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VentureArchetypes, LLC
Startup Advisory + Deal Support
CHAPTER I: CONTEXT
aka, “why this matters to you”
WHY THINK ABOUT YOUR EXIT?
...because a solid exit process maximizes value.
• The Exit Is Just As Important As The Investment
– How is value created? By forming a business, building the business, and selling the business
– A well-designed Exit can create as much economic value (for founders, investors, and employees) as all the
heavy lifting of actually building the business
Net-Net:
Cheap & lean startups + smaller funding rounds + new funding sources + faster
startup lifecycles + shorter time to (fail or) exit = The New Opportunity.
WHY IT MAKES SENSE TO EXIT EARLY
Lower risk, more return (for Entrepreneurs)
• Entrepreneurs like to create and grow, not manage
– Start it, build it, sell it-- and then start again (or become an angel investor)
– Founders’ value typically diminishes over time, as co. requires more process, less experimentation
– Your key strengths are in creating-- not managing the people, systems and structure of a large enterprise
Question:
Are you working for your benefit, or your VC’s?
LEAN STARTUPS + EARLY EXITS
A match made in Heaven
+ =
Interesting fact:
Small, quick exits can be bigger “wins” for Founders than exits from VC-backed startups.
CHAPTER II: TIMING
aka, “why this matters to you, right now”
A FORK IN THE ROAD
Are you an Entrepreneur or an Empire Builder?
2 - 3 Years 6 - 8 Years
Risk Level (Probability of Failure)
Short Version:
Reducing Time to Exit = Reducing Risk + Enhancing IRR
WHEN TO START THINKING EXIT?
...much sooner than you think.
• From The Entrepreneur’s Perspective:
– When the market is frothy (aka “get while the gettin’s good”-- e.g. AdMob, Playdom)
– When there are clouds on the horizon (sell before it storms-- e.g. Flip Video Camera)
– When big firms are hurting-- i.e. they missed the boat, and need you bad (e.g. Mint.com)
– Before raising another round (the more VC rounds you take, the more ‘unnatural acts’ you
need to perform to deliver an acceptable ROI)
Perfect Storm:
Big Idea + Momentum + Distribution + Capital = Win / Win
(startup) (startup) (large co.) (large co.) (both)
IDEAL TIME TO START EXIT PLANNING
...is when you have:
The best time to sell is when
the business model is proven,
growth is on an upwardly- Momentum
sloping trend, and acquirers Thought Leadership in New Space
Magnetism- $$, Employees, Press
desperately need you. “Aura” of Something New
Proof Need
Traction (MAU, PVs, Time, Retention) By Users
Positive Growth Metrics By Partners
Bus. Model (ARPU > CPA) By Large Co.’s
Net-Net:
This perfect storm is often achieved in as little as two years.
SMALL EXITS ARE THE NORM, ACTUALLY
Though mega-acquisitions get the press attention
Target Acquirer Amount (est.)
Serious Business Zynga $30M
Scout Labs Lithium $25M
Adscape Google $23M
Blogger Google $20M
Oddpost Yahoo $20M
Picasa Google $5M
LiveJournal Ask.com $25M
Flickr Yahoo $30M
del.icio.us Yahoo $30M
Weblogs AOL $25M
Kaboose Disney Online $18M
Summize Twitter $15M
SocialThing AOL $10M
FoxyTunes Yahoo $40M
Aardvark Google $50M
Net-Net:
In most cases, even a $10M exit has a “life-changing” impact on founders
CHAPTER III: GETTING TO EXIT
aka, “selling startups for fun and profit”
WHAT IS EXIT STRATEGY?
...a vision, a process, a philosophy...and more.
• Strategy
– Anticipating Large Co. needs + skating to where the puck will be (e.g. AdMob,YouTube)
– Picking the right targets to dialogue with (the art of “wrapping yourself around a potential acquirer’s axle”)
• Positioning
– Telling a good story + Illuminating Strategic Value / Fit
– Selling the future potential and other intangibles-- “what could be”
• Negotiation
– Nuances of the dialogue-- e.g., hard vs. soft-sell, determining where the acquirer is flexible, etc.
– Framing deal terms & options in a mutually beneficial manner
– Closing the deal efficiently and effectively
Process:
Strategy ! Selection ! Positioning ! Pitch ! Negotiation ! Execution
DOING THE DEAL
Key success factors for getting what you want
• Exiting is a Process
– Most of the time, companies are sold, not bought
– Optimum exits require an active sales process
Heat Formula:
Acquirer need/desire X # of bidders at the table = Speed & Terms of the Deal
(price, cash/stock, earnouts, etc.)
