Exit Masterclass 2018 which is a one-day workshop for startups and investors to discuss and share their experience of exit. Speakers include Corporate VCs from Logitech and Cisco, successful exited startups such as GuitarHero and Jump Bikes, VCs from Lux Capital and Moment Ventures etc.

1. HAX Exit Masterclass 2018
Key Takeaways

2. Outline
1- The Exit Landscape
Benjamin Joffe (@benjaminjoffe), Partner, HAX / SOSV
2- The Buyer’s View (Panel)
Natasha Ligai, Logitech, VP Strategy & Corporate Development
Matt Cutler, Cisco, Chair, Founders Forum, in-house group of M&A startup founders
3- The M&A Journey (Panel)
Ryan Rzepecki, Jump Bikes, Founder & CEO, acquired by Uber for US$200 million in April 2018
Charles Huang, Guitar Hero, Co-founder, acquired by Activision and several other companies in 2012
4- The VC View (Panel)
Shahin Farshchi (@Farshchi) PhD, Lux Capital, Partner
Ammar Hanafi, Moment Ventures, Co-founder and General Partner,
5- Why Real Boards Really Matter
Adam J. Epstein, Third Creek Advisor, Founder, expert in operations and governance with a focus on small caps board rooms

3. 1- The Exit Landscape
Benjamin Joffe (@benjaminjoffe), Partner, HAX / SOSV
The Exit Landscape-0

4. SOSV & HAX
HAX, a brand under SOSV which now raising a $250m fourth flag fund
• SOSV – $300m AUM, 700 startups
• HAX – hardware, 200 startups
The Exit Landscape-1

5. Why Exits?
• When founders (and investor) get paid
• Founders miss opportunities
• Founders leave money on the table
“I wish we knew what to do when an offer came in”
“We were surprised how early those opportunities can be, and how much prep
they require”
“I never thought of alternatives to VC”
“We want to be ready when opportunities come, and maximize them”
The Exit Landscape-2

6. 97% Exits are created by M&A
From the CB Insights 2016
• 3,358 tech exits
• 3,260 M&A
• 98 IPOs
>> 97% of the exits created by M&A
>> 59% at Series B or earlier
The Exit Landscape-3

7. CB Insight –Top Tech Acquirers in 2016
The Exit Landscape-4

8. 80% of startups who raised initial funding do
not raise beyond B
US tech companies founded
between 2003 to 2013 survival curve
• Series A 40%
• Series B 25%
• Series C < 20%
The Exit Landscape-5

9. 80% of M&As take place at Series B or before
• US tech companies founded
between 2003 to 2013 - Likelihood of
Acquisition, pre-Series A ~30%,
Series A ~60% and Series B ~80%.
• M&As are done with corporate
development executives who do this
often and delicate on that.
• IPOs are done with bankers.
The Exit Landscape-6

10. Exits Options
The Exit Landscape-7

11. Exit Timing?
• The best timing for a sale is when you have lots of momentum. The maximum
momentum is around the “inflection point”.
• At this point, growth slows down. Take a hard cold at the business. Can you find a
way to change that?
The Exit Landscape-8

12. Value to Acquirer & Purchase Price
The Exit Landscape-9

13. 2- The Buyer’s View (Panel)
Natasha Ligai, Logitech, VP Strategy & Corporate Development
Matt Cutler, Cisco, Founders Forum (in-house group of M&A startup founders) and Design Thinking
Transformation Lead at Cisco
The Buyer’s View-0

14. Q. Talk about yourself – Natasha and Matt.
• Natasha: Owned a group of 3 doing M&A in Logitech. Worked for the company almost 9 years,
responsible for the investment, M&A, strategy and business development.
• Matt: Joined Cisco around 4.5 years ago, founder of collaborate.com which acquired by Cisco in
2013, now known as Cisco Spark.
Q. How do startups reached out you?
• Natasha: Basically I will reply every messenger I got from email and LinkedIn. I also talked to VCs
and bankers, and look up from accelerator like HAX. Meet 5-10 startups/week and take many
calls. One startup we bought recently, we actually reached out them by ourselves, and we made a
successful acquisition.
• Matt: Take my own story, I think people should build up the relationship with your potential
acquirers as early as possible. Each division in the Cisco set money to buy things. Recommend to
build the relationship at least 2 years before. Hack into their people and make sure one day, some
people in the Cisco will back you and tell people this is a good company we should invest.
The Buyer’s View Q&A
The Buyer’s View-1

15. Q. How do people build relationship with you?
• Matt: It’s like a date, so make people have interests to continuously talk to you, and better start in
the conference room.
• Natasha: Not necessary to build the relationship but definitely take time about a year, it takes time
to develop the thesis and strategy for the enterprise itself and make decision.
Q. Let talk about the trigger, what’s the call/timing will you decide to buy a company internally?
• Natasha: Take one of the deal we recently made for example, they are fully developed the
product and going to start the massive production, they are trying to raise money or sell to the
larger company. And not like Cisco, Logitech relatively has limited budget for M&A, so we can
sometimes prefer to invest in a startup with reasonable valuation, so in this case, early is good for
us.
• Matt: Typically is just when running out of Series C, that time you have a developed product, if
you raised the next funding for another 18 months, you may still have the same business position
after all.
Q. What’s the bad time?
• Matt: Right before you ran out of money < super bad time.
The Buyer’s View Q&A
The Buyer’s View-2

