Robert A. Mamis

Preselling The Company

 

For its troubles, Ashton-Tate received an option to buy the remaining 85% of the formative company in August 1986. At that those three years were a concession by Forefront's principals, who hoped for longer exposure before the final price was calculated. "But considering that they wanted to buy us that same day," Carr generously cedes, "we were willing to let the chips fall where they may."

The bones of that setup are not unfamiliar to commerce: a big company buys a small fraction of a small company, accompanied by rights to purchase a larger interest in the future. Ashton-Tate, for one, has since made similar arrangements with private enterprises, but the rights provisions are based on the latters' projected revenues, not on arcane calculations relating profitability to the whims of Wall Street. Even rarer, neither are the target companies apt to consist of a "handful of recruits," as Carr affectionately saw his yet-to-be-gathered cadre, but are solid businesses such as East Hartford's MultiMate International Corp., which Ashton-Tate recently bought -- for straight cash. "[The Forefront formula] remains unique," acknowledges Norman Block, Ashton-Tate executive vice-president for finance and administration. "I know of no other. They don't even have seed capital. Nonetheless, they had the kernel of an idea and had some development work done already. And they were supremely competent people."

The chips fell a year ahead of schedule, and resoundingly at that. By the turn of 1985, after Framework was finished and had been shipping for only six months, it was clear that the five-function program was a smash hit. Framework was chipping in a healthy 18% of Ashton-Tate's annual revenues.

But the resultant royalty income to Forefront muddied the buy-out waters in ways the drafting attorneys had not anticipated. Since Forefront's sales consisted of Framework royalties alone, how much should fairly be expensed for more development, favoring the buyer? How much should be brought directly to the bottom line as profit, favoring the seller? "There was a lot of uncertainty around the one-time shot that looked simple," Carr says on reflection, "but actually left a lot of things unclear. To be frank, that would be the one thing I'd change if I were doing it again."

Partly in light of such complications and partly to cement ongoing development of additional products, Ashton-Tate offered to throw the formula to the winds and merge early. Why not, replied Forefront, all 18 of whose employees held uncashed-in equity in the on-paper-rich company. But considering that TATE (as it's publicly listed on NASDAQ) common had fallen to around $10 a share, at what reward? "It was an excellent piece of timing," Carr admits with relish. "Both parties felt the stock was a good buy, but we argued that we can't take the risk on counting on it going up, so we need to get a number of shares that at $10 would constitute a fair price. Ashton-Tate said, 'My God, you guys want 500,000 shares? If it goes to $20, that's an incredible amount." And so it was: by the end of January, TATE was trading at over 20.

Among the assets Ashton-Tate had received in return for its 1983 commitment to the unorthodox contract were intangible dividends paid back instantly from Forefront's spanking new offices in Sunnyvale, Calif. "We were more highly motivated because our price had not yet been determined than if we already had the money at a fixed price," Carr recalls. "We wanted to work motivation into the structure, and the logic seems to have been successful. It helped bind us together. We knew we were going to be rewarded in three years."

American Dreamy as that sentiment is, in retrospect Forefront stockholders undoubtedly could have gotten more if they had cast their lot with venture capitalists and had built a vertical company. But, Carr believes, the morning-line odds were stacked against them without Ashton-Tate's entry. "There are a number of things that you really can't put a price on: the name, the expertise and experience they have in the microcomputer marketplace, established goodwill, established public reputation, the ability to get people to listen to them. These are things we would have been foolhardy to feel we could build from scratch. It's hard to go out there and say, yes, there are another 500 start-ups but, listen to me, I'm different. It seemed to us there was less promise for added risk."

Devoted exclusively to software development, the idealistic founders understood that their creation was not an organism that could survive on its own in the open market. Instead, like some creature with an inescapable place in the food chain, Forefront's charter was ultimately to merge. A corporate guardian was needed, since no self-respecting venture capitalist would have funded a start-up if the only payoff was going to be the price of merging the little company into a big one. Now a designated Ashton-Tate "development center," Forefront yet lives on in the Valley, its nest intact. The blending was so seamless that nary an employee, including the founders, has departed. "The only thing that has changed," says Carr, "is that our business cards and paychecks now say 'Ashton-Tate."

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