Intrinsyc Software - History and Overview
The story of how we became the world's leading Windows Mobile systems integrator and developer of the Soleus 'converged device' software platform from 1996 until 2008
The material presented here on this web site about Intrinsyc Software is a collection of previously published materials, some of it no longer accessible from its original sources. It is provided as an archive of historical references for those people who are interested in the history of the company and its progress over the course of time. For people who are looking for information relating to the current business, it is important to source relevant materials directly from the official Intrinsyc web site (www.intrinsyc.com) or via direct communications with the company management team or its assigns, or from investment banking analysts who cover the company.
[Note: I no longer cover Intrinsyc on this web site]
Nature of the business
I founded Intrinsyc Software in 1996, and over the 12 years that I was involved as its President, CEO, Chairman and Advisor, it evolved into a global mobile software and services company with its Soleus 'converged device' operating system and Destinator navigation software platform products.
With 6 operational facilities in Canada, USA, China, UK, and Israel, and almost 500 employees by mid-2008, Intrinsyc counted over half of the Fortune 100 companies as its customers including almost all of the top tier mobile industry ecosystem vendors such as: Nokia, Motorola, Samsung, Microsoft, Intel, Agere, Freescale, Symbian, HTC, Wistron, and Mitac/Mio.
With over $150M in historical sales during the 1996-2008 period (with $40M relating to software licensing and product sales), and numerous industry awards for the innovativeness and excellence of its products and services delivery, Intrinsyc became established as an international player in the mobile space.
Corporate/Employment History
Intrinsyc's stock made many of its investors substantial returns on their investments over the years, at points hitting a peak market capitalization of more than $300 Million in 2000, from an initial public valuation of less than $1 Million in 1996 - along the way Intrinsyc's shareholders traded more than $600 Million in the value of its shares up until 2008. But like most tech startups, Intrinsyc evolved from humble beginnings, starting life out as a general embedded systems software licensing firm, focused on Windows CE based devices . . .
Earliest Beginnings - ITC Micro Components
Intrinsyc Software was founded in mid 1996, but the underlying corporation itself was incorporated in August 1992 in Alberta. Geoff Danzig, the electrical engineer who licensed and manufactured my Performance Solutions Concrete Maturity Meter designs in the early 1980s (see Performance Solutions - History), introduced me to the company in 1995, then called ITC Micro Components, started by a flamboyant entrepreneur and medical doctor, Ricardo Moro Vidal. Geoff was the President and had been the one who stick-handled the company all the way to its pre-IPO phase of development by early 1996.
I was asked to invest, and since I was making a number of 6 figure tech related investments at that point in time, post PCS Wireless equity divestiture, somewhat as a reuturn favour to Geoff, I became the lead IPO investor for their Canadian Venture Exchange listing, without really knowing too much about the business. As I had spare time on my hands, I ended up helping more and more with the IPO process, and in turn agreed to help further by taking on the role of 'Acting CEO' for the purposes of kick-starting the financing activities.
By the time the IPO had been completed on April 15th, 1996, I had ended up tripling my intended personal investment position and was seemingly the only person in the aftermarket supporting the stock as well. By this point I was more than a bit pregnant in the deal and came to the first board meeting with a lot of questions. Within a short period of time there had been a falling out with the founder, Ricardo. Without getting into the messy details, we negotiated the transfer of his original business assets back to him while we took the company 'shell' and our invested cash away from his business and started over as Intrinsyc Software in the summer of 1996.
Starting Over as Intrinsyc Software and Focusing on Creating Licensable Window CE Software Components
By the fall of 1996, newly minted as Intrinsyc Software, and myself installed as the President and CEO, we were in the hunt for new opportunities for our shell company (very similar to our current CPCs such as Shelby Ventures). I was talking with Greg Corcoran, an investor (who also happened to be an engineer and entrepreneur) during a road show at the same time I was comparing similar industry viewpoints with Basil Peters (one of our current Shelby board members), and both individuals waxed poetically about the upcoming Microsoft Release of Windows CE 1.0 at Comdex that fall. Within a short period of time we decided that Intrinsyc Software would set out to become the leading independent software vendor partner of Microsoft's in the embedded Windows CE software industry.
