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Begin With the End in Mind
A little something about exits


Stephen Forte
@worksonmypc
Weibo: SteveForte
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 ;)
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
Type of Exits
 Acquisition
    Asset v Share
 Merger
 Reverse Merger
 IPO
Motives for an Acquisitions (buyer)
 Strategic Acquisition
 Expansionary/Entering new Geography
 Integrative/Supply Chain
Ways to price an acquisition
 Public-private arbitrage
 DCF/NPV analysis
 Cost savings
You sold your company, so you’re
rich, right?
 Cash up front
 Cash + equity up front
 Installments (cash/equity)
 Earn-out (cash/equity)
    EBITA based
    Any performance metrics
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
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
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)
Q&A

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Exiting a Software Start-up

  • 1. Begin With the End in Mind A little something about exits Stephen Forte @worksonmypc Weibo: 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’re rich, 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