Facebook’s $19 billion acquisition of WhatsApp may have been negotiated in five days, culminating with WhatsApp’s founder bringing chocolate-covered strawberries to the Zuckerbergs, but the conversation started two years earlier.
Exit strategies are as different as each founder, but successful exits have much in common: it’s never too early to plan for one, even a few years ahead. The best exits usually come about because of strategic relationship building followed by nimble decision-making. Silicon Valley Bank has gathered top tips from executives at a range of businesses, from startups to large-cap companies, on how to optimize exit value.
IPO or M&A?
While you may think this is the first question to answer, it typically is not. You may have a preference, but you may not have a choice. Silicon Valley Bank’s 2018 Startup Outlook report finds that far more U.S. startups (57%) expect to be acquired than expect reach an IPO (18%).
Regardless, you should always be driving toward self-sufficiency and building value, and having regular conversations with your investors and board members about exit paths. Timing can be critical: One well known VC says don’t exclude an exit slide in your Series B pitch: it can send the wrong message about where you will place your priorities.
Since the ultimate path is hard to know until it’s almost ready to go, it’s always a good idea to have options. That means, strike up relationships and partnerships with bigger companies that need you, or at least your IP, your customers or your employees. To be ready, practice what it takes to be a public company, including implementing public-company caliber financial accounting and creating mock earning releases and analyst calls.
How do I get noticed?
Since only a small percentage of exits end with an IPO, consider how to make your company attractive to an acquirer. Be the differentiator so they will find you. The best tech companies, as they say, are “bought not sold.”
Be a category or thought leader. You can spend money on PR, but that’s a waste unless you are already interesting and doing well. Says one former corporate development leader of a Fortune 500 company: focus on growing your business because success gives you more options.
Consider participating in an accelerator program to raise your profile or seeking an investment from a corporate partner. Large-cap companies in all sectors, and many non-tech firms have growing corporate development (acquisition) and business development (partner) teams that do nothing but scout all day, often trolling VCs for targets. Silicon Valley Bank works with corporate venture teams to zero in on startups with technology or teams that present the most relevant opportunities.
How do I get to the right people?
As the rate of disruption accelerates, so does the opportunity to deepen engagements between corporates and startups. Find a potential acquirer (one with an ambitious corporate development department) who needs what you have to offer, and offers you a chance to scale. At first, it may take the form of a partnership or investment to see if you are the right one to fill their gap (it helps you already have customers, or they won’t put sales behind you).
M&A has been strong in the past two years and is forecast to grow in 2018: AI, cybersecurity, and cloud computing companies have been popular targets of several of the biggest companies, including Google, Apple, Cisco, and Oracle. Fintech acquisitions also are predicted to grow in the coming years.
"One key is to find a champion on the inside of a potential acquirer. Learn their language..."
One key is to find a champion on the inside of a potential acquirer. Learn their language, align with their KPIs, study their product development, customer acquisition and sales strategies. Draft of them to make yourself even more valuable to them – or maybe their competitor. Acquirers are much more comfortable paying for companies they know something about, so open up to them. The lower the risk, the higher the price.
The common refrain for executing a successful exit is: build a successful business, create an exit strategy and identify potential acquirers early on and then stay in touch.