Considering Selling Your Company? Tip #3: Understand the Current Funding Environment

25 September 2015 Privacy, Cybersecurity & Technology Law Perspectives Blog

Nearly every founder or executive considers selling their company at one point or another. Before embarking on the complex process, it is crucial for the company leaders – especially within the ever-evolving tech community – to ensure their strategy encompasses all aspects of a sale, from understanding the environment to being accurate with pricing expectations.

In advance of the annual FOLEYTech Summit held on October 1, we are releasing five tips for a successful exit. See below for tip number three and check back here for more tips leading up to FOLEYTech.

3. Understand the Impact of the Current Funding Environment

There are many different types of investors pursuing startup companies: accelerators, crowdsourcing, angels, traditional venture capital and private equity funds. This tsunami of capital has fueled not only a large crop of startups, but it has also led to more exits. Founders face new pressures, as disparate classes of investors have varying goals and requirements.

Traditional growth capital investors often have a longer horizon when weighing the risk and reward of exiting now versus holding out for a chance at a much larger deal or even, in the rare case, an IPO. Growth capitalists answer to their limited partners, many of whom are institutional investors such as college endowment funds, and expect their capital to be locked up for long amounts of time.

Smaller investors, from angels to funds comprised of lower net-worth individuals, often have more constrained timelines. They may prefer to sell early and eliminate risk. The demand for liquidity from these new kinds of tech investors can accelerate exit paths and create dynamic sets of influences on founders.

Even companies that weren’t venture backed may face pressures to sell from family members who had no part in creating or building the company. In many cases, company founders from the baby-boom generation, approaching retirement, don’t see their own zeal for the business reflected in their younger scions. When there is nobody in the family to carry on, it can be an attractive time to sell.

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