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MenuHow can an entrepreneur go about exploring what's the best exit strategy for his/her startup?
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Listen to my interview with exit strategist Jock Purtle of Digital Exits here (no opt-in, simple download): https://www.mediafire.com/file/ufbe877j6qupun6/JockPurtleInterview.mp3
Have conversations with successful people you admire + ask them how they'd exit your company, if they inherited it today.
The main exit strategy for start-ups is to sell the company to a bigger one for a profit. The same goes for investors. The buyer takes over the start-up using cash or stock as a compensation, and key executives and employees from the start-up often stay at the company for a period of time in order to be able to cash out and vest their stock. Exits provide capital to start-up investors, which can then return the money to their limited partners (in the case of Venture Capitalists) or to the investors themselves (in the case of business angels). Start-up acquisitions are much more frequent in the US than in Europe, but lately there has been a significant surge in the number of European acquisitions: according to Tech.eu in the first half of 2014 there were 131 exits in Europe. A different type of acquisition that is quite common in Silicon Valley is acquihires (acquisition + hiring). In this case the buyer is not so much interested in the product as it is in the team, the talent, where it is also important to have a development partner with scalable team. Acquihires often lead to the closure of the products and services that have been acquired and employees end up being transferred to a company usually receive significant hiring bonuses. Acquihires tend to happen at an earlier stage in comparison to big start-up acquisitions, which means that they often provide less capital to business angels and Venture Capitalists.
IPO stands for ‘initial public offering’ and it basically means that a company starts floating on a stock market, selling a significant number of their shares in the process to institutional and non-institutional investors. These large companies are that VCs dream of, as they often provide large sums of capital to all parts involved (founders, early employees, and investors). For a long time, the NASDAQ and Wall Street have been the main markets for European start-ups looking to IPO. However, in recent times companies such as eDreams Odigeo, Zalando, or Rocket Internet have chosen the Madrid, Frankfurt, or London stock exchanges to go public. According to Tech.eu, in the first six months of 2014 there were 11 IPOs in Europe. An interested trend in the start-up world when it comes to going public is that more and more companies are taking longer to IPO. This is a consequence of the high amount of capital available in the start-up market from Venture Capitalists, private equity firms and other investment institutions. Also commonly known as M&As, these transactions usually imply a merging with a similar and larger company. This type of exit is often chosen by big companies that are looking for complimentary skills in the market and buying a smaller start-up is a better way to develop a product than creating it in-house. M&As are less common than IPOs and straight acquisitions; in the first half of 2014 there were only 4 mergers and acquisitions in Europe. In the same way that not every start-up needs to raise money from VCs and business angels (bootstrapping is a viable alternative), not every start-up needs to sell itself to a bigger company to provide a return to founders, employees and investors. Companies that can establish a solid business model and scale might choose to stay independent and reinvest the profits in the company. Part of those profits can also be distributed amongst investors as a dividend, providing liquidity to outside partners while avoiding the public markets and the obligations that come with it.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
Related Questions
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Where can we list our app business for sale?
These might be useful: https://flippa.com https://exitround.com And for selling websites: https://empireflippers.com https://feinternational.com best of luck
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After moving on from my startup, someone approached me with an offer to buy. What are some strategies for successful negotiation?
The less you need to sell, the more leverage you have. The fact that they approached you says that they want it. If 15k was their first offer, you can simply say no thanks. If you can do that with a straight face and resist the temptation to make the move, they are likely to come back with a better offer. The other way to move the price up is to say 15k is an asset sale "as is." You could offer a short consulting contract to provide assistance in integrating the acquisition and probably find an extra 10-15k that way. Happy to talk in more detail in a quick call.
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We're a renowned and profitable SAAS travel business, but our banker can't find the right buyer, is this a common issue?
Naturally 1001 variables play into this that I'm blind to but here are some assumption laced thinking points: You're profitable, upwards trending, business, in a very competitive vertical. Yes? You guaranteed have a Buyer, unless: 1. Your asking price is outrageous. Not likely as we've closed strategic sales that were 12x revenues. It doesn't get much more aggressive than that. 2. There aren't enough strategic or institutional buyers. Nope. The buyer market is wide with creative outreach. We've rarely tapped let's say 20% of our pool before successfully securing multiple qualified offers. (And we hold a 100% close rate). 3. You're so big ($1B+) that only a few have an opportunity to buy you AND they don't like you or your brand. Unlikely? More likely... 4. The outreach effort is nominal. Most brokers and M&A intermediaries boast a sub 40% closing ratio and far too many of them are "listing agents" -- whereby they list a property, announce it to a pool of buyers in their database and then "wait". We've seen deals that we normally turn around in 60-days with all-cash offers, take 18-months for "payment plan" deals closed by other firms. The results based on the experience and model employed is indeed apples to oranges. 5. How your business is presented (packaged) is not producing conversions. This too would then be a fault on your banker's side. We "spy on" the competition - it's business as usual on our end - and the typical prospectus and marketing collateral and followup materials are, well, embarassingly slim from, well, everybody. I've never encountered a problem with "the market" (the strategic buyers) and we've sold very niche and distressed properties. We have declined taking on deals where the asking price was a number picked out of la-la-land (in which case we offer complimentary guidance, feedback and let them pursue other avenues for closing the deal - which basically never happens at that asking price)... but that's a sensible discussion and likely one that was already had. If your exit is sub-$100M, your asking price is reasonable (even if aggressive), your business is indeed strong on its metrics, growth and brand value -- then any lack of offers sits with your banker. You're likely looking to play professional basketball but you brought in a kid from a high-school team. Skills mismatch. Upgrade your "player" and you'll move towards a win quite rapidly.
