never progress to sight threatening.

So, it's a big challenge for the medical community to know when to begin treatment because you can slow it down if it's at the right levels. We have technology that did have efficacy in doing that and being able to assess who's most likely to progress. But we had to reinvent the device totally to be handheld, easily used by anyone, anywhere, and battery powered. You know, we had to basically reinvent the whole technology.

We did that with a combination of small business innovation research grants, SBIR funding from the National Eye Institute, and also through some friends and family funding and convertible notes, and ultimately through some venture funding from the venture community to get us the device completed, get the parts, get the manufacturing process all set up, and get the regulatory approvals — both the EMARC outside the US and FDA clearance inside the US. We were ready to launch about 10 years ago, it was 2015, all that kind of came together. And then you launched the device. So, we set about building and growing the device. We had a consumable as well as the device. We were able to package both together in the razor blade kind of model. And it started to take off and get legs. So, we were pretty excited about that.

Elizabeth Shea (04:05)

Well, that sounds hard. That sounds like a lot of work and very different from the technology sector.

Jim Datovech (04:17)

It is. Medical is slow, medical is regulated everywhere, and so it really takes a methodical process to get it done.

Elizabeth Shea (04:30)

So, congratulations on the success there. You built this company and then eventually you decided to sell. So, what went into that process? How did you educate yourself? How did you go about pursuing an exit?

Jim Datovech (04:43)

Well, I think when you have a company, every couple of years you look at selling because you want to reaffirm that you're on the right path to building value. But you're never at the right spot because everybody believes they're riding the next unicorn. I got latched onto this thing. I'm going to go to the moon! I'm going to buy a yacht bigger than Bezos' yacht! Everybody's on that path, but very few people really are. And so, you have to be realistic with your assessment and when it makes sense to sell.

Once we got to COVID — we actually bounced back through COVID very well — we said, okay, it's time to run a process. So, we engaged an investment banking firm out of London to take us out. And we ran the process and actually got a term sheet from another private equity company based in London, who was looking to buy the assets of a distressed medical device company that had a product and revenue, great sales force but they ran out of money, and they couldn't get any more.

LKC by a majority interest in us combined the two into one company take it out and do great things. We went through the whole due diligence process — all the contracts, all the agreements, all the averages, multiple hundred thousand dollars of legal fees in this process. We did it all and got right to the altar, right till the time to say, “I do.” And at the final investment meeting with the investment banker, they said no. They pulled the plug. And, you know, it was an incredible shock, but it turned out to be the best thing that ever happened to us.

Elizabeth Shea (06:20)

Wow. Tell me why, tell me more about that.

Jim Datovech (06:31)

Well, they had this great sales force and the first thing the bank did was fired all the people in that company because they weren't going to fund them anymore. The whole sales team was unemployed and a great sales VP — I was on the phone with him — he felt like he could recruit some people.

So, within a week, I had offered letters to him and eight of his best salespeople. And within two weeks’ time, we had them into LKC through training, gave them all their technology they needed to get out in the field and marketing material. Within two weeks they were selling and they just killed it. I mean, and they just — boom, blew up! So, it proved the scalability of the company. And so that's why I say it's the best thing that happened.

Elizabeth Shea (07:17)

Oh, that's amazing. Well, not many people know this, but I was a runaway bride from an acquirer in my first company. At the last minute we pulled out, and it was exhausting. So, were you absolutely exhausted at that point? Because all that work had been done up to that point.

Jim Datovech (07:35)

No, not really. I was actually energized because were doing what we had set out to do. We had something that really helped the world, the diabetic world, people with diabetic eye disease. We were making a difference in their lives and people were getting to understand what we were doing, why we were doing it. The world is full of “if onlys.” “If only the customers could understand what we were doing.” “If only the investors could understand the vastness of the market, how little of that we really have to get.” “If only they can understand everything about our model.” Finally, all the if onlys were answered and it was happening. So, yeah, I think it was pretty exciting. And we really didn't intend to go up to sell when we sold. We were going to sell again, obviously.