Greg Corcoran agreed to sell some of his early Windows CE software product concepts to us, including demos of what would become our original Rainbow Web Server and Remote Management technologies. At the same time we raised an additional $2M in growth capital via a few private placements late in 1996 and early in 1997. Brian Rose, an electrical engineer from Seattle, WA, who I had worked with during my period with Motorola and PCS Wireless, agreed to join as our VP of Sales and Marketing, at the same time opening our US offices next to Microsoft. Bruce Forde, another software engineering executive from MDA locally, joined as our VP of Development, and quickly recruited 2 other software development stars to our company from MDA: Bill Gordon, and Randy Armstrong, and shortly thereafter, Daragh Lavin. These folks, along with Geoff Danzig, and Murray Duncan as our IR voice to the markets, formed the nucleus of our embryonic software company.
William Yu, a childhood friend and local investment banker, also agreed to join our firm as a part-time CFO as well as become a board member and early stage investor for us during the summer of 1996 as we were wrestling with the repositioning of the ITC shell company. By the spring of 1997 our new team had put a solid business plan in place to develop leading Windows CE software tools and licensable components for the mobile and embedded markets. We announced our Rainbow Embedded Web Server technologies to great public (and Microsoft) acclaim during that period, and shortly afterwards we had negotiated our first strategic partnerships to co-develop and distribute a range of derivative products, including our ultimately ill-fated Integration Expert for Windows CE and Windows NT.
By the fall of 1997, Ron Erickson had joined our board with a nice positive impact to our share price (see Globe & Mail - October 23, 1997), we had become a darling of the Microsoft Windows CE group and had also forged strong ties with Intel, Motorola (now Freescale Semiconductor), and Hitachi by combining our software with their embedded processor chips to provide the mobile and embedded industry with turn-key solutions based on Windows CE. Microsoft awarded us the distinction of being 'one of 14 exception emerging technology companies' at Comdex in the fall of 1997, and we were likewise invited to a private reception to meet with Bill Gates and Steve Balmer, as well as present at the Comdex Red Herring investor forum. And yes, our stock was a high flier then, moving from $0.40 to $2.50 during that period. I was also invited to appear in a 20 minute nationally televised 'Investors Online' TV interview. Wow - what a great start for our little company.
Growing Pains
Shortly after Comdex 1997 was over, Microsoft approached us and asked if we would consider a strategic partnership to further develop our Integration Expert product (the brain child of Bill and Daragh) and co-create the official Microsoft Windows CE visual tool chain, Platform Builder. Randy Kath, who eventually joined Intrinsyc in 2004 to lead our Soleus feature phone development initiative, was heading up the Microsoft Window CE operating system and tools group at that time, and it was his mandate to develop a product that for all intents and purposes looked a lot like Intrinsyc's Integration Expert at that point in time (yes, we were in front of the speeding train).
We had put so much time, effort and thought into designing and rolling our our Integration Expert product that we were reluctant to surrender the underlying intellectual property to Microsoft, along with our key developers, towards the creation of their Platform Builder product, without a substantial investment by Microsoft into Intrinsyc, or at least a significant up front licensing fee, with downstream royalties. We were planning on using Integration Expert as the delivery mechanism for all of our forthcoming licensable software components, so it was strategically important to our go-to-market plans.
In the end we set the bar too high and Microsoft packed its bags and walked across the street, giving a development services contract to our emerging competitor, bSquare, who was another Seattle based startup in the Windows CE space. Microsoft probably ended up paying them many times more than what we had been negotiating for over the next 2 years - the time it took bSquare to ultimately complete and release the Microsoft Windows CE Platform Builder tools to the market. After selling the first 100 copies of Integration Expert to industry customers, we were forced to avert potential competition with Microsoft and we pulled Integration Expert off the market in late 1998 - but not before we were awarded '10 best embedded products' in 1998 by the Cahners publishing group for Integration Expert.
The ripple effects of fumbling the ball in the Windows CE tool chain game with Microsoft/bSquare were significant as our stock took a pounding in early 1998, our staff morale sunk (assisted by a staff layoff at that time), and we were forced to not only re-finance the company at much lower levels (and smaller amounts) than we had anticipated, but our planned TSX Senior Exchange listing for late 1997 also had to be put on ice. If it had not been for William's investor connections in Taiwan, we may have faced the prospect of going out of business at that point in time - the day was ultimately saved by working tirelessly to bring in an additional $3M to the company that winter. What a change in a matter of months.
Re-Grouping with the Proposed Annasoft Merger
With our Integration Expert based go-to-market strategy looking more and more like a flop, we took the aggressive stance that Intrinsyc needed to merge with a US partner, Annasoft Systems, and use their marketing position as Microsoft's leading Windows CE and DOS licensing distributor, and training/publishing company, to act as our channel into the markets for our licensable Windows CE software components. Annasoft's owners were interested in such a potential transaction (they had previously been talking about a merger with bSquare but it was called off and since that point in time bSquare had emerged as 'the company to beat').