DOING THE DEAL PT. II
More tips and best practices
• Start Thinking & Planning Exit Strategy Early
– Most entrepreneurs wait too long; instead make the “end game” part of your overall operating strategy
• Get Help
– Someone who thinks about this stuff 365 days/year
– Someone who can help you put forth cogent valuation arguments
– Someone who can bring an impartial lens (the CEO is often too close to the deal)
In A Nutshell:
Strategy + Process + Help + Heat = A Successful Exit
CHAPTER IV: VA EXIT TEAM
aka, “who the hell are you guys,
and what can you do for me?”
WHAT WE DO
Exit Strategy and Startup Acquisition Advisory
• Deal Strategy
– Setting Exit Strategy within the context of operating, finance, and growth goals
– Figuring out: Who? When? How? Why? (and 1,256 other little details)
• Process Management
– Research target acquirers; Create and filter target buyer list; Initial introductions
– Facilitate meetings + Generate Momentum + Manage Communications
• Execution
– Getting “heat on a deal” (aka, creating an auction environment with multiple bidders)
– Act as bad cop when needed (esp. if you will be working for the acquirer post-deal)
– Negotiation, due diligence management, closing. Helping you pick out your Bentley.
Short Version:
Reducing Management Burden + Increasing Deal Value
VALUE ADD
Keys to a successful engagement
Selecting a dedicated partner
2
and teammate is key:
Develop
– Formulates a cogent strategy an appropriate
designed to maximize value 1 exit strategy Position the
company
optimally
– Introduces a process-driven
3
approach to ensure the deal runs Leverage
smoothly management
time & resources
and help close
– Reduces the burden on company Research and
management (so you can focus on source “right”
keeping the business growing) partners or
Actively manage acquirers
6
– Increases credibility and “levels the the entire process
playing field” with acquirers & get heat on
Assist with
the deal 4
generating warm
– Generates momentum and “heat” introductions
on a deal
5
EXIT STRATEGY AS PROCESS
Engagement mechanics & value delivered
The Process In A Nutshell: By doing this:
✓ Develop a plan • Illuminate strategic value in Pitch
✓ Confirm alignment (founders, • Provide support for deal terms & valuation
investors, Board) • Expand the network of potential acquirers
✓ Build exit team • Plan and coordinate process + scheduling
✓ Clean up corp. structure • Run outreach in parallel, not serial manner
✓ Prep for due diligence
We deliver this:
✓ Prepare deal / pitch materials
✓ Build the Target list • Protect CEO
✓ Initial Target screening • Offload management burden
✓ Management meetings • Reduce the time to close
✓ Manage the auction • Improve odds of success
✓ Negotiate and close • Maximize price and terms
Net-Net:
A well-designed process significantly increases the probability of success.
ABOUT US
...we really, really like tech startups.
Nathan Beckord, MBA CFA! Greg Robin!
Nathan has been advising startups on strategy, finance, business Greg started his career as a technology, investment
development and venture / exit issues for over ten years. He banker at Hambrecht & Quist. As a versatile software
has worked with more than 100 companies across a broad industry veteran, he has over fifteen years of experience
range of industries-- from software, SaaS, and social media, to working with both enterprise and consumer-focused
mobile, entertainment, and consumer products. ! companies. !
He has also served in interim Corporate / Business Greg has also held various business development, partner
Development and CFO roles, and helped several firms develop
management and product development roles at the
key strategic partnerships with F500 firms. Nathan is currently
following firms: Excite@Home, Gap Online, Macromedia,
on the Advisory Board of four startups and has been co-
founder in two technology firms. ! Niku, Pacific Bell and Wells Fargo.!
Previously, he worked in investment banking for JP Morgan, Additionally, Greg has provided partnership advice and
Access Ventures, and Piper Jaffrey. He has been involved in counsel to numerous web-based software and online
three technology IPOs and nearly 40 acquisitions, in addition to ventures focused on delivering services and solutions over
numerous private investments and joint ventures. ! the web.!
Nathan has a BSC from Santa Clara University and an MBA Greg graduated from the Wharton School at the
from the University of Texas at Austin. He is also a Chartered University of Pennsylvania, with a BS in Economics and a
Financial Analyst (CFA).! concentration in Decision Sciences.!
Short Version:
We Speak Startup + We Speak Deal
OUR BUSINESS MODEL
It’s pretty simple, actually.
• Our business model: work fees (retainer) + success fees (paid upon deal close).
• Advisor: Includes the coaching services described above, but also involves a more hand-on development
role where we help create the pitch materials, refine target lists, and provide modeling and valuation
support; also periodically includes a!more forward-facing role when needed (e.g. participate in meetings).
• Deal Lead: A fully-engaged role where we work closely with management from beginning to end.
Includes the above, plus active target sourcing and outreach, communications management, due diligence
process support, negotiation and closing assistance.
Deal Lead ✓ ✓ ✓
GIVE US A CALL
Let’s talk about your Exit.
Gregory Robin
Principal
greg@venturearchetypes.com
415-425-5374
VentureArchetypes Deal Accelerator
http://www.venturearchetypes.com/Deal-Accelerator.html
twitter: @startupventures