Exit Strategy - Nice to Have or Need to Have?

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This presentation why an exit strategy is really necessary need to have. It gives your company a goal to work towards to with your co-founders, partners, investors and employees. And even if you do …

This presentation why an exit strategy is really necessary need to have. It gives your company a goal to work towards to with your co-founders, partners, investors and employees. And even if you do not end up selling, having a goal is more important then the exit itself. However, just setting a goal is not enough. Preparation is key, with a solid roadmap and business plan, as always. This presentation shares some food for thougth to prepare for you exit strategy.

Author: Eva Hukshorn

More in: Business
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  • 1. Exit  Strategy  Nice  to  have  or  need  to  have?  Author:  Eva  Hukshorn     1  
  • 2.      1.  EFactor  is  a  Smart  Network  that  matches  entrepreneurs  with  the  very  people  who  can  help   them  grow  2.  Finding  Business  Partners:  from  partners  to  investors,  from  coaches  to  customers  3.  Largest  Entrepreneurial  Network  in  the  World  with  1mio  members  in  185  countries  4.  An  online  community  Offering  you  a  network,  knowledge,  events,  and  every    business   resources  you  need  to  succeed  @  discount!  5.  GO  Online,  fix  your  personal  profile  &  company  profile  and  get  MATCHED!   It’s  not  about  connecPons  -­‐  it’s  about  the  right  ones…   2  
  • 3. Eva  Hukshorn:  An  introducHon  •  Work  Experience   -  Current:    Partner  EFactor        Board  of  Advisory:  TreFoil  Energy  /  CleanDrinks  /          Global  Thinkers  /  ShowLinq            Coach  Startup:  Bootcamp  Amsterdam  /  New  Venture  McKinsey   -  2009  –  2010:  Dutch  BouHque  –  Marktlink  Mergers  &  AcquisiHons,  Amsterdam   -  2007  –  2009:    Royal  Bank  of  Scotland  –  Corporate  Finance,  Amsterdam   -  2004  –  2009:    ABN  AMRO  –  Corporate  Finance  New  York,  Amsterdam   -  2003  –  2004:    Accenture  –  ConsulHng  London,  Amsterdam  •  EducaPon   -  1997  –  2002:  MSc  Economics,  Finance  –  University  of  Groningen,  the  Netherlands   -  2003:      InternaHonal  &  Asian  Studies  –  NaHonal  Sun  Yat-­‐Sen  University,  Taiwan   -  2009  –  2011:    CerHfied  Management  AccounHng  (CMA)  –  InsHtute  of  Management  Accountants            (IMA),  United  States   -  2009  –  2011:    Colloquium  General  &  Modern  Art  –  Academy  for  History  of  Art,  the  Netherlands   -  2012:    InternaHonal  Financial  Report  Standards  (DipIFR)  –  AssociaHon  of  Chartered  CerHfied          Accountants  (ACCA),  United  Kingdom   3      
  • 4. FUNDING  TUESDAY,  EVERY  TUESDAY  So  what  can  you  expect  from  us  each  Funding  Tuesday?  1.  Webinars  on  EFactor  on  Finance  &  Funding  related  topics  in  the  EVENT   SecHon  2.  Blogs  &  interviews  with  informal  investors  and  funded  entrepreneurs   with  Hps  &  tricks  in  the  BLOGS  secHon  under  NOW  3.  Finance  &  Funding  related  arHcles  on  NOW  feed  4.  In  the  Finance  &  Funding  GROUP  on  our  website  you  will  find  Q&As  of  the  webinars  under   NETWORK  5.  In  the  KNOWLEDGE  base  you  will  find  more  and  more  presentaHons  on  Finance  &  Funding   related  topics,  including  the  webinar  presentaHons  6.  And  if  you  become  a  VIP  MEMBER  you  will  personally  be  supported  on  your  Finance  &  Funding   related  quesHons   4  