After several trips back and forth to Annasoft in San Diego during the spring of 1998, it appeared that an MOU was ready to be signed towards a fall merger of our 2 firms. Our board of directors met and approved the transaction in principal, which would have created a large enough combined company to list successfully on the NASDAQ small cap exchange as early as the spring of 1999. We swung into action and raised $7M as part of the closing conditions, announced the deal, and our stock rebounded and reached new highs of $3.70 by the early summer of 1998.
We worked with our lawyers and the Annasoft principals all summer of 1998 only to hit a critical general stock market collapse in mid August when the Dow Index fell over 500 points in a single day. All of our investors called to try and pull out of the transaction, and to make matters worse, the Annasoft owners got nervous and started to demand more cash out of the deal than was in the term sheet. Within weeks the deal was dead.
Recovering from the Annasoft non-Merger
We ended 1998 on somewhat of a mixed note. The Annasoft merger was torn up and Brian Rose had left the company in the process, helping to shutter our US offices for the mean time. But 'what doesn't kill you makes you stronger' and little Intrinsyc was starting to build its business on a number of fronts. We had added our reference design series of CerfBoards to our product line in late 1997 which were an immediate success, and a great product that Randy Armstrong and Geoff Danzig had conceived of, deviceCOM, was gaining traction as a software protocol for the industrial automation space. Customers were also lining up for our new engineering services offerings, helping to boost our revenues past $2M in calendar 1999.
It is interesting to note that our original business model was to be a pure software licensing story and only after we were threatened by bSquare's rapid growth and competition did we belatedly agree to offer our own engineering talent to our customers on a fee for service basis. Some years later we learned that our licensing revenues for our Windows CE based software components in 1997-1998 were actually the highest in the industry at the time, and in fact were similar to the licensing revenues Microsoft itself was receiving for its Windows CE licenses. Such was the early state of the embedded software market in those days - perhaps we were just too early to the market?
bSquare was part competitor, and part distributor for our licensable software components, and they decided that they would attempt to acquire us to round out their revenues and software product line, pre-NASDAQ IPO (which they undertook in October 1999). We entered into informal discussions in the late summer of 1999, but suddenly they closed the door and IPO'd without us. After their mandated 60 day quiet period they came back and tried again to acquire us, but we pulled out of the negotiations this time as our stock was starting to perform, and theirs was ridiculously high post IPO - our relative valuation was in the order of 28:1 at that time - a non starter for our investors.
Announcing Deals with Ford and Siemens, Completing $20M in Financings, Securing our Senior TSX Exchange Listing, and Acquiring J-Integra
2000 was a golden year for us after a long uphill battle to build our business and gain some respect in the industry. We were fortunate enough to be able to deliver some great news releases surrounding our deviceCOM deals with Siemens and Ford in the spring and summer of 2000, and when combined with the buoyant tech stock market bubble at that time, our stock shot up past $9 and we were able to quickly leverage our way into $20M of new equity financings in Toronto with the major funds there during the spring and summer of 2000. Securing a senior TSX listing after that was almost an automatic process. Mission (finally) accomplished.
Randy Armstrong had discovered a potential partner for our deviceCOM product line in a UK based company that specialized in Microsoft COM to Java protocol conversion products. We were interested in using their technology in our mobile and embedded market applications. In what turned out to be one of the best acquisitions of my career, we negotiated to acquire J-Integra for $4M in cash and shares just at the point (late 2000) where their product licensing was set to explode from less than $1M/year to $4M/year.
Driving Towards a Leadership Change in Fiscal 2002
During the 1996-2000 period we had managed to deliver the real goods to our investors: a 10-20 times return on their invested capital, and many of the executives of the company were first-time millionaires as well. Needless to say it was a heady time for most of us. But I remember it as a period of extreme stress, even though I had personally achieved a significant increase in my net worth, at least on paper.
I announced to the board of directors that I wanted to step down as CEO and leave the next phase of corporate development to a new leader. This process started in the summer of 2000 and by the fall we had recruited Neil McDonnell to the position of President and COO. I handed Neil the position of CEO the fall of 2001 - at the point we had achieved cash flow break even operations on $11M in revenues, and had almost $20M cash in the bank. I felt pretty good about the CEO transition process, and my track record as founder and CEO, so I walked out with my head held high thinking I had seen the last of the Intrinsyc corner office . . .
