Bouchard realized he needed to dress up the company so outsiders would perceive it as a substantial entity -- something it was lamentably short of being. "I wanted the image -- from logos and literature to the way people dressed and answered the phone -- to come across as a bigger company."
Bouchard calls the technique "polishing" -- just making things shiny, not fake. RCS's world headquarters, then a dingy machine shop, was a prime candidate for the treatment. Neat premises not only impress a company's visitors, Bouchard believes, but inspire its employees to higher productivity. But you can carry the concept too far. "Small companies tend to go for lavish facilities because that's how to impress investors. Then the reaction that crosses investors' minds is, 'So this is how they waste their money!" Bouchard rented a warehouse-type facility in an office park for 60¢ a square foot per month. "I could have got something in the low forties, but you wouldn't have wanted to bring someone there," he says.
Next came a reorganization. The off-putting sound of "Radar Control" had to go. Radar hinted at police speed traps and the need for constant vigilance; control suggested unwilling constraint. RCS's product (when it came out) would convey the opposite -- worry-free driving. Bouchard devised the acronym VORAD to stand for "vehicle on-board radar," and rechristened the company VORAD Safety Systems. Within the year a document published by the federal Department of Transportation listed the acronym VORAD in a glossary of generic terms associated with the IVHS industry. While Bouchard was at it, since the name IVHS remained commercially unclaimed, he claimed it. He incorporated IVHS Technologies to obtain "a name that immediately tells the story of what business we're in." As such, IVHS Technologies would be the enterprise's parent, a holding company through which to raise money for fueling operating-company subsidiaries within.
"It was obvious we couldn't make a $100-million business out of VORAD yet -- the market was too far away," says Bouchard. "But if we didn't put our stake in the turf here and now, when the time came we wouldn't even be a contender." The way for a small company to look like a contender, he determined, was to become affiliated with one.
* * *
"Consider strategic partners over straight venture capital. It's not as quick a process, but you end up with a higher valuation and less dilution. Find a strategic partner who not only will invest money but will actively step in and take you where you want to be."
-- P.J.B.
* * *
Bouchard sought to convince a big-league player that it needed VORAD as much as VORAD needed it. The unwitting candidate: Eaton Corp., a $4-billion truck-component manufacturer and distributor listed on the New York Stock Exchange. Eaton, he had heard, was interested in the technology but didn't have the in-house capability to pursue it. "Having a tier-one supplier is an important part of the equation" for a company like Eaton, Bouchard believed. But from Eaton's perspective, VORAD was tier zero. VORAD's calls and letters went unanswered. But didn't Eaton also use Ernst & Young? Eureka! "I approached E&Y and they said, 'Sure, we can get you in."
Eighteen months later, in February 1993, Bouchard signed an intricate, nine-inch-thick investment document -- a supplier agreement and a preferred-shareholder agreement, with first-rights conditions, and who would do what for whom and how much each would get for it, and so on -- with Eaton Truck Systems, a Cleveland subsidiary of Eaton Corp. "They were actually eager," Bouchard marvels. "They realized it would take a couple of years and tens of millions of dollars to get to the place we already were. In the process, we took out a serious potential competitor."
Also investing in VORAD was M/A-Com, a $341-million microwave manufacturer from Massachusetts, plus Chicago's Allstate. The ownership flowchart twists like this: In parent IVHS Technologies, Eaton owns 26% of the stock; Allstate owns 28%, converting to equity the principal and interest RCS owed it (thus wiping out all debt from the chain). M/A-Com owns 10%, and the founders and management own the remaining third. At the next level, IVHS Technologies owns 100% of developer-manufacturer VORAD Safety Systems (the original Radar Control Systems), which connects with Eaton to form a 50-50 joint-marketing venture called Eaton VORAD Technologies.
Why three investors? "Let's not get only one investor and allow that one to dominate, at least not until we get the thing further along. Let's first create as much value as we can for ourselves," Bouchard thought. With three deep-pocket contributors, the 1993 package was worth an estimated $20 million, and when the deal had been consummated, the valuation of the company was $32 million, of which founders and management owned some 35%. "The gnat," pronounced Bouchard proudly, "has swallowed the camel!"
But to get it down, the gnat had to give up control, a diet that entrepreneurs typically reject. But, Bouchard asked, isn't it better to have these companies as allies than to go head-to-head against them? "No young company with a market or technological lead admits anyone else can catch up. At first, neither did I. But the reality is, they have the horsepower to, and they eventually will," he says. A competitor looking in now, however, had to admit it was VORAD who had harnessed the horses. "When you have behemoths like a $16-billion Allstate and a $4-billion Eaton on your side, the competition isn't going to take shots at you. If we tried to do it ourselves, we might have retained control, but at the end of the day we were going to get run over by 800-pound gorillas rushing past us to the finish line."