We got a call a couple months later from an investment banking company that I had been talking with for probably three or four years. They'd call every nine months, and I talked to her. She was out of Salt Lake. The PE firm was out of Ontario, Canada. And she'd ask LKC and I'd explain what we were doing. And she'd say, “here's our target investment.” I'd say, “we're not there yet.” I'd be very straight up with her. And she called basically two months after we got the Salesforce operational and I explained to Salesforce where we were. And she said, this is very interesting. This might be something we're interested in. So, she took it to the principals.

Then three four months after that, we had a term sheet, which was 30% higher than the term sheet we agreed to a year earlier.

Elizabeth Shea (09:20)

That's excellent.

Jim Datovech (09:21)

That's why I say you just never know what's going to happen. You don't know who's going to buy you. And that's the challenge. And that's why I think what you're trying to do is so needed. I'm not trying to inflate your ego, Elizabeth,

Elizabeth Shea (09:41)

Go for it! Hahaha.

Jim Datovech (09:45)

It is because. . . I didn't know. I mean, we sold our devices to over 50 countries. So, I didn't know whether our acquirer was sitting in Beijing, in Tokyo, in Germany somewhere, in the UK, in the US. You have no idea! If executed correctly, your service melded together with the marketing of the company can really help get the visibility out there.

Because we spent so much time doing marketing and social media and shows and events and subject matter expert podcasts and everything else to reach our customer base and future customer bases trying to drive revenue margin. None of these people are going to buy our company that we were targeting.

Or you go to a show and you get a lot of press and you get some presentations there and some posters or papers and people are really excited about what you're doing. And you feel great about that, but those people aren't going to buy your company either. Maybe someone in their company five levels above them might! So, how do you get out there? How do you get exposed?

And the key is at some point where it makes sense, you need to meld and put together your customer marketing for revenue growth and generation together with your strategic marketing, if you will, where you're trying to expand your base and get your visibility to where the acquirers live. And if you can do that in harmony, you have a winning proposition because as much as you may want to believe it, there are strategic buyers and buyers and there are financial buyers. At the end of the day, they're one and the same because a strategic buyer is saying, “I want what you have because it fits something that I need to build out my model.” And but are they going to pay a premium for it? If they're the only game in town? No!

You know, the same with the financial buyer. “This looks good. I think the numbers work. I can put this together with something else that I know of. I can bring the two, we can work it for a while and we'll generate value on top of that and then exit.” At the end of the day, the value they're going to offer you is the same value that's out there that everyone else is going to get offered. But if you can get an auction, if you can get multiple people interested at the same time, then you can leverage value. And so I think that's really what I hope you're able to do for a lot of people out there, because it's sorely needed.

Elizabeth Shea (12:27)

Yeah, that's the hope. I mean, to drive a competition or a competitive process to a certain extent, working with an investment banker, broker, what have you. So, you exit and then what? Did you stay around? Did you depart? What's your take on that?

Jim Datovech (12:42)

Well, the one thing you realize in the private equity world is your chances of staying around after the acquisition for any length of time are very, very slight because when they buy a company, they always have a CEO and a CFO in mind on the bench somewhere that they want to plug into those companies. So, that's really what you have to understand that you're probably not going to be the person that's going to run the company or be the CFO of the company after the fact and you really have to wrap your head around that and realize that that's just the way they operate.

Elizabeth Shea (13:15)

And how did you know that? Did you experience that with other companies that you had been a part of or from people in your network?

Jim Datovech (13:31)

I realized that from watching some other private equity firms operate. Even if somebody acquires you that says, “I'm going to have you around for a while,” at some point, they're going to want their own people. It's just like a head coach in sports is going to want all the people around them that they know and trust and think the way they do. It's just the way it works.

Now a strategic buyer may keep you in place because they need your skill, your expertise, your ability. Or they may not either because they're going to look to cut down costs. They're not going to keep all the costs that they don't need for the strategic reasons why they want your product. So, you just have to realize that. You're not necessarily going to run the railroad after that.

Elizabeth Shea (14:24)

Right, right. That's sounded consistent of what we've been hearing on this podcast. I think as long as you go with your eyes wide open, you know that's a potential viability.

Can you tell us what you might've done differently? What advice can you give folks that are listening to this podcast?

Jim Datovech (14:41)

Well, the first thing is raising money is expensive. You know, money is expensive. Venture money is expensive. you get so many people not interested in funding you, you celebrate when you finally get that term sheet and you're able to get the money you need to take your business to the next level. But then you look at things like one-time liquidity preferences and cumulative dividends and so forth and you get people on your board, and you realize that over time that money adds up. So one is, I would make sure that I spent every dollar as though it was my last dollar.

