As a founder or leadership team, you are setting the vision and agenda for your your company’s growth. When you decide to consider possible exit strategies, such as a merger, acquisition or IPO, here are areas that you should be considering for your company and preparing yourself. These comments were from our recent LaunchTalks founder roundtable. Check out these other posts on why to consider an exit, timing and risks around an exit and how to prepare your company for an exit.
WHAT SHOULD FOUNDERS BE THINKING ABOUT?
- Consider your goals: What do you need for your business to be successful? What might that look like and what could help you get there? Founders with a clear vision are likely to be more successful.
“Executive leadership team should be really clear on their objectives. What is their vision? Where do you want to be? What does that mean in terms of preparing your strategy and messaging? To properly market your business, it’s important to think about positioning your company and raising your brand profile if you are looking at an exit.”Lenore Kantor, chief launch officer and president of Launch Warrior, a strategic business advisory firm.
- Know what VCs and Investors are looking for: VCs mainly want to know that you have the potential to hit $100 million in sales or beyond in 5 years – which makes you an attractive acquisition candidate. Few companies qualify for VC funding unless they can deliver those kind of multiples. Recent funding statistics showed a 90% drop off from seed to series A – only 10% of seed companies got funded with series A. From series A to series B, there is 50% drop off – only 50% of those companies get series B funding and then 50% of those got series C (the numbers can be misleading if companies went cashflow positive or got acquired).
“Be out there networking and meeting people. Be talking to people as a senior executive or co-founder. Be engaged with potential advisors and talking to the world to get a sense of where you fit, who might be strategic partners or financial investors.”Lee Schneider, counsel at Debevoise & Plimpton LLP
- Know your comfort level with disclosure. Companies underestimate the work, stakeholder communications and disclosures required of public companies. How comfortable is your business with sharing its information publicly? Consider your industry sector, particularly if you prefer to keep information private. Prepare a stakeholder communications strategy if you are are considering going public – know what you can and can’t say (quiet periods). Many companies are now staying private longer as there are more forums for liquidity. Unless you need the advantage of being public, understand the commitments around what information is needed and act accordingly.
HOW CAN YOU PREPARE?
- Build relationships: Cultivate and engage with potential acquiring companies right off the bat. Make sure you know who in the universe could be a potential corporate acquirer from a strategic standpoint, since these relationships don’t happen overnight, but can take years to develop. Get to know providers you may need in 5 to 10 years who can be resources as your business grows – these should include a lawyer, banker, accountant or CFO (financial advisors), and a marketing and communications strategist.
“Focus on relationship building. I tell my investors all the time – you are in the capital raising business, period, full stop. Strategic direction, sure. Managing your company, not so much – hire good people to run your business. Capital raising never ends.” Tracy Chadwell, partner at 1843 Capital
- Put in place an advisory support team that you trust: Prepare for seminal events, like a potential acquisition, by having people you can consult with. Tracy Chadwell advises her portfolio companies and any startups to have a board right away – even at the seed stage to have that infrastructure in place. Are you bringing in friends or experts? Build your advisory board by having people who can give you real insight. Alternative boards that you join for a fee (like Vistage or Mastermind) or executive coaches can also provide support around strategy. You may need to consult with different people with the right expertise to get perspective, depending on your needs. Coaches and consultants can understand what your business needs to grow, while an Advisory Board should be versed in your specific company fundamentals and growth strategy.
“Know who you are getting advice from, what their perspective is and what they hope to gain. As your business grows, the advisory board might transition to a paid Executive Board or they may be involved in the exit, so ensure you have the right team to minimize potential challenges.” Marcia Nelson, Managing Director of Alberleen Family Office Solutions and Founder of Deals & Divas.
- Build your brand. Do you have a plan in place to increase brand awareness and market presence? Companies don’t think enough about building this equity. Of course customers are important, but if you are considering going public or being acquired, your reputation will provide leverage so that prospective buyers or investors perceive that your company has value.
- Responding to an acquisition offer. What if you are approached by a competitor interested in buying your business – where do you start? Get a lawyer. Have your business messaging in place and be careful about managing your information. You don’t want to give away important facts about your business.
“Understand your marketplace – why are they interested in you? Do you have a different client segment or offering? Have all your talking points in hand so that you can respond to the market – assume that any competitor is going to steal your customers and try to get you off your game. Think it through strategically. Act to the market as if its business as usual. Businesses underestimate cultural fit – do I want to work for my worst enemy? Founder needs to know – what does this mean for me? What’s my price? Certain companies will only acquire a business for its technology, they will integrate you like a machine. In other situations, business acquired for client segments, expertise and talent.” Lenore Kantor, Launch Warrior
Are you considering an exit? Contact us to learn more about how Launch Warrior can support your leadership team in raising brand awareness and preparing your marketing and stakeholder communications strategy.
Special thanks to our gracious hosts, Debevoise & Plimpton and co-sponsors, Innovative Markets Fintech Power Circle, a group of financial technology professionals driving engagement in relevant fintech issues.