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Can you recommend an A1 M&A firm (with UK/US presence) to help advise on exit strategy. B2C SaaS. And how's a typical arrangement structured?
Fast growing, UK B2C SaaS doesn't really give me enough information. The most critical piece of information is your revenue/growth rate or valuation. That's going to determine both who your potential acquirers are and who the best type of firm is to help you sell. M&A firms tend to be broken into four big groups, generally based around size: full service investment banks, boutique investment banks, M&A advisors, and business brokers. At the top are Full Service Investment Banks. These are firms like Goldman Sachs, Morgan Stanely, JP Morgan, etc. They work on the biggest and most complex deals, usually nothing less than $1 billion in transaction value (their 'midmarket' teams will do $500M transactions occasionally, but not often). They also tend to offer more than just advisory, including providing funding, other capital markets transactions, banking services, etc for massive corporations. When Dell was taken private by Michael Dell and Silver Lake, bankers from Barclays and Parella Weinberg advised them. JP Morgan Chase advised Dell, the company. Barclays was also one of the four banks to provide the $15 billion in loans to finance the deal along with Bank of America Merrill Lynch, Credit Suisse and RBC Capital. Parella Weinberg is an example of the next level down - a boutique investment bank. Boutique investment banks tend to focus on larger transactions as well, usually in the $300MM-$50B range. Some firms, like Parella Weinberg, Jeffries, Moelis, etc will be the boutique bank attached to a very large deal like the Dell deal. Most often though, boutique banks are running their own transactions in the $100MM - $1B range. Boutique banks also tend to focus on a few industries where they have expertise or will have teams of bankers focused on specific industries for mid-market companies. Piper Jaffray and Cowen both have Technology, Media and Telecom (TMT) focused banking teams, for example. Boutique banks won't provide financing most of the time, unless they're a merchant bank, as they're specifically focused on helping you close a deal. Below boutique banks is a group of people called M&A advisors. They'll often refer to themselves as investment bankers, but in most cases they aren't actually registered with FINRA as an investment bank. Or they will be registered, but through a different firm. M&A advisors tend to work deals in the $20-100MM range, though they will occasionally work larger deals. Typically the larger, more complex deals are run alongside a boutique bank, in some ways similar to how boutiques will run alongside a full service bank. Once you get to this level of advisor/banker, there starts to be thousands of bankers who all have different expertise. Some of the advisors used to work at boutiques or full service banks and decided to go out on their own so they have very good contacts. Others started out in a very small advisory and have worked their way up. You're going to want to make sure you really vet their contacts and understand what deals they've *closed* in the past (not just worked on). GrowthPoint Technology Partners is an example of a good bank of this size that is focused on technology deals. M&A advisors tend not to have a lot of deals happening at once, so they'll spend more time with you helping you value your business, structure the pitch deck, etc. The bottom rung of the ladder is what are called business brokers. Brokers tend to be more focused on volume than strategic buyers. They're going to help you widely advertise that your business is for sale and then will help you manage the process of dealing with buyers. Relative to the other options, they're going to feel a little bit more like a real estate agent. A technology example of this is FEInternational. They'll help you sell your website/business by advertising it widely to other individuals who would potentially be interesting in buying from you. Their average sale prices are in the $100k - $10MM range. At this level, they'll have expertise helping you close the deal, but mostly as a straightforward transaction. It's unlikely to be a stock for stock sale or have any complexities other than some sort of escrow and a bit of due diligence. One of the best ways to figure out how you should value your business, who you should be chatting with, and how to get the most value for your business would be to work with Axial (http://www.axial.net). They have a network of 20,000 investment bankers, private equity groups, and corporations. Axial has put together a very good guide that will help you better understand your options, what you should be doing next, etc as you prepare to sell: http://www.axial.net/forum/ceo_library/ I hope that helps. I'm happy to chat more in-depth if you have further questions, just connect with me here on Clarity. Good luck selling your business.
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Can anyone recommend an ideal co / m&A firm / resource to approach re exit strategy. We're a v fast growing start-up, but want to assess options. Thx!
It is difficult to give you a clear answer without knowing more about your company and product. Are you looking to sell or just want someone to advise you on what/how to do it?