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IT exits in Canada

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A look at how to create winning exits for software companies. Includes data on Canadian IT exits and case studies

Published in: Business
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IT exits in Canada

  1. 1. The End Game Creating Winning Exit Strategies March 4, 2016 M A R K M A C L E O D , F O U N D E R | @ S TA R T U P C F O
  2. 2. Private & Confidential | 2 A g e n d a ✓ What’s happening? Activity, trends, data ✓ Out in the Wild: Case studies ✓ Lessons learned: How to plan your exit
  3. 3. Private & Confidential | 3 I n t r o d u c i n g S u r e P a t h Funding, growing and exiting venture-backed startups since 1999 Raised over $100M in VC in the US, Canada and Asia ◆ 3 years as a VC (Real Ventures) Worked corporate development and exited many companies ◆ Airbnb Blackberry Rackable Systems Return Path & others 14 years as CFO for some of Canada’s leading technology companies ◆ FreshBooks Shopify Tungle & many others
  4. 4. Private & Confidential | 4 T h e S u r e P a t h D i f f e r e n c e InvolvementExperience Access Flexibility Commitment in the most successful tech companies to Tier 1 investors & strategic partners to give great service regardless of deal size to help Canadian companies and their investors succeed FreshBooks|Frank & Oak|Shopