Money Matters: The Exit Plan

Startup specialist accountants Noone Casey join us to address startup financial matters.

Let’s assume you are ready for investors.

Your business plan should highlight an innovative product, an excellent team, market traction and a strong customer base, as well as a credible and working business model that includes routes to market and partners.

Next step? A credible exit strategy.

As a founder, you need to make sure that you have a solid exit strategy, based on (a) understanding the size of the market opportunity and (b) presenting robust and ambitious financial projections.

There are two basic exit strategies all startups must follow:

1. A Buyout/Acquisition
You want an acquirer that can expand into a new market, or offer a new product to existing customers… You negotiate the price!

The exit strategies of Irish tech founders are interesting. There is a real commitment by these founders to safeguard their intrinsic value in Ireland. The sale of our client Storyful to News Corp represented a continued investment in the Irish operation, notably maintaining Dublin as its HQ. This was a matter of finding a strategic fit. News Corp chose Storyful to complement their skills in the market and saw an area where they could develop products rather than creating them in-house. They succeeded in remaining true to their initial service offering, with the support of a large international company. Storyful have seen their technology succeed in the market with an established brand, greater financial resources, an enhanced sales and marketing infrastructure and scale to play with, all as a result of a successful acquisition.

2. An IPO
In the past five years in Ireland, there have been more than 11 technology companies exiting for a valuation higher than €100m.

With the current level of VCs investing at a rapid pace into Irish companies, it is fair to assume that the level of exits, both in number and value, will go up significantly in the next few years. In this case, the investors won’t necessarily get out immediately, but at least the option is there to sell and trade stocks.

An interesting trend in the community is that more companies are taking longer to IPO. This is due to the high amount of capital available in the startup market from venture capitalists, private equity firms and other investment institutions.

Above all else… Be Prepared!
-Identify strategic buyers: The key is to ensure that your business retains the features that attracted those strategic buyers in the first place.
-Engage with Investors: Surround yourself with savvy shareholders. Be in control of the process. Manage tensions and align shareholders.
-Market positioning and clear messages are vital: Know what you are offering.
-Settle legal issues: Buyers don’t want a business with unresolved issues.
-Focus on profitability: Get on top of the figures and projections. Cut Costs, be as lean as possible. Make the business more efficient.
-Protect your staff and key employees: Plan ahead to protect the value of what you are selling.
-Keep it on the down low: Only share news on a need to know basis.
-Play hard to get: The buyer will come to you.
-Set your company valuation: Determine the value of the business now. The value reveals the ambition and credibility of both the team and the proposition.

money-matter-table

Founders should consider exit strategies from the very beginning. Going public is the ideal strategy. However not all companies have that potential.

Each entrepreneur and investor needs to consider the circumstances of their ventures, and make a decision based on that. There is no secret formula, but what’s for certain is that entrepreneurs and investors, sooner or later will look for an exit. Be Ready!