Exiting a Software Start-up

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Exiting a Software Start-up

  1. 1. Begin With the End in MindA little something about exitsStephen Forte@worksonmypcWeibo: SteveForte
  2. 2. Warning! Don’t start a company in order to get rich Your chances of success are very, very low! That said, if you want to learn about exits, start here ;)
  3. 3. Definitions Legal term: change of control Someone has taken legal ownership of your company Usually when someone acquires your company Legal term: liquidity event Someone invests in your company IPO
  4. 4. Type of Exits Acquisition Asset v Share Merger Reverse Merger IPO
  5. 5. Motives for an Acquisitions (buyer) Strategic Acquisition Expansionary/Entering new Geography Integrative/Supply Chain
  6. 6. Ways to price an acquisition Public-private arbitrage DCF/NPV analysis Cost savings
  7. 7. You sold your company, so you’rerich, right? Cash up front Cash + equity up front Installments (cash/equity) Earn-out (cash/equity) EBITA based Any performance metrics
  8. 8. When to Sell? Newco/pre-revenue Usually an earn out (unless strategic) Dependent on the owner’s ability to execute Early revenue/no profits Will usually bring out the DCF analysis Usually the Lowest valuation Profitable/mature Public-private arbitrage Best Valuation Post-mature
  9. 9. Stages of an exit Negotiation leads to an offer Letter of Intent (LOI) Due Diligence (DD) Legal Documents (“Docs”) Re-negotiation of the LOI! Close
  10. 10. How Investors Effect an Exit Investor may push to sell too early VC’s usually have warrants against your company Your ownership is diluted Your company will be *much* better structured for an exit Investor will be dispassionate at the exit (you will be emotional)
  11. 11. Q&A

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