  • 5. Webinar  Program  Overview  2012  June  19:    Business  Plan  WriHng  -­‐  A  Roadmap  to  Success  July  3:      Pitching  &  PresentaHon  -­‐  3  Minutes,  1  Impression  July  17:    Strategy  -­‐  A  Vision  for  the  Future,  A  Strategy  for  Geing  There  July  31:    BudgeHng  &  ForecasHng  -­‐  PredicHng  the  Outcome  Aug  14:    Working  Capital  -­‐  An  Unknown  Key  to  Success  Aug.  28:    Capital  Management  -­‐  Playing  with  Risk  Sept  11.:    Funding  &  Investments  -­‐  Some  Sources  are  More  Equal  then  Others  Sept.  25:    ValuaHon  -­‐  Art  or  Science  Oct  9:      Exit  Strategy  -­‐  Nice  to  Have  or  Need  to  Have?  Oct.  23:    Bootstrapping  -­‐  An  AlternaHve  Answer  to  Funding  Nov  6:    Crowdfunding  -­‐  The  Power  of  Friends,  Family  and  Fools  Nov.  20:    Networking  -­‐  Nice  You  have  3000  Friends,  I  have  30  Relevant  ConnecHons  Dec.  4:    MarkeHng  &  (Social)  Media  -­‐  Noise  or  Value?  Dec.  11:    No  Sales,  No  Glory  Dec.  18:    Most  Common  Mistakes  of  Entrepreneurs   5    
  • 6. Exit  strategy:  Nice  to  have  or  need  to  have?   2012   2013   2014   2015   2016   M M E Business Product Beta test Going to Get Product Going to Promotion Plan develop market US work development market campaign ment Product space Prod. B Prod. A develop Alpha Break- Expand in EU + ment Customers Promotion Beta test even India campaign Employees 3 5 8 10 12 15 20 25 Revenue / margin 200k / 10% 1mio / 17.3% 4mio / 21% 12mio / 28% Capital need: USD 150k 2nd round: USD 1mio 3rd round: USD 3mio EXIT USD 25mio 6  
  • 7. It  is  just  another  project  management  track   1   PreparaHon  is  key   5   Increased  chances  of  funding       2   Increase  chances  of  success     6   Align  investors     3   Company  purpose  shortens   7   Sales  pitch   exit  Hme       4   PreparaHon  increase  exit   8   Keep  it  simple   valuaHon  50%           A  successful  exit  strategy  is  like  project  management:  preparaPon  leads   to  increased  success  on  all  fronts   7  
  • 8. The  importance  of  a  company  culture  for  success   SUCCESS   Founders   Investors   Culture   +   culture   FAILURE   8  
  • 9. Average  life  cycle  of  a  startup   Idea:  Pre-­‐Seed   Building:  Seed   Growth:  Early  &  Later  Stage   REVENUES   PROFIT   No  revenues   Small  revenue   Growing  revenues   OperaHng  losses   Increasing  losses   1st  signs  of  profit   9  
  • 10. Value  creaHon  in  a  startup  life   Idea:  Pre-­‐Seed   Building:  Seed   Growth:  Early  &  Later  Stage   STARTING  UP:   EXECUTION:   EXIT  PREPARATION:   10%  value   50%   40%   VALUE  VALUE   ASSSITANCE TO ASSSITANCE TO GROW GROW INVESTORS ON BOARD PRODUCT EXIT DEVELOPMENT + SALES INVESTORS ON BOARD START COMPANY EXIT PREPARATION TIME   10  
  • 11. Increased  exits  of  smaller  companies  1.  Mark  Zuckerberg  is  an  excepHon  2.  Trend  of  smaller  exits  3.  No  private  company  data  4.  5.000  US  tech  companies  sold  per  year  for  an  average  of  USD  15mio  5.  Value  from  USD  0  to  USD  20mio  is  the  hardest  6.  Opportunity  for  experienced  founders  &  investors           11  
  • 12. Source:  Basil  Peters     The  influence  of  Venture  Capitalists  and  Angel  Investors  on  exits   MORE FEWER 1-5X MORE 5-10X SLIGHT INCREASE IN HIGHER FAILURES EXITS EXITS EXIT MULTPILE EXITS 20%  EFFECT  ON  SUCCESS  COMPANY   10%   LOSS 10-30X >30X 5-10X 0%   -­‐10%   1-5X -­‐20%   EXIT  MULTIPLES   12  
  • 13. Source:  Basil  Peters    Your  exit  Hmeline  will  expire…   Perfect Exit Window 6x   Decreasing ROI oftenRETURN  ON  INVESTMENT  (ROI)     due to lack of 5x   preparation and hubris 4x   3x   2x   Venture Capitalist delay 1x   exits when ROI are not met 0x   0   1   2   3   4   5   6   7   8   9   10   YEARS  FROM  INVESTMENT   13  
  • 14. How  Venture  Capitalist  can  block  exits  Research:  •  Extend  exit  with  c.  10  years    Contract  items  to  watch:  •  Preferred  shares  to  veto  sale  •  Board  posiHons  •  CondiHons  to  exit   14  
  • 15. ValuaHon:  Comparable  Analysis:  a  relaHve  valuaHon  method  Comparing  your  company  with  other  companies,  transacPons  or  relevant  items  based  on  comparable  rates  to  determine  your  (implicit)  value    EXAMPLES  OF  MULTIPES:  •  EBIT  mulPple  =  Company  Value*    DIVIDED  BY    EBIT   –  how  much  Company  Value  is  US$  1  of  EBIT  worth  •  Equity  value  per  member  =  Total  Equity  Value    DIVIDED  BY    Total  members   –  How  much  Equity  Value  is  1  member  worth  •  Equity  value  per  Eye  Ball  =  Total  Equity  Value    DIVIDED  BY    Total  website  visitors   –  How  much  Equity  Value  is  1  visitor  worth  Note:  Company  Value  =  Equity  Value  +  Long  Term  LiabiliDes  -­‐  Cash   15  
  • 16. ValuaHon:  Comparable  Analysis:  problems  for  startups  Startup •  What  do  you  scale  value  to?  Earnings(before(Interest(&(Taxes $10 •  Who  are  your  comparable  companies?    Total(Members 10,000Visitors(Website(p/m 30,000 •  How  do  you  take  survival  or  other  risks   into  account?    Industry,Average,MultiplesEBIT(Mutiple((Company(Value(/(EBIT) 5.3xEquity(Value(/(Member 98.0x Ø  20%  small  company  discount  Equity(Value(/(Eye(Ball 54.0x Ø  Note:  much  more  different  kinds  of   mulDples  exist:  P/E,  EBIT/Sales,            Implied,Value,Startup Equity  Value/Sales  etc.  Company(Value $53Equity(Value $980,000Equity(Value $1,620,000 16  
  • 17. ValuaHon:  Venture  Capital  Approach:  Formula  &  AssumpHons      Post-­‐Money  ValuaPon  =  Terminal  Value  or  ValuaHon  at  Exit                          DIVIDED  BY                            Return  on  Investment  (ROI)      SIMPLE  VERSION  -­‐  ASSUMPTIONS:  •  No  share  issuance  ater  first  round  •  %  of  ownership  remains  constant  unHl  exit   17  
  • 18. ValuaHon:  Venture  Capital  Approach:  Terminal  Value  DeterminaPon  Terminal  Value:  1.  Revenue  in  exit  year  2.  Industry  standard  profit  as  %  of  revenue  3.  Expected  Net  Profit  4.  Comparable  Price  per  Share  /  Profit  =  P/E  raHo  StartupEXAMPLE:  Revenue&at&Exit   $&45mio  Industry&profit&margin 20%  Industry&Equity&Value&/&Profit&(=P/E&ratio) 8xExpected&profit&at&Exit $&9.0mioTERMINAL/VALUE $/72mio 18  
  • 19. Venture  Capital  Approach:  Return  on  Investment  (ROI)     Cash(Invested( ROI Multiple Pre5Seed(Capital 75%+ 20x Seed(Capital 60% 10x Early(Stage(Capital 50% 8x 2nd(Stage(Capital 40% 6x 3rd(Stage 30% 4x Bridge 20% 2x 19  
  • 20. Venture  Capital  Approach:  Pre-­‐Money  ValuaHon  for  Seed  Capital  Startup    Post-­‐Money  ValuaPon  =  Terminal  Value  or  ValuaHon  at  Exit                          DIVIDED  BY                            Return  on  Investment  (ROI)    Post-­‐Money  ValuaPon  =  US$  72mio  /  10x  =  US$  7.2mio         20  
  • 21. ValuaHon:  Discount  Cash  Flow     Free cash flow 2012 2013F 2014F 2015F 2016F    FCF 9,324 10,855 11,472 11,900 12,302      Cost of capital (WACC) 0.0 9.1% 9.1% 9.1% 9.1%  Discount factor 0.917 0.841 0.771 0.707      PV of FCF 9,953 9,644 9,172 8,694  •  Sum  of  all  present  value  of  future  discounted  cash  flows  +  terminal  value  •  Terminal  Value:     FCF T   WACC − g 21  
  • 22. Don’t  do  an  exit  by  yourself,  get  advisors  on  board!   1   RaHonal  assistance  in  emoHonal   5   Playing  chess   Hmes     2   33%  of  M&A  transacHons  fail     6   ReputaHon       3   Increased  failure  rates  with     7   Local   no  (strong)  advisors     4   General  process     8   Expensive  but  worth  it   management       Select  M&A  advisors  on  the  Click  you  have  with  them   22  