16. Q. Who made a cold call before, how to help they to conquer the fear or have a good impression in
front of the buyers?
• Matt: Figure out what the acquirer’s need. Study their business from LinkedIn and Twitter to
understand what are they interested. For instance, few key words like blockchain, AI to get their
attention, make your story interesting to them.
• Natasha: For general process, we mostly are reached out by someone who has known us before,
from VCs, ex-colleagues etc. Then we have a call with the startup. But also some people came by
and said hey Natasha I’m looking for your help/advice then we start the conversation. If you come
with respectful, humble, it’s not that difficult to build up the relationship. Better to give me a bigger
picture of your intension, easy-to-understand description to make me really know you and help
you.
Q. Slowest deal and fastest deal?
• Natasha: 2.5 years and 1 month. We normally need at least 3 months to finish the due diligence.
Q. What’s your KPI?
• Natasha/Matt: Close X deal/quarter or a year, not just deal flow.
The Buyer’s View Q&A
The Buyer’s View-3

17. Q. What’s the red flag?
• Natasha: Don’t want to share source code, and other info of your company. We will use the third
party to review the code to exam the code is real work, we are just trying to know that. So trust
and open minded is important.
Q. What happened after the transaction?
• Natasha/Matt: Really depends, you may talk to our departments to see how to plug your tech into
our ecosystem, or set a new department for yourself.
Q. What time when you walk away from a startup?
• Natasha: One startup we are in the discussion of acquisition, the founder has strong intention to
control all the budget (marketing, recruitment) for his department in the future, so, we decide to
walk away.
The Buyer’s View Q&A
The Buyer’s View-4

18. 3- The M&A Journey (Panel)
Ryan Rzepecki, Jump Bikes, Founder & CEO, acquired by Uber for US$200 million in April 2018
Charles Huang, Guitar Hero, Co-founder, acquired by Activision and several other companies
The M&A Journey-0

19. The M&A Journey Q&A
The M&A Journey-1
Q. Talk about yourself – Charles and Ryan.
• Charles: I did video games, more Software + Hardware games like Guitar Hero.
• Ryan: I founded Jump Bikes in 2010, initially focus on government sales, tech provider and
operator, got the first pilot in 2012, accumulated $10m in revenue and profitable in 2016. We did
five things last year to modify our business model 1. Work with the rebrand company 2. Change
our vertical from bicycle to fleet 3. Bring new product to the market (Jump) 4. Start the strategic
distribution partnership with Uber then turn to an acquisition 5. Raised Series A. SOSV is the only
one who has been invested in us since day 1. It’s very hard for us in terms of fundraising. And
finally we closed our Series A last fall with Menlo Venture and other VCs.
Q. What’s the timing do you think of acquisition?
• Charles: Nobody really care in the first, then we made $9m revenue/year, became hit in the
market, then $50m revenue/year. Before that, we tried to raise $3m at $15m cap, but not worked
well, then we became profitable in one year, then there is a M&A opportunity. The wole M&A
happened in 3 months.
• Ryan: Similar story, we put the bike in San Francisco this year, each bike makes $50/day/bike.
Tons of media talked about us, then everything changed in few months, we got term sheets of
Series B in $50m, then we start to talk about acquisition.

20. The M&A Journey Q&A
The M&A Journey-2
Q. For Jump Bike, how do you see the competition from China?
• Ryan: Fiercely competition, it’s a capital competition as bikes from China now in US, and we think
our acquirer can help us to achieve our goal to get the market share. That’s one of the reason why
we decide to make the acquisition.
Q. For Guitar Hero, maybe not like bike need to be capital intensive, and in that time, it’s already
profitable, what you decided to do?
• Charles: We tried to raise money, but hard, finally we took $2.5m from several individual angels.
Then we made $50m in revenue, at that time, we talked to PE and VC, one buyer offered us a 4
billion market cap.
Q. How’s your term of acquisition?
• Charles: Complex payment term, we got the initial payment and receive the rest of money after 2
years, $100m of guarantee, but we had out of their expectation, and got even much more than the
guarantee price.
• Ryan: Deals set for couple years as well, depends our growth of the business. 3-4 trip/bike/day
can make us profitable, but now we made 10 trips.

