Okay, I have been accused by bio of being a basher of this stock. His claim is that I have only posted notes for LCRE (true), all have been negative (not true- read all of them- I was relatively supportive of LCRE through ½ of my posts) and that I am a local (true) with an axe to grind with Jim (no true- but have concerns but this is NOT personal).
A while ago, I was introduced quickly to Jim in Portland. My only interaction with Jim lasted maybe 5 minutes. He mentioned his firm and I checked it out. I have been heavily involved with a few SAAS type software firms over the past ten years (small angel investor, board member, etc.) and was intrigued by the idea. I did a little snooping around the restaurant – hospitality industry and thought there was a reasonable niche for a product. I opted out of a larger investment with LCRE due to my limited knowledge of the industry and virtually no knowledge of the management team. I instead purchased shares in the open market to put my figurative toe in the water. My initial investment was not large but enough to keep me watching the progress of LCRE. Like many of you on this board, I watched my initial investment progressively shrink to less than $1k as the share price slid over the past few months and finally pulled out of LCRE when it went below 0.0005.
I have seen many firms intentionally dilute to raise working capital. There is no doubt in my mind that LCRE is and will continue to do so. I am 100% fine with selling shares to keep the lights on. I think that people on this board that are genuinely upset with the dilution taking place are a little short sighted. Better to keep the lights on for another month than just close up shop. This is an ongoing funding campaign... live with it.
But I DO have concerns that I have raised to this board (and to others around Portland with information regarding LCRE). Bio: Please take a deep breath and relax for a second. This is not an attempt to bash. This is an attempt to ask some very real and important questions. If you (or anyone else) are legitimately LONG in LCRE, you need to know the answers to these. Jim: You appear to be reading this board… please respond through cbrinkley, bio, etc.
Here are my major questions / concerns:
1. Sales & Marketing- Current Deals
Selling SAAS is not as easy as it may sound. Although clients don’t have to spend a large amount of money up-front for software licenses, hardware, etc. there is a significant cost to the client to replace their existing infrastructure and migrate to another platform. It is an easier sale (usually) than a major non-SAAS product, but still requires a sophisticated sales mechanism.
It appears the BOD failed to bring any real deals to the table (please correct me if I am wrong on this one- I have been asking about it for a while). Just odd there are not clients lined up to install this with the connections from the group. Look at other PDX SAAS firms (corillian, sabrix, etc.) all had deals signed before they even became a company. Just surprised LCRE wasn’t able to do this.
What really has me concerned though is that it appears the only sales mechanism LCRE has at the moment is the hope of a third party distributor. Don’t get me wrong, I LOVE the idea of additional sales channels (direct or indirect) but distributor sales are not as easy as they sound. Almost all startups have to commit to assisting in sales, paying for marketing, etc. before the distributor will take it seriously. The distributor will also mandate the software provider also be financially sound enough to ensure they will be around in 3-5 years. This is especially true with SAAS firms. What distributor will want to sell a product (service) from a SAAS firm if the SAAS firm may not be around in 12 months? This leaves the distributor open to significant client management hassles for a LONG time. Seems to me that LCRE has to 1) get the distributor to actually add the LCRE product / service to their catalog (not easy) and… 2) will have to continually push the distributor to actually sell the product. Once the distributor has a few clients using the product and it proves to be a material profit tool for the distributor (and LCRE can prove it’s staying power), the distributor will open up the sales volume.
What I want to know from LCRE is the following:
a. What is being done by the LCRE management team (Jim) and BOD to beat the trees in their own back yard? What are they doing to line up the 2-3 deals out of their own rolodex necessary to take LCRE to some degree of profitability?
b. What is LCRE doing to mature the indirect sales channel and ensure the sales channel will actually sell their product? (This is not simply “sign them up”)
c. What is LCRE doing to establish their own direct sales channel? (including the full lead generation mechanism, method for walking prospects through the sales cycle, closing, etc.)
d. Related to the above- what is LCRE doing to generate leads / market interest? A single presentation at an industry show is not enough. What is the marketing plan?
All of you out there that are doing the “rah-rah” cheerleading, you need to know that if LCRE can’t clearly state their sales strategy and outline exactly what it will cost, how it will be paid for, how it will work, etc. LCRE is dead. Please do not take this as a bash. This is simple fact… and you need to know “a distributor with the ability to sell to hundreds of clients in 2010” is not enough. It sounds great but is very hollow.
2. Ongoing Capitalization of LCRE
The other major concern that I have is the ongoing capitalization of LCRE. Getting enough money together to keep the lights on until product release may be a challenge but this is nothing compared to the challenge of funding LCRE until profitable. While SAAS is really cool (great business model) it has a significant challenge; You don’t get a large cash infusion with each sale. You earn your money one dollar at a time on a month to month basis. Let’s assume the product is done and is well received by the market at the upcoming trade show. Let’s further assume LCRE is able to sign up 50 clients right out of the gate. All great news… but LCRE will need funding for at least the entire calendar year 2010 to cover launch costs, integration costs, etc. How is LCRE going to cover this?
The often stated answer to this question for most companies is “well, if we have a lot of client contracts, investors are easy to find!” That used to be true. Capital markets are still funky and investors are much more finicky now days. This is not an easy proposition. What is LCRE’s plan here? Go back to the 504s and ask for a significant cash infusion? Go to the traditional VCs?
Trust me, if LCRE has the product production ready for the trade show… there is still a relatively long and challenging road ahead. Not to say that it can’t be done but I just have not heard the solution yet.
Jim publicly stated that he was in process of winning a large lawsuit and would invest $$ into LCRE upon receiving his cash. I have still not heard if he won- and don’t know how much he won. Any updates here? If he puts in 1 mil to cover sales & marketing- and puts in money to bridge LCRE until it can stand on it’s own at some point in the future, LCRE has a real chance of making it.
Once again, some of you cheerleaders out there are accusing me of being a basher. That is certainly not my intent. I have a legitimate series of questions that I feel everyone on this board should be asking. If there are answers that I do not know, please post them publicly.
If I sound negative at all in any of my posts, I apologize. I admit that I am frustrated with LCRE due to current progress and the feeling that I was misled by Jim. All of that said, I believe in the product and in the market. I am also fully willing to admit that I may have the wrong read on him and LCRE. If I can get my questions answered to an extent that makes sense, I will put $$ back in.
