Create an Exit Story for Your Venture Company
Crafting a venture compnay’s exit is a lot like crafting your venture capital pitch and valuation story. You want to have as much data as you can gather and weave it together into a plausible story that leads to an inevitable conclusion for venture capitalists.
There is no better way to prepare for a big business decision than to collect and analyze data to help you understand the nuances. Try to gather quantitative data, including numbers about sales, but also qualitative data, like the reasons that sales were successful. Sometimes the deal closes due to a strategy that isn’t directly about numbers.
Develop a list of possible acquirers
The place to start is to think of every company who would have any reason to own your company. Look through lists of companies in your industry and select those that have the following characteristics:
Are large enough to be able to afford an acquisition
Have a strategic reason to acquire your company
Have shown a pattern of acquisition in the past
Are in the press for reasons that may be positive or negative but that indicate an opportunity
Research acquisitions in your industry
When researching acquisitions in your industry, start with your list of preferred companies and, if they’re public, research their activities over the past few years. Move beyond your target list and gather all information you can about transactions in your industry during the past three to five years. Bring in information from complementary industries as well, if it enhances your case. Here are some sources for gathering this information:
10-K reports filed by public companies (the SEC requires that these reports be submitted annually).
Business transaction databases from companies like ValuSource, Thompson ONE, and Bloomberg. These pull in private transactions from SEC, IRS reports, and other services.
Most of these organizations charge fees to use their information, so check them all out to find the one that fits your needs and budget.
Google search for top companies in your field.
Describe relationships with potential acquirers
Exits are based on relationships, so begin making relationships with investment bankers as well as with M&A people in your target companies. Your VC can help you with a target list, and you can use resources like LinkedIn to begin connecting into the community. (For most entrepreneurs, this environment will be totally unfamiliar, so get started early.)
When you can describe specific relationships that you have with potential acquirers, your VCs will be more likely to buy into your exit strategy story, and you’ll show yourself to be someone who has her eye on the prize — things that will reflect well in your discussions with VCs.
Identify strategic reasons why they would acquire you
The final component for your exit strategy story is a list of reasons why the target companies would want to acquire you.
If you can weave together a pattern from their past acquisitions and current initiatives, along with trends that you see in the industry, you can build a credible story that will not only convince a VC of your awesome exit potential, but also demonstrate that you’re leading your company where it needs to go to make your exit story come true.