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Exit Preparation: Fundraising Part 5

January 10, 2024
Exit Preparation: Fundraising Part 5
Written by
Peter Franconi

The last installment of our series explores the final leg of the journey a company takes with their investors – preparing for an exit.

As a company navigating the complex path towards exit, the capital firm you partner with can influence your exit strategy. In this blog, we’ll explore how your company can leverage your venture capital partner’s experience to prepare for and successfully complete an exit.

1. Shared Goals and Continuous Alignment

1.1 Targeting Common Outcomes

The foundation of a successful partnership lies in a shared vision. Aligning your vision for the company’s growth with your financial partner’s is paramount. Ensure that you share your exit strategy with your VC firm’s expectations, whether it’s finding the right growth or PE partner, or seeking a strategic acquisition.

1.2 Keeping Communication Alive

Regular discussions with your financial partner are essential. Continuously address what you are building to, whether that is selling to a strategic, an IPO, or moving on to a larger PE firm. Consistently revisit your exit strategy with your VC partner at least once a year to guarantee ongoing alignment and adaptability.

1.3 You’ve Decided It’s Time: Now What?

Once you’ve agreed on timing, the next steps become critical. Your plan will inform how to best prepare for your exit. Consider your personal objectives and what role you want to play in the organization post transaction.

Remain CEO: If you have a drive for more growth and your company has more gas in the tank for expansion, then you should understand your investors interest in rolling and the right amount of primary and secondary capital.

Move to CXO: If you want to stay involved with the day-to-day operations of the company but not be the key decision maker, look for a transition plan to another c-suite level role. There are many firms who have a bench of operators who will step into the CEO role.

Board Roles: If you would like to stay involved but remove yourself from daily operations, use a transition period to provide stability while you step back and only attend quarterly board meetings.

Complete Exit: In cases where a full exit is the goal, meticulous planning is necessary to maximize returns and ensure a successful transition.

2. Building Relationships and Channels

2.1  Log Conversations

Keep track of the conversations you have with growth & private equity along the way so you have a target list of folks you know are interested and you know you like.

2.2 Find a Banker

Find investment bankers who have done relevant and recent transactions in your space. These relationships are also valuable to build over time. Bankers will give you guidance of multiples and your enterprise value based on your KPIs. They will add know the companies and firms looking in the space. Your investors might be able to make introductions and offer guidance for platforms and acquisitions.

3. Metrics: Positioning for Success

3.1 KPIs That Matter

Work closely with your VC partner and investment banker to identify key performance indicators (KPIs) that make your company attractive to potential buyers. A partner with experience can help you focus on the metrics that resonate most in the market and position your business in the best light.

3.2 Validation and Stress Testing

Be prepared to face rigorous scrutiny from potential buyers, especially larger ones who conduct thorough due diligence. Prepare key people on your team to ensure KPI’s and financial performance are reported correctly to make your exit preparation smoother.

4. Market Timing and Choosing the Right Moment

4.1 Evaluating Market Multiples

Market timing is crucial. Work with your partners to analyze market multiples and determine when the timing aligns with your exit strategy. Waiting for the right moment when your sector the market is hot can significantly impact your company’s valuation.

4.2 Market Consolidation Insights

Keep an eye on market consolidation trends. A crowded market might necessitate a strategic exit to ensure long-term sustainability and growth or a premium multiple due to a scarcity of assets.

5. Be Prepared for the Time Commitment

5.1 You & Your CFO Will Have Your Hands Full…

Make sure to prepare adequately ahead of time with your key metrics and financial models. Going through the transaction process is a big time commitment, and having items prepped ahead that are ready to consolidate into exit preparation materials will ensure an organized process that can run in tandem with the daily asks of your company.

In conclusion, your venture capital partner can play a pivotal role in guiding your tech company toward a successful exit. By aligning goals, leveraging your VC partner’s network, focusing on essential metrics, timing the market right, and selecting the right investment banker, you can maximize the value of your exit and smoothly transition to the next phase of your company’s journey. Remember, preparation and collaboration are the keys to unlocking a prosperous exit.

Head back to the series overview here