Startups across the world all target to develop a scalable, innovative business model in the shortest time possible to meet the market demands. It, therefore, comes as no surprise that every founder ultimately looks forward to high exit values when the right comes. Exit strategies come in different forms, including mergers, private offerings, IPO and venture capital investments. In the recent past, the markets have been inundated with a series of successful exits.
Key among them, the $20 billion acquisition of WhatsApp by Facebook, $1 billion takeovers of Tumblr by Yahoo and the $3 billion Google paid to acquire Nest Labs, a hitherto small firm with only a few products to its name. Some of the compelling reasons why firms choose the exit route include the existence of anxious investors, startup successes, industry consolation and the need to replace expended founders to infuse new ideas. A well-executed exit strategy can bring huge rewards to the startup owner, employees, and shareholders.
The 9 best practices for successful startup exit:
Have your options open
Keeping your options open can go a long way to make your company attractive to different acquirers, whether you are thinking of entering into an acquisition, legal commitment or commercial arrangement. When committing, avoid inking deals that will limit your options and after that impede your goal of attaining a rewarding exit. The other important point is to avoid getting overly fixated on building your company for a specific exit. You should instead always aim to build additional or high value.
Set-up, a team of good advisors
Although every exit plan ultimately unfolds differently, getting the right team at the top is always of paramount importance. You can strengthen your team of advisers by including attorneys with tech M&A experience to help you narrow the field of suitors and provide legal guidance. If there is a need, you can also hire an investment banker.
Consult shareholders
It is very important to consult your shareholders from time to time to keep them updated on current events to align expectations. Remember, timely consultations can prove costly in the long run. Some of the things you can discuss with shareholders whenever an exit beckons include expected exit value and exit time frames.
Understand industry valuation metrics
Before entering into any exit negotiation, it is important to converse yourself with your company’s key valuation metrics. This information is crucial because different industries sell or acquire companies using different metrics. One understudy strategy is researching the past M&A, IPO activities and developing informed press releases.
Consider private sale
Since most exit events involve private sales, it is important to build your company by making it as attractive as possible to the private acquirer to attract high-value trades. The same process applies if you want to take the IPO route.
Set realistic pricing and expectations
Accepting and being honest about your company’s valuation is a prudent practice that must be embraced by all startups. Setting these expectations early on following industry due diligence will help you maintain your morale and that of your team members during the exit process and prevent divergent views from crippling the negotiations. This will, in turn, safeguard the interest of employees, investors, and founders.
Stage yourself and your company
Before presenting your company to prospective investors, the entity needs to orderly. To do this, make sure your financial cards are audited and are in a current state. The employee documentation should also be verified, and the founder’s interest is protected.
Leverage your pool of acquirers
Growing number of startups that exist today have driven the push to infuse the creative spirit. When a startup is looking for suitors, it is important to have more than one suitor before pivoting into the delicate and tedious acquisition process. Making these amends will give the seller greater clout and opportunity to lock in a better exit plan.
Practice your pitch and anticipate tough questions
Always practice your pitch again and again until you perfect it. During the negotiation, investors will ask several questions about the company and weigh in on whether the bet will be a good value. You can prepare yourself for grueling questions by formulating skillful and convincing answers that will impress investors.