  • 23. The  Exit  Coach  Exit  coach  versus  M&A  advisor  1.  Determining  exit  strategy  in  the  very  beginning  2.  Early  involvement  compared  to  M&A  Advisors  3.  Exit  with  the  coach  and  without  an  advisor    Role  Exit  Coach:  •  ValuaHon  •  Chances  of  success  •  Exit  strategy  planning  •  IdenHficaHon  of  milestones  needed  to  be  reach  before  sale  •  SelecHon  M&A  advisor       23    
  • 24. Maximize  value  through  mulHple  bidders  Safety:  •  33%  of  the  transacHons  fail  Predictability:  •  The  sale  is  definitely  going  to  happen  one  way  or  another  NegoPaPon  strength:  •  Bewer  deal  terms  Maximize  value:  •  Increased  awracHveness  EffecPve  governance:  •  Picking  the  best  deal       Companies  are  sold,  not  bought.   24  
  • 25. Strategic  value  to  increase  exit  value  Reason  to  buy:  1.  Increase  value  of  company  being  acquired  2.  Acquired  company  increases  value  of  buyer    1  +  1  =  3:  •  Take  out  compeHHon  •  Understanding  synergy  for  buyer  •  Making  sure  the  buyer  understands  your  business  potenHal     25  
  • 26. Built  to  flip  What  is  it?  •  Serial  entrepreneurial  mindset  •  Building  fundaments  to  sell    Built  to  flip  AND  last:   –  Solid  team   –  OrganizaHonal  structure   –  Healthy  culture   –  Winners       26    
  • 27. Conclusion  &  final  remarks   Exit  Strategy  is  NECCESARY   PREPARATION  is  key   Start  AS  SOON  AS  POSSIBLE   Keep  EMOTIONS  OUT  of  valuaHon   Use  an  ADVISOR   MULTIPLE  bidders   Unlock  STRATEGIC  VALUE   BUILT  TO  FLIP  AND  LAST!   27  
  • 28. Webinar  Program  Overview  2012  June  19:    Business  Plan  WriHng  -­‐  A  Roadmap  to  Success  July  3:      Pitching  &  PresentaHon  -­‐  3  Minutes,  1  Impression  July  17:    Strategy  -­‐  A  Vision  for  the  Future,  A  Strategy  for  Geing  There  July  31:    BudgeHng  &  ForecasHng  -­‐  PredicHng  the  Outcome  Aug  14:    Working  Capital  -­‐  An  Unknown  Key  to  Success  Aug.  28:    Capital  Management  -­‐  Playing  with  Risk  Sept  11.:    Funding  &  Investments  -­‐  Some  Sources  are  More  Equal  then  Others  Sept.  25:    ValuaHon  -­‐  Art  or  Science  Oct  9:      Exit  Strategy  -­‐  Nice  to  Have  or  Need  to  Have?  Oct.  23:    Bootstrapping  -­‐  An  AlternaPve  Answer  to  Funding  Nov  6:    Crowdfunding  -­‐  The  Power  of  Friends,  Family  and  Fools  Nov.  20:    Networking  -­‐  Nice  You  have  3000  Friends,  I  have  30  Relevant  ConnecHons  Dec.  4:    MarkeHng  &  (Social)  Media  -­‐  Noise  or  Value?  Dec.  11:    No  Sales,  No  Glory  Dec.  18:    Most  Common  Mistakes  of  Entrepreneurs   28    
  • 29. BECOME  A  VIP  MEMBER  WITHIN  1  WEEK  AND  GET  YOUR  PLAN  CHECKED!  SPECIAL  OFFER,  ONLY  USD  12!  1.  FREE  checking  of  final  drao    business  plan  2.  FREE  discussion  on  next  steps  and  how  &  where  to  find  funding  in  your   region  3.  FREE  to  ask  addiPonal  quesPon  related  to  funding  &  investment  related   topics  4.  FREE  documentaPon  of  all  webinars  so  far,  presentaPons  +  notes!  5.  Send  me  an  email  on:  www.efactor.com/hukshorn  6.  Follow  me  on:  www.efactor.com/hukshorn             HTTP://WWW.EFACTOR.COM/VIP     29  
  • 30. Thank  you!    This  document  was  prepared  by  Eva  Hukshorn.  Several  people  and  organizaPons  have  inspired  her  to  write  this  presentaPon,  amongst  which  are,  but  not  limited  to  the  Founders  of  EFactor,   ABN  AMRO/RBS,  University  of  Groningen,  InsPtute  for  Management  Accountants