Do you want to exit your Tech company? And would you like to be prepared, knowing the do’s and don’ts? PEAK’s co-founder Johan van Mil shares his inside knowledge from having sold his own tech company, having invested in many other tech startups and his learnings from The Big Exit Show podcast.
Current Trends In Big Exits
Currently, we notice there are fewer startup exits. This is partly because of the higher interest rates, partly because of the economic situation, and partly, because there are fewer IPOs. Overall, there is less interest from companies willing to buy other companies.
Another current trend is that many companies have to sell. They either run out of money, because they can’t realize growth ambitions or attract funding. And secondly, because the founder wants to exit due to personal reasons, such as a burnout.
A third trend in the market is that companies are looking for a combination for either fundraising or exiting. So they run a dual process at the same time because they will either raise money and continue the company. Or, if that doesn’t work out, they’ll sell.
Source: stateofeuropeantech.com
The Top 3 Reasons For Founders To Exit Their Tech Companies
There are multiple reasons why founders want or have to exit their company. A reason I’ve come across more often than not, is that founders want to sell their company because of the financial gains they get from it. Because selling a successful company usually makes you fully financially independent. And then you can do whatever you like.
Another reason we often see is that it’s about momentum. It’s simply the right time to sell your company. Because of the market, due to competitors, or you’re being approached by a (strategic) player to sell your company.
I’ve also seen personal reasons. For example, a founder is tired of building a company. Or they have a burnout or some other personal reason. Of course, this is not the best reason to sell your company, since you are on the hot seat.
3 Tips On What NOT To Do When Exiting Your Company
There are some pitfalls you’d like to avoid when selling your company. The first is not to forget to keep running your business as usual, parallel to the process of selling your company. And both take a lot of energy, so don’t lose focus on your current business.
The second thing that you shouldn’t do, is rush through the Due Diligence phase. Because during that DD phase, a buyer will need time to examine your company. Establishing if it’s the right company to buy.
And last but not least – and I know what I’m talking about – is to fall in love with your buyer. Especially when you notice you’re starting to neglect other players. Because getting the right price for your company always needs having multiple offers on the table. This is the only way to select the best offer for you.
How Best To Prepare For Exiting Your Tech Company?
When exiting your company there are a few important things to keep in mind. It starts with examining the reason why you want to sell your company. Is it because of personal reasons, or is it that you want to gain financial independence?
Also, you should align well with your stakeholders, and especially your shareholders. But also include your most important team members. It’s important to set a very clear goal in terms of outcome, and also what your shareholder’s wishes are. And take into account what role or position your most important team members will get in the new construction. This helps you to make a better exit.
The third way to prepare for exiting is setting a very realistic goal in both time AND outcome. Because we all know that the process of exiting takes time. Prevent feeling rushed and having to make the deal standing with your back against the wall. Having a clear goal in terms of outcome helps you to be on the same page with your shareholders and have the same definition of success.
Another way to prepare yourself for an exit is to decide on your own role. Often a founder is required to stay on for a particular period of time in a so-called earn-out situation. However, some founders prefer to stay on longer, having a somewhat different role in the newly constructed organization.
Whatever you decide upon, it’s key to optimize your financials and your organizational structure in order to successfully exit your company.
Timelines When Exiting A Company
A question I often get asked is ‘how long it takes to exit a company’. It’s good to realize that the time it takes to sell a company fully depends on the preparation, the timing, the outcome you have in mind, and the amount of help you’ve got.
For example, a company that is fully prepared, has an optimized structure, a good team, a neat process AND some financial breathing space, will sell much easier.
Having the aid of professional advisors or your shareholders is a great help as well. As well as having time to realize that successful exit. When you have a big time constraint it’s different from having all the time in the world and not really needing to sell.
3 Tips For Negotiating Exit Conditions
I think the most important thing when you exit your company is understanding the buyer’s motivation. What is the reason that this company is willing to buy? Is it extra revenue? Or more clients? Or do they want to acquire the technical knowledge in your company? Right? It’s good to be aware of those intentions.
Also, it’s key to have multiple offers on the table in order to really select the right price and terms for your company and team. If you only have one option to choose from, it’s no choice at all. And the decision is either to sell or not to sell. But having multiple offers to choose from, you can compare conditions.
And maybe the most important tip for your negotiation phase is to get professional advice from people or companies that know how to deal with a process like this. Getting the right conditions and context to decide on.
How Do You Establish The Right Price?
How do you determine the right price to sell your company? It all starts by aligning your shareholders to know what everybody requires of the deal. Because a shareholder might have a different idea about the valuation then you as a founder.
It is also a great idea to research your market to review comparable transactions. For example, review competitors or companies in adjacent spaces and try to find out what the multiples or conditions were. So you can compare the deals.
But the best way to establish the right price is to have multiple offers to choose from. Because then the market decides on the right price and terms and you can select the best terms for you.
3 Risks To Avoid When Exiting Your Company
There are a few risks when you start your exiting process. The first is that you won’t be able to sell your company successfully. Therefore, you really have to be aware of the market value and you have to align with your shareholders to reduce this risk.
The second risk is to lose focus on your current business. Both processes require your time and energy. So be prepared and work with a professional team to reduce that risk.
The third risk when exiting your company is that your competitors will learn you’re selling. Perhaps they will start hunting for your staff and clients. Therefore it’s key to approach only a selected number of companies to prevent the whole market from becoming aware of your plans.
3 Tips For Making A Successful Exit
The first tip in a startup exit strategy is to set clear objectives, you need to have a very realistic timing in mind.
The second tip is that it’s all about communication, both with your shareholders and your team, but also with your potential buyers.
And the last suggestion is to get professional help in the process. This is something you probably do only once in your lifetime. Professional help will teach you so many new things that it’s really worthwhile to get help. Especially from people who’ve done it before.
Conclusion
Current trends in big exits reveal a complex landscape for tech startups. With fewer exits occurring due to various factors, founders are facing unique challenges.
Negotiating exit conditions requires an understanding of the buyer’s motivations and the benefit of multiple offers for informed decision-making. Establishing the right price involves aligning with shareholders and researching market comparables, but multiple offers from the market ultimately determine the optimal price.
Ultimately, achieving a successful exit hinges on setting clear objectives, effective communication, and seeking professional assistance to navigate this critical milestone in a founder’s journey.
Want to learn more about exiting your company? Check out The Big Exit Show Podcast to learn from others!