Start with the Exit in Mind! - mini-conference was an event for startup entrepreneurs, angel investors, board members and advisors.
People presenting at the event were:
- Risto Rautakorpi, Gorilla Capital Management - opening and closing presentations
- Nat Burgess, Techstrat - M&A Bootcamp
- Jonathan Andersin, Fondia - Legal considerations in M&A
Opening and exit statistics presentation
Nat Burgess presentation
Legal aspects of M&A presentation
Also here is link to Risto’s Linkedin post about the common “misconception” about the “exit thinking”.
Exit is something every founder and investor “dreams” about. Exits happen and good exits are results of long work.
Building an exit takes long time and here are some first steps for build exit - which you should start allready today :
- Know your competitors and build a emailing list of major competitors CEO’s, CFO’s, CTO’s and other relevant Cxx’s and directors
- Include them in your frequent PR emailings (do not spam)
- Celebrate “publicly” your breakthroughs (business, technology)
- Try to be market opinion leader with white papers, market research etc.
- Be active and be present in potential acquirer’s major market
- Try to meet Cxx’s in industry events and customer events
- Go to meet Cxx’s of your potential acquirer
- Build co-operations and partnerships with potential acquirer in sales, marketing, market research, technology etc.
Building a exit is not a science- it is in most cases hard work for long period - and some luck 😉
buyer is willing to buy you at reasonable terms. The most critical element of
this is the motivation of the buyer, and that is out of your control. The “open
to buy” window is created when their strategy shows a need they need to address
and do it yourself doesn’t really cut it. That’s when they start looking, and
you need to make sure you show in their radar screen when they do. And that is
the part which you CAN control. Sometimes this happens earlier than you would
have liked, sometimes later. Timing is not in your hands. Accept it, and act
time is when you start the company. The second best time is now. But the
preparation does not mean hiring an advisor etc, it is about doing the
groundwork that will increase the probability of an exit, when the time for
that is right.
Exit is something that founders “promise” for external investors. To get to exit takes both time and loads of work.
To “prepare and position” for exit takes typically 3-5 years. Allready in day-1, you should have TBD. “exit driven actions”-list.
Here is a article that have some advices for “exit driven actions”
(People who have already done several exits at tens of millions – you can skip this part)
If you want to make an informed decision you should understand the odds – some basic statistical math. What matters are not paper valuations on which money has been raised, but realised exits where founders and investors received money back. So lets look at some exit facts:
- Median exit value in technology companies in Nordics hovers around 12-15m€ (disclosed exits - public companies have to disclose material transactions, so larger deals tend to be disclosed). There is a large number of non-disclosed exits that are typically less than this.
- In the whole of Europe there are only a few >250m€ technology exists every year (half a dozen or so).
- Trying to build a unicorn takes a lot of time (>10 years) and multiple investment rounds, resulting in big changes on cap table. Markets change, people change, preferences change, technologies change…
- There are hundreds of companies who have raised money at Unicorn valuations, but only a few which have been bought (or IPO’d) at Unicorn level
- Your odds of getting a Unicorn exit are much MUCH lower than your odds of hitting a hole in one in golf (regardless of your HCP)
By all means dream big and set the target high, but learn to walk before trying to run. How about being worth 10M first, and then deciding whether you want to raise the bar or not.
You don’t need to be unicorn to be a success
Trade sale = someone bigger than you buys your company outright. For the buyer, your company/it’s business are a nice complementary add-on to what they already have (they have a brand, customers, channels, salespeople etc – but they have a critical hole your company could fill)
Early Stage = this refers to the stage your business is at, not to the calendar age of the company. The sweet spot is that you have found (at least v1.0) of your product/market fit and demonstrated sufficient proof of it working in real life, but you have not yet built “real” business of it.
In essence, in an early stage trade sale the seller sells a recipe for growth for a buyer who believes they can do the baking of that growth based on that recipe.
Depends on “what does success look like” for the Founder. But assuming the Founder acts rationally, i.e. wants to maximize her financial reward vs the effort, risk and time, the “math” works as follows:
What Founder gets in her pocket = Realised Exit value (1) x Founder’s share of the company at the time of an exit (2) x time it takes to get to an exit (3) x probability of getting an exit (4)
Let’s consider 2 scenarios, A is an early stage trade sale, B is a “global category winner”
On (1), A is definitely smaller, B can be much higher
For (2), once you start aiming for a high level, you will need a lot of money, usually in multiple rounds, resulting in the Founder’s stake diluting to a fraction of what it was initially. A and B will have very different values, A being better for the Founder.
On (3), becoming a global champion is never cheap, easy or quick. You will expect this to take time, and in reality it will take even longer. Life goes by while you fight for your startup. A and B have very different values, A being better for the Founder.
On (4), the higher you aim, the harder it becomes – if you are lucky to get to the finals of the Olympics, your competitors have all worked at least as hard as you and have sacrificed everything to be able to be the best. The odds of winning are slim. A and B have very different values, A being better for the Founder.
Do the math using the values you feel are right, and see what it looks like. Literature (business books written by entrepreneurs) gives very straight advice: take A! Example: Rand Fishkin (Lost & Founder) could have sold his company fairly early for roughly 20M, and he would have pocketed at least 60% of that. He didn’t take it. Years, and many strongly diluting funding rounds later, his company is much bigger. But there will never be an exit that would pocket him the 12M he once said no to. He regrets deeply and wants to share this with fellow founders so that they would not make the same mistake.
Please note that what gets the media attention are the odd exceptions, not the median cases – as the median cases are boring.
Many entrepreneurs dream about an exit - in reality exits (any kind, even small) are rare and on average much smaller than people usually think.
Only a part of exits are disclosed (ie. amount becomes public, latest at buyer’s annual report) and as a rule, non-disclosed exits are smaller (typically <10m€) than the disclosed ones. In Nordics a median for a disclosed exit for a technology company is 12-15m€ , for non-disclosed less than that. Typical US technology exit is estimated to be around 5m$.