Let’s start with a classic: how do you recognize a VC in a room full of people? It is the guy who is always looking towards the exit. As you might know, investors live by exits, while many founders are fantasizing about unicorinization and only start thinking about an exit when it is actually too late. As a result, founders often leave money on the table. Thus, it is safe to say, that having a solid exit plan in underrated. So, upon starting a business, there are two fundamental questions that any founder should keep in mind: how are you going to get your money out of the business? And how much money are you going to get? Along the way, there are several things to keep in mind. That is where we come in…
1. Plan for Multiple Options
Of course you don’t need to have an entire exit strategy laid out in detail as of day one of your operations. However, it is important to think about the general exit possibilities from the very start. That is, founders need to make sure that they create options. Acquisition is most likely, but there are other options such as IPO, RTO, SBO, LBO, Equity Crowdfunding and even ICO.
2. Handling an Acquisition
Startups should be bought, not sold. In other words, the time to exit is not when money is short, it is when most money can be made. So the question that derives is: how to get bought? Techcrunch identified that the main reasons for a company to buy you, are characterized by talent hire, a product gap, being a revenue driver, being a strategic threat or a defensive move. Something to keep in mind.
3. Develop a Proper Understanding of the Market
That is, develop goodwill and relationships with VCs. When the time is ripe, this will help promote your deal and until then it will allow you to get a feel of their corporate strategy. As such, make sure you read the big guys’ earning calls. So in a way, you pick your buyer and frame your company in such a way, that it will match what they are looking for. if, at one point in time, you know they have to buy you, you are in a good place for negotiations.
4. Build a Proper Board/Advisory Team
Learning from your mistakes is great, but learning from someone else’s mistakes is even better.
Having a reliable board of directors might come in extremely handy when navigating the complex road towards a successful exit strategy.
5. Manage Stakeholders
Make sure that the different stakeholders’ goals and expectations are aligned. A team in which everyone is on the same page has proven to be much more efficient and effective than a team consisting of individuals aiming for different goals. Naturally, managing those goals can translate into difficult conversations, however, they can’t possibly be as difficult as the conversation during a potential exit when those differences finally come to the surface.
6. Be Aware of Dilution
According to the Capshare blog, dilution is “the loss of value of existing shares due new equity terms.” Put simply, if investors are added, stock is distributed or funds are raised, the stake held by each owner ‘dilutes’ according to the company’s value. As such, dilution is very normal to occur for startups, but it is important to be aware of it so that you can anticipate how it might impact your different exit options.
7. Build a Successful Company
Being aware of available opportunities and proactive business activities, support a startup in making it more attractive for acquisition. Don’t get distracted from making your baby flourish; above all, you will need to build a successful company. If you do, they will come. The trick is to be fully prepared when they do.
About Amstel Lab
Amstel Lab partners with startups and scaleups to commercialize your business. On the back of our experience, we have developed the unique Amstel Lab method: a tailor-made approach to maximize success. We test your markets, refine your product, innovate your commercial approach and execute your strategies. Any good idea is worth seeing through.
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