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Exiting a Software Start-up

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  • 1. Begin With the End in MindA little something about exitsStephen Forte@worksonmypcWeibo: SteveForte
  • 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. 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. Type of Exits Acquisition Asset v Share Merger Reverse Merger IPO
  • 5. Motives for an Acquisitions (buyer) Strategic Acquisition Expansionary/Entering new Geography Integrative/Supply Chain
  • 6. Ways to price an acquisition Public-private arbitrage DCF/NPV analysis Cost savings
  • 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. 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. 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. 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. Q&A