As tech founders and executives contemplate the possibility of exiting their companies, there are multiple factors they must consider. On May 3rd at FoleyTECH Chicago 2016, four seasoned entrepreneurs came together to discuss their different reasons for, approaches to and ideas about selling a company.
Culture Company culture is important, and as a company grows, its culture becomes harder and harder to maintain. It is at this point that it may be time to sell. Furthermore, when a company begins to work with an investment banker to facilitate the sale, it is necessary that the investment banker understands the client’s objectives and that the process meets those objectives. The investment banker must also understand the intangibles and what is important to the company.
Alternative Sources of Capital If a founder decides to stay on at his or her company despite having sold it, he or she may struggle with keeping control, as outside investors will throw their weight around. A founder can circumvent the fund-based approach and look for other sources of funding with family offices or even large public companies that see a technical disruption in the industry and as a result may be willing to make an investment.
Liquidity Event Preparation A performance-based rather than an activity-based approach paired with professional management is key. A company needs to be able to explain its story, and will be able to do so with the help of statistics and data that professional management will bring to the table. Although a liquidity event may be avoided by going to the bank or through friends, it is always a good idea to be prepared for one.
Exit Timing A final and perhaps most important consideration is that a company usually won’t be able to control when it exits. As a result, optionality in terms of management will prevent duress in the event of a sudden sale. It is also important to gradually develop a relationship with attorneys and investment bankers who are experts in the particular industry, providing valuable benchmarking information that will ease the process should there be a sudden exit.
The economics of selling a company is only a small piece of the equation – the rest is the passion, commitment, stewardship, and fun involved in the process, which in and of themselves are immeasurably important and should not be undervalued.
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