10. Exit : Why sell?
1. Liquidity needed ( by
founders and/or funders)
2. Time to move on
3. Missionary vs Mercenary
entrepreneurs
4. Extrinsic reasons – an offer
you can’t refuse !
14. Unhappy Exits
Startup dies – runs out of cash. Shut down
in a disciplined fashion – no loose ends
Be kind to yourself – you will get
another chance
Zombie companies – plod along on life
support
17. End games
•Inbound M&A – many flavours
1.Large company – attractive
offer
2. Large company – squeezes you
3. Other startup – forced merger
18. THINKING ABOUT EXITS?
Start with the end in mind !
Keep an open mind !
Startups are designed for sale
– When the market is frothy and the going is
good)
– When things are going downhill
(sell before you tank)
– Before raising another VC round( the more
you raise, the more you are at their mercy)
20. Different players with competing
interests
•Co-founders
•Employees
•Investors
•Customers
•Supply chain and partners
21. Managing the exit
•Rumours amongst employees !
•Is the company for sale ? Will we
lose our jobs ? Or get rich ?
•Media attention
•Investors and their egos
22. EXIT STRATEGY
Strategy:
– Anticipate the acquirer’s needs –
skate to where the puck will be
– Pick the right acquirers to talk to –
woo them !
-Talk to investors as well – VCs are
good at financial engineering
23. Potential Buyers - 1
“Companies I should partner
with today”
We can collaborate to serve
new customers and generate
more revenue
24. “Companies that should acquire me
eventually”
•They can accelerate my growth
(distribution, pricing, adjacent products)
•I can help them grow market share in a
changing marketplace
○ Diversification (with synergies)
○ Geographical expansion
○ Response to competitive threat
Potential Buyers - 2
28. DOING THE DEAL –
How to get what you want
· Exiting is a Process
– Optimum exits require an active
sales process
· Time Is Not Your Friend
– Deals can unravel if they drag on
too long (cold feet phenomena)
– Every step should have a deadline
(real or created)
29. DOING THE DEAL –
How to get what you want
•Friction Is The Enemy
– Establish trust early (but verify) +
open communication flows
– Make sure your papers are in order
– compliance and regulatory
– Goldilocks Strategy for bringing in
lawyers – not too early, but not too
late
33. DOING THE DEAL –
How to get what you want !
Heat Formula:
Acquirer need/desire X
number of bidders at the table =
Speed &Terms of the Deal
34. Doing the Deal
· Plan Exit Strategy Early
– Don’t wait too long; make the
“end game” part of your overall
operating strategy
· Don’t Get Greedy
– Pigs get fat, hogs get slaughtered
35. Doing the Deal
- Ensure Investor / Entrepreneur
alignment .Get written Board
approval.
- Obligations to:
Debtholders
Shareholders
Employees
Founding team
Customers
36. Doing the Deal
· Negotiate Tough, But Fair
– A “friendly acquisition” is a good
thing (you may be working for the
acquirer when the dust settles)
37. Strategic value to increase exit value
Acquired company increases
value of buyer 1 + 1 = 3:
• Take out competition
• Understanding synergy for
buyer
• Make sure the buyer
understands your business
potential
38.
39. Set up Bidding Wars !
Multiple bidders
Safety: 33% of transactions fail
Predictability: Safety net
Negotiation strength: Better
deal terms
40. Set up Bidding Wars !
Maximize value: Increased
attractiveness
Effective governance: Picking the
best deal
41.
42. Don’t do this by yourself –
Get experienced advisors
1 Voice of reason during trying times
2 Many M&A transactions fail. Increased
risk of failure without advisors
3 Game of chess
4 The process takes time and sucks energy
– huge distraction
5 Advisors are expensive , but worth it !
43. The Buyer’s Perspective –
Large Companies
-For large companies, Acquihire is
the new R&D
- Happy to acquire startups with a
great team, a successful product
and a proven business model
44. The Buyer’s Perspective –
Large Companies
Perfect Storm:
Big Idea + Momentum
+ Distribution + Capital = Win /Win
45.
46. The Buyer
1. Want to hold on to the team
2. Minimize money going to ex-
investors
3. Do due diligence quickly
4. Have an overall budget for
acquisition (purchase price for
company plus salaries for team)
5. Painful process, involving a large
team
47. The Buyer’s Perspective
Retention is a critical problem
for buyers:
○ Tight job market
○ Tech leadership is rare and
valued
○ Value is created post-closing
48. The Buyer’s Perspective
Team retention is a critical
problem for buyers
Differing interests on both sides
of the table
Employees vs Existing Investors
49. The Buyer’s Perspective about the
team
Salary, Signing Bonus, plus
retention Bonus
○ Integration
○ Work for 1-3 years
○ Vesting and cash-out
50. Myths about Exits
“If things don’t work out, we can
always sell the company in an acqui-
hire”
“Big tech companies routinely buy
startups”
“My company will be valued the
same way by acquirers and
investors”
51. Myths about Exits
“If a strategic buyer offers to pay a
premium for my startup, I should
play hardball and shop the
company”
52. Are you working for your
benefit or your VC’s?
Cheap & lean startups +
smaller funding rounds +
new funding sources +
faster start up lifecycles +
shorter time to (fail or) exit =
The New Opportunity.
53. Early exits can make sense!
· Entrepreneurs usually like to
create and grow, not manage
Start it, build it, sell it-- and then
start again (or become an angel
investor)
54. Early exits can make sense!
· Mis-alignment of goals and time
horizons between investors and
entrepreneurs
– Venture-backed companies average
10-12 years from VC financing to
M&A exit
– Many founders are highly diluted by
this time and have lost motivation
55. Big company culture - toxic or
supportive ?
Synergies?
Who stays ? Who decides ?
Timeline ?
Handcuffs and cash-outs
After the Exit: The Hangover
57. 1. Serial entrepreneurs –
new business, same domain
after non-compete;
new business, new domain
2. Support the startup ecosystem
by angel investing and mentoring
3. Entrepreneur in Residence
After the Exit: Keep Going