6 Mistakes That Can Blow a Venture Company’s Exit

By Nicole Gravagna, Peter K. Adams

You can blow a venture company’s exit in lots of ways, and it’s easy to miss some key things. Depending on how you measure success, something like 50 percent of acquisitions end up as failures. By avoiding a few mistakes, you increase the chances that your exit will be a success:

  • Failing to focus on what happens after the sale: It’s easy to understand why so many companies fall into this trap. They’re focused on the acquisition, which is what they’ve been working for so long.

    Everything they’ve done has been about the exit. The thing to remember is that the exit is not the end. You still have to continue working on the company, and most exit deals require the management team to stay on for a year or more to ease the transition.

  • Having an earn out clause with metrics out of your control. With an earn out clause, you get paid only if certain benchmarks are hit. More work has to be done after an acquisition than before the exit. Not only do you have to run your company, but now you have to learn how to deal with a new management team, new policies, and integrating with the other company.

    This period can be stressful, especially if the acquisition includes an earn out clause. If you have this kind of agreement, make sure that you think through what resources will be at your disposal after the exit and whether achieving the benchmarks is actually within your control.

  • Letting the CEO lead the exit. If the CEO leads the exit, who is leading the company? The CEO should be involved to the extent that she helps select the team that will actually work on the acquisition and shows up for key pitches and interviews, but she should spend the rest of her time running the company.

  • Losing momentum: A company that’s focused on the exit can lose momentum, and revenues may start to decline. Be sure that everyone understands that the exit is the time for the company to fire on all cylinders and meet all projections. If you fail to hit projections, your company’s value will drop precipitously over night.

  • Company cultures not mixing: A mismatch of cultures is one of the primary causes of merger failure. It’s easy to have dinner with the acquiring team a few times, but to ensure that you can actually work together, you need to pay special attention to the acquiring company and its culture.

    A lot of aspects of culture don’t make themselves immediately apparent, so your own self-awareness is important. Ask yourself what the main features of your culture are and which of them you’re willing to abandon.

    This exercise helps you determine the fundamental parts of the company’s DNA. Also ask what will cause you to start losing employees or to fail to get cooperation from the acquiring company’s sales and support team and others you need to depend on for your success.

  • Feeling genuine reluctance about the exit. You should be passionate about your business, but it’s not your baby.

    VCs can smell exit reluctance a mile away, so before you take the VC route, make sure that you’re going to be ready to sell the company a few years down the road. (This is one of the main reasons that VCs like to work with CEOs who’ve previously worked with VCs. After you’ve’ been through the process, you know what the expectations are and have experienced the rewards that playing in the big leagues can bring.)

    You can’t have it both ways — being hesitant about the exit while pursuing it at the same time. The more you’re on board with the exit — showing your excitement and doing the homework necessary to demonstrate your excitement to the VC — the more likely you’ll be to raise that venture capital investment you’re looking for.