You know, do you really need that really nice office with really nice office furniture? Do you really need class A office space for your company? At LKC, if we had one visitor every two years, that was a lot. And so, what do you really need to do?

I would say, what you really need to do is find the people you need to execute your business plan and make sure you pay those people whatever you need to recruit them and keep them, spend your money on the technology that they need to be productive. know, all the software technology, all the computing technology, everything that they need to be productive because that's what's going to generate your value. That's what's going to generate your revenue is what they're building for your business. And also, from a marketing standpoint, you can spend a lot of money and not get a return on it. There are certain shows that sound good. You go to the show and say, one really wasn't very beneficial for us.

And so, I would say, be very judicious with your spending because, you know, running out of money is never fun. And when COVID happens to hit and you don't have any cash balance there, that's not fun either. And so, you never know what's going to happen. I would say, make sure you spend judiciously, make sure you spend appropriately because money is expensive and it's hard to come by.

The other thing I think after the fact is no one cared about our accountant. We had a private accounting firm with just a couple of people. It the same one that was used by the firm you and I worked together with. Same person. No one cared. Why didn't they care?

Elizabeth Shea (17:12)

What do you mean?

Jim Datovech (17:21)

No one cared that we had audited statements or reviewed statements or any of that stuff or we had a blue-chip accounting firm.

Elizabeth Shea (17:30)

Really?

Jim Datovech (17:31)

They didn't! The first thing they asked for is remote access to our accounting system. They asked for three years of financials, three years of tax returns, and they asked for remote access to our accounting system. And they rebuilt the three-year statements themselves from the accounting system data. And then they compared the two and asked questions if there were things that were different. You know, they basically built their own statements from that. So, it really didn't matter.

But what I would say what does matter is make sure you have an excellent law firm, excellent legal. Not just an independent person who really knows deals well, but a firm with breadth and depth. Because as you get through due diligence, they have a subject matter expert for everything — for IP, for HR, for regulatory, for insurance, for everything they have. They're going to basically really, really, really shake the tree and look at your firm.

And you're going to need to have somebody that can address any issues that come up. So, it's very important that your law firm have that breadth of different things that they can help you with. If they come up with something, it's going to be part of your reps and warrants and it's going to be part of a reserve that they hold back until they resolve it. And just know that they're going to hold back 10 percent just because, and you have to get over that. And then if there are additional reserves, then that's on top of the 10 percent.

In our case, it was state income tax. We were working under the old knowledge that if you had a nexus, you had to withhold tax. If you had people there, you had to withhold tax. We didn't really know there was a wayfair case that says, no, you can have an economic nexus. If you do enough business in the state, you still have to withhold tax. And so there were states we didn't. And so they withheld a certain amount of money until they got that all resolved with all the states.

Elizabeth Shea (19:43)

Just things you don't think about sometimes.

Jim Datovech (19:45)

Things you didn't know about, didn't think about.

Elizabeth Shea (19:48)

So, you exited two years ago it’s been now?

Jim Datovech (19:52)

Two years ago in June, yes.

Elizabeth Shea (19:53)

And you had assumed that you would be leaving shortly thereafter? Was that your arrangement initially?

Jim Datovech (19:59)

I had about a 90-day tail, and then I was kind of a board observer for a year afterward. And then my engagement ended with them.

Elizabeth Shea (20:01)

Okay. That's excellent. Very cool. All right. Well, thank you so much for being on our program. Are there any last-minute pieces of advice you can give to our listeners today?

Jim Datovech (20:22)

I would just say that be realistic with your expectations. Everybody believes that their firm is worth probably more than somebody's willing to pay for it. Just try to get your expectations realistic and understand it.

And also understand that if there's further growth and further opportunity, that there could also be further competition or further things that happen that negate that. And so there comes a time when it's right for you to sell. And I wish everyone every success in doing so.

Elizabeth Shea (20:54)

That's excellent. Thank you so much, Jim. It's so great to see you again. All right. Thank you. All right. Bye-bye.

Jim (20:57)

Good to see you as Elizabeth. Take care and wish you every success. Bye now.