Planning for an ExitSome Lessons
for VCs & EntrepreneursMark SusterRincon Venture Partners LP & CEO Summit,November 2012@msuster

Understanding the Market for Venture
Exits

Most Entrepreneurs Have Unrealistic Expectations
of Exit Values IIcan always get can always get acqui-hired for acqui-hired for 15 million bucks 15 million bucks

Or As Pandodaily Put It

Of course it’s much harder
than that – but youwouldn’t know it from the press

Most VCs Don’t Have a
Strong Sense of Exit Values Either. It’s Not Only HRs

The Fallacy of Bimodal Returns.
Great Funds Often Built in the MiddleSource: USV returndata per AVC.com

The Reality Is - There
Aren’t Many VC Exits > $100 millionSource: Capital IQ And Many of These Raised Huge Sums of Money so Returns Aren’t Clear

And There Aren’t Many VC
Tech IPOs EitherSource: Capital IQ

The Median VC Exit Value
for 2010 Was $70 million Guess What? Entry Price MattersSource: Flag Capital via Bryce.VC

What Does This Mean forEntrepreneurs
and VCs?

I Recommend Entrepreneurs Start Lean,
Only Go Fat If Product/Market Fit FatProgress / Capital Keep Options Open Inflection Point Time

When The Hors D’oeuvres Tray
is Passed Take Two

And Put One in Your
Pocket

Just Don’t Take the Whole
Tray!

As a VC We Try
to Lean in Early on Winners & Avoid “The Mark Up Game”ownership % 3 Get 2 30% Ownership in Solid Performers 1 Lean Early on 20-25% 20% Big Winners Small Initial Check 10% $0.5 $2m $4m $8m Total investment ($m)

“Fat is good when you’re
on to something really special, but … Sometimes NOT Having a Big VC Above you in the Cap Table is a Great Thing for both VC & Entrepreneur” It Keeps a lot More Options OpenSource: Mark Suster. Having been burned before by misaligned incentives on exits

Selling Your Company

Companies Are Bought, Not Sold
 PR Matters. I know. It shouldn’t. It does.  Get Biz Dev or Sales Deal People buy people they know.  Start Early. Need to Take Early Meetings (just like raising VC)  Leverage VCs. Corp Dev use as a quality filter  Use Banks Wisely. Some deals fees nothing compared to price increase, closure %. But bank must have skin in the game.

Need to Know What Type
of Acquisition You Would BeValue to Acquirer Defensive Move  Can’t Afford to Strategic Have A Threat Competitor Own  Avoid or Delay Revenue Disruption Driver Product Gap Talent Hire  $1m / Dev  Location Matters Purchase Price

Organizational Purchases Champion Beat You
You UpSell Your Product Business Buyer IT Dep’t Legal / FinanceSell Your Company Sales Product Corp Dev In some companies Corp Dev leads strategy / investments. In others they are the deal execution teams. Know your buyer.

</end>