When to Sell Your Company


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  • M&A markets are heating up. However, this is forcing good companies to face perhaps the singular hardest decision in their lives: sell or not to sell? Tension between selling early and “going for it”
  • Tell the Brontes story here. Point out that perhaps Eric could have pushed to a higher price, but we’ll never know. Money is probably always left on the table
  • *Getting the founder's family strained and against the startup is bad for everyone including founders, VCs, families and Startup-Sometimes investors may push the founding team to grow faster and therefore are not profitable as they go for growth- Founders may choose to sell the company prematurely because they want to take some money off the table*Often the entrepreneurs have to hang in there longer than the VCs in order to get a good exit. If that is the case, then it is entirely reasonable to offer them some early liquidity in return*I think founders should only take money off the table when 1) they have an acquisition offer or 2) the company is profitable or could be profitable if they weren't pushing for rapid growth. Some of these really early stage deals where founders got rich before they were even generating revenue are a really bad idea.-Fred brings up a good point about how secondary deals can have an adverse impact on strike price for employee options.- Should not be baked into the documents
  • Only people who are delivering value going forward can take money off the table. It’s not charity – it’s an incentive alignment.If you took out $3 million in your last deal I’m assuming our incentives are already aligned. Another $1 million isn’t going to fundamentally change your life. You’re probably wanting $10 million plus on the next deal. Maybe exception if recent divorce and spouse is demanding a ton of money…
  • IPO is an important event in the life of a company, but the best entrepreneurs don’t really view it as an ‘exit’. It’s a rare event, and I know this presentation is on selling, however, it’s important to discuss since it’s deeply tied to thought process around whether to sell. Give Constant Contact exampleEmail marketing software$107MM in IPO in 2007, stock price jumped 75% next day*Unlike some companies, there was nobody on our team who said, I’m getting tired… quite the contrary. We were just getting the resources to do all this cool stuff, getting the channel where we wanted it, achieving scale. We had a vision of everything we wanted to do. We looked at the set of people who might buy us and thought, ‘they’ll break it. There’s no way they’re going to understand what we’ve done!’” “We on the other hand knew exactly what we wanted to do. We believed we were creating a sustainable, independent brand”
  • “So the next time you hear about how robust the M&A market is going to be, remember that the real trick is for founders and boards to find that right balance between taking advantage of the robust market, and putting their collective heads down and focus on trying to build a big company”
  • M&A markets are heating up. However, this is forcing good companies to face perhaps the singular hardest decision in their lives: sell or not to sell? Tension between selling early and “going for it”
  • When to Sell Your Company

    1. 1. The Decision: When to Sell?(and how)<br />Jeff Bussgang<br />General Partner<br />Flybridge Capital Partners<br />
    2. 2. Context For My Perspective<br />General Partner at Flybridge Capital Partners, early-stage VC firm based in Boston<br /><ul><li>50+ active portfolio companies, Fund III: $280M, 5 GPs</li></ul>Former entrepreneur<br /><ul><li>Cofounder Upromise (acquired by SallieMae), VP at Open Market (IPO ‘96)</li></ul>Entrepreneur-in-Residence at HBS<br />Author: Mastering the VC Game<br />
    3. 3. Five Considerations<br /><ul><li>Passion
    4. 4. Belief
    5. 5. Economics
    6. 6. Dilution Risk
    7. 7. Team</li></li></ul><li>Exit Considerations: Who, What, When, and How<br /><ul><li>Early on, ask yourself, “If we build this, who would buy it?” or, even better, “If we build this, who MUST buy it?”
    8. 8. Get on the radar screen of relevant executives of potential acquirers as early as possible via business development partnerships, competitive wins, & conferences
    9. 9. Have transparency and trust between you and your investors – constant dialog about “your number”
    10. 10. And, transparency and trust between you and your team (professional team and “personal team” – i.e., spouse/family)</li></li></ul><li>Why Sell? Why Wait?<br /> Ultimately, this is a decision based on RELATIONSHIPS, EMOTION, PERSONAL PRIORITIES and other factors…not just economics<br />Source: HBS Professor Noam Wasserman, Founding Dilemma (2012), forthcoming<br />
    11. 11. M&A Tactics<br /><ul><li> Have a solid funding alternative when talking to acquirers
    12. 12. Nothing spurs a prospective acquirer like walking away – and it only takes two parties at the table to create an auction
    13. 13. Market windows come and go – valuation inflection points need to be mapped and considered carefully
    14. 14. Negotiate carefully: It can unwind as quickly as it winds – don’t let it distract the company and demoralize the team</li></ul>“Great companies are bought, not sold.”<br />
    15. 15. Taking Money Off the Table: Aligning Interests<br /><ul><li> Entrepreneurs have a life-changing, binary outcome and everything at stake, whereas VCs have a portfolio effect
    16. 16. Why does allowing founders to take some money off the table align interests?
    17. 17. Takes enough day-to-day financial pressure off the entrepreneur to allow them to “swing for the fences” alongside the VCs
    18. 18. Otherwise, risk is that founders take the first good offer and don’t have the courage, patience and fortitude to build for the long haul
    19. 19. $2-3 million seems to be the right sweet spot number - enough to pay down the mortgage, tuck away college money, and feel comfortable taking some additional risk, but not enough to be complacent</li></ul>“Once great entrepreneurs get a taste, they get hungry for more.”<br />
    20. 20. When Not to Take Money Off the Table<br /><ul><li> The company balance sheet needs the money and fund raising isn't a slam dunk (which is case for most companies)
    21. 21. It’s an early stage round – not enough value has been created
    22. 22. Founders have only been in the company for a few years
    23. 23. The company doesn’t have break-out potential
    24. 24. Founders are unwilling to commit to staying for a certain period of time
    25. 25. Founders are not key employees going forward
    26. 26. The founder has already earned their millions in past (rationale is to align incentives)</li></li></ul><li>Exit Consideration:<br />IPO<br />“An IPO is nothing more than a financing event”<br />We had too much passion around what we wanted to do. Nobody was in a hurry to sell.<br /><ul><li> Gail joined as CEO in 1999 and led company IPO in 2007
    27. 27. All four of her VCs had different mindset: 2 wanted to put more money in and step on the gas, 2 people were nervous and wanted more proof points
    28. 28. 2X revenue to $15m from previous year, and projected to double again in 2006, but still no decision about additional funding
    29. 29. One investor believed company should sell when it has between 25 and 40m in revenue - “That’s when you’re the prettiest, and whole new risk in scaling up to next level.”
    30. 30. In 2007, the business felt like it was at the right scale, mature enough, and had the full executive team</li></ul>$107m IPO, price jumped 75% next day!<br />Today: $700m market cap, $200m revenue<br />
    31. 31. Final Thoughts<br />Is exiting the best thing for the product?<br />“Only exit if you’re done.” - Jack Dorsey of Twitter<br />The best entrepreneurs don’t focus on money, <br />they focus on their passion and dream for the business<br />
    32. 32. The Decision: When to Sell?(and how)<br />Jeff Bussgang<br />General Partner<br />Flybridge Capital Partners<br />