Preparing for an Exit Strategy
Tyler Nelson is a technology industry veteran with a history of leading corporate development strategies and raising money for early & growth stage companies. Following a career serving in executive leadership roles with BlackBerry ( TSX & NASDAQ IPO’s ), Bridgewater Systems ( TSX IPO ) and QNX Software ( acquired by Blackberry ), Tyler co-founded YOU.i Labs with Jason Flick, was co-founder and CEO of mobile marketing pioneer Adenyo Inc. ( acquired by Motricity ) and went on to co-found and lead Ackroo Inc. through to it’s TSX.V debut.
This blog’s title — preparing for an exit strategy — is a bit of a misnomer as exits tend to present themselves in natural ways. Exits, such as mergers, acquisitions, or IPOs, are the outcomes of well-executed, thoughtful strategies. An exit is an artifact of success, hard work and smart business decisions.
You can, however, plan to take a company public, or you can hope that you can create enough value that a company perceives that and wants to acquire you.
Here are some questions to ask to help you determine whether or not your start-up has the potential to become an investment-grade business.
Can your early stage company stand up to the expectations of a due diligence process?
Whether it’s an acquisition or you’re hoping to take your company public at some point in time, you must have the foresight and discipline to prepare your company for due diligence. Any firm considering an investment or acquisition will test the credibility of every aspect of your business. Is your governance model, corporate records and chain of custody of intellectual property and product in order? Is your product stable, robust and free from third party code contamination?
These are just a few things that a business needs to think about as it thinks ahead to any formative transaction. Build a great business day to day and you won’t need to worry about any due diligence process breaking down. It’s important to never cut corners, even in a high-growth organization where it may seem reasonable at the time.
Is your management team prepared to stand up to public scrutiny in the case of an IPO?
The IPO process starts one or two years prior to any credible run up to a go-public event. Preparing a business to operate in the public domain starts with the leadership team. Aside from meeting the metrics expected of a pre-IPO business, it’s extremely important that you consider the skills and talents of those who will lead the business through the IPO process. Namely, are they prepared to face questions and criticism from analysts, stakeholders and regulators? Are they equipped with the tools and skills to drive deep and reliable insight into the forecasting process? Operating businesses under the glaring light of public and regulatory oversight means your company must attain a level of or maturity and stability that frankly few companies and teams are prepared for — I think of it as a state of mind where you’re always building the business toward public readiness.
Can you work with the acquisition team or company you’re merging with?
The number one reason that M&A transactions fail is because of human-related factors. Therefore, you need to be very thoughtful of how teams and organizations work together. While the business case can look great on paper, the predicted P&L has your finance team believing in miracles and your investors are excitedly pushing you to sign on the dotted line. The most important factor predicting an outcome are your line managers. Make sure your Product Management team are believers, that your Sales leaders have deep and supported conviction in an outcome, that your Operations leaders and team have conviction in their ability to deliver on the business case — everyone in your company should be on board with the decision, understand what’s expected of them and be prepared to work tirelessly to meet the outcomes predicted in the business case.
Above all, company founders should never really be actively looking for an exit. Rather, they should be focused on delighting their customers and building a durable and intrinsically valuable business that is run with integrity. Ultimately, if a company focuses on satisfying their customers and building great teams that execute well, exits take care of themselves.