21. The M&A Journey Q&A
The M&A Journey-3
Q. Interesting experience about the term sheet?
• Charles: When they gave us the term sheet, there is a no-shop term, but it’s actually free for us to
talk to other acquirers.
Q. How do you decide which buyer you want to pick?
• Charles: When you start to talk to buyers, you will find who is really interested in you. You may
only have few days or weeks to decide because you have several term sheets on your hand. One
interesting thing we find out after the acquisition, CFO told us “We are just trying to acquire a
startup to make $50m revenue to cover our gap, and Guitar Hero is exactly met our need. (They
were exactly had $50m/year of revenue in that year.” And they didn’t tell us about this during the
conversation.
• Ryan: To start all this, you would have to build up a strong business and find a good market fit,
then you will have lots of options. We actually were reached out by part of the Uber team last May,
I knew some of them for few years as well. July 2017 we got a term sheet, and Jan 2018 we start
the integration, and then we signed the contract. I have to say the term sheet was really
aggressive, it’s not something you will be excited and sign, but they open the possibility of
discussion.

22. 4- The VC View (Panel)
Shahin Farshchi (@Farshchi), PhD, Partner, Lux Capital. Shahin writes on medium.
Ammar Hanafi, Cofounder and General Partner, Moment Ventures.
The VC View-0

23. The VC View Q&A
Q. Talk about your firm – Shahin and Ammar
• Shahin: We do Seed, Series A and sometimes Series B. Check size around couple hundred k to millions. We
got lucky in our early days. Our portfolio include Nirvana, doing AI chip, had tool that developers can develop
their own deep network, they got acquired by Intel before they had their own chip ready.
• Ammar: Seed and early stage, raising fund 2, which is a $50m fund, check size from $1m to $2m. Started
the firm in 2013, 7 exits already out of 20 portfolio companies. 80-90% of the exits are done through M&A, so
founders really have to think about that.
Q. Talk about your exit experience
• Shahin: Had several traditional corporate M&As, and couple of IPOs. One point is, in order to have more
value add while exiting, try to build a brand, or access to a distribution channel, also talent recruiting; that
gives you more chance to be acquired.
• Ammar: It’s important to have a sense of how you fit in the ecosystem; understand what customers want in
particular sector of an industry; different sectors want different KPIs; look with whom to partner etc.
Expectation from founders for VC is to recruit people who are better than them (the founder/CEO). You need
someone to take a leap of faith on you; that’s why recruiting talent is very important. Maximization of
optionality is important; sometimes maximization of valuation reduces optionality; you need multi path to go to
market, for exits, to raise money; that’s critical. Every time you raise money, you are setting a new valuation
benchmarks for exit, that you have to go achieve.
The VC View-1

24. The VC View Q&A
Q. What’s your M&A experience?
• Corporate development people they can try to minimize the price; if you make decisions against the interest
of people it will be seen and will come back at you (prisoners’ dilemma); don’t run into the water at 100 miles
an hour; set your priorities and milestones; don’t over-burn your cash like crazy.
Q. Any reminder for the founders?
• Don’t raise from Corporate VCs (CVC) at the beginning, CVC add more value at later stage of funding raise;
that’s where you can use their add value and channels. There are good CVCs, and bad ones; that are only
interested about the strategic value of the company above them, rather than instead building enterprise value.
• Seek capital partner who brings a portfolio that went through similar challenges that you have, offer exits that
can be interesting, and bring capital.
• The same applies to exit; exits are not game over: you have to wonder am I going to be able to do more
things if I get acquired or not; exit doesn’t necessarily just mean to leave the game.
• Don’t raise too much capital, just the right amount; that’s how you maximize your optionality; raising more
doesn’t necessarily change the exit valuation, maybe just the input.
The VC View-2

25. 5- Why Real Boards Really Matter
Adam J. Epstein, Third Creek Advisors, Founder, expert in operations and
governance with a focus on small caps board rooms.
Why Real Boards Really Matter-0

26. Key Notes
• Boards are very important: better governed companies make more money
• Zenefits: 3 insiders in board members; 0 were experts in health insurance.
• Lehman Brothers: great team, but 0 experts in financial services
• Theranos: their independent board members, none were expert in biochemistry (company was valued at
$9B dollars; they raised $900M).
• Darden owns Olive Garden; was performing really bad, then Starboard replaces the entire board, and
now their public valuation is $1B.
• Dual-class companies: Founders will create a certain class of shares with more votes, so they can never get
fired etc.; that’s risky because board members won’t really agree to that; not a lot of incentive for the board
member.
• Concluding thoughts: Think about what happened at Darden’s Restaurants and at Uber. Travis Kalanick is
one of the best entrepreneurs; if he couldn’t scale Uber, what makes you think you could? It’s time for
everyone in the valley to learn from the largest asset manager on earth; better governed companies make
more money.
Why Real Boards Really Matter-1

27. Reference
• YouTube Channel - HAX Exits
https://www.youtube.com/channel/UCd9hgQkf7Tquek6_AF1_esQ/videos
• Slides – SOSV / HAX
https://www.slideshare.net/startupexits?utm_campaign=profiletracking&utm_medium=sssite&utm_so
urce=ssslideview
• HAX Event Page
https://hax.co/exit-masterclass/sf/