The NMI Acquisition
In what was to become a controversial decision later on, Intrinsyc acquired NMI, another Windows CE software and service vendor (and Microsoft gold partner) based in the UK, for $15M, most of it in cash, in the spring of 2002. The stock market for tech companies was starting into a steep decline at that point in time, and most tech CEOs were finding themselves in the hot seat with their boards and investors due to declining revenues and margins. Intrinsyc was no different, but because of a significant in-process acquisition transaction, it took some time for the dust to settle on the deal and see in the cold light of day what the company books looked like post-acquisition. With corporate losses mounting and cash in the bank down below $5M, the board pulled the plug on Neil as CEO.
In retrospect, Neil got the short end of the deal, as few tech CEOs that I know of managed much better than he did during that terrible period in the life of tech companies (2001-2004). Some of NMI's software technologies, relationships and expertise forged from their work assisting Microsoft, Samsung and other early Windows Mobile adopters with first generation Windows Mobile phone designs, ultimately formed key building block elements in Intrinsyc's future development of its Soleus feature phone product - specifically NMI's Windows Mobile radio interface and phone dialing software layers. In 2003 Intrinsyc successfully licensed revamped versions of these products to Siemens and Motorola for their mobile products - a precursor to future Soleus licensing to mobile phone OEMs and ODMs in 2006 and beyond.
Returning as CEO in Fiscal 2003, Dreaming of Soleus Powered Feature Phones
When I came back as CEO of Intrinsyc in early 2003 it was all hard work and no sunshine with layoffs and restructuring clouding the ultimate challenge of having to re-build the blue-sky potential for the company. We were a $14M/year business, partly software licensing, with almost 70% services based revenues - and the really tough part was the lack of investment capital. After 6 months we were back to a break-even financial state, but we were missing the critical business growth strategy, and growth capital for that matter, to move the company, and the stock back to exciting territory.
Randy Kath approached us early in 2004 with his idea for a new product that we eventually branded as 'Soleus' - the concept of using a stripped down version of the Windows CE kernel, which also powered Microsoft's Windows Mobile smart phone offerings, to create a lower cost, re-brandable consumer focused operating system that Intrinsyc would receive per unit royalties for - getting back to our earlier corporate dreams of receiving the bulk of our revenues from software licensing royalties on millions of devices.
We realized that walking down the Soleus feature phone development and commercialization path would take a number of years of concentrated development effort, tens of millions of dollars, and a considerable amount of execution excellence, but the potential result would be a fantastic return on investment with potentially hundreds of millions of dollars in downstream royalties and derivative revenues from owning a meaningful slice of the mid-range phone market.
We knew we had the basic foundation building blocks for this story to unfold our way: we were one of the top Microsoft Windows CE/Windows Mobile 'Gold' partners worldwide, we had a history of building Windows CE/Windows Mobile radio and telephony software components for OEMs and Silicon Vendors (and had in fact helped deliver the first Windows Mobile products to market in 2001-2002), and we had access to the public markets where we could raise the required $30-50M to fund all of these development and commercialization efforts. In the end we persevered, raised the required funds, hired more than 100 new software developers in Bellevue, WA, developed the product, promoted it to the industry, and closed our first strategic partnerships and customer design wins by mid 2006.
Passing the baton to the next CEO in late 2006
I had mixed feelings about moving on as the founder and CEO of Intrinsyc and handing things over to Glenda Dorchak, its next CEO, in late 2006 (note: Tracy Rees became CEO in late 2008). On the one hand I felt that I did not have an effective working relationship with some of the members of the board of directors, and I was quietly concerned about its potential impact on the business. On the other hand I loved Intrinsyc Software and have always held a true fondness for the staff and the industry space we were playing in.
As the saying goes 'all things must pass away' and this is a door that I stepped through with the belief that the company would eventually succeed in the converged device software and services market with or without my leadership at the helm. I accepted an informal strategic advisory role to support Glenda when I stepped down as CEO in late 2006, and after her departure from Intrinsyc late in 2008 my advisory role ceased. Developing a software product business out of a services focused business was indeed a long road to march on (with $150M being raised in the public markets to fund product development since 1996).
Thank you to everyone who helped me build and live the Intrinsyc dream. There are hundreds and hundreds of people who worked with me and put their efforts and talents into play - it was an amazing experience for me, as I know it has been for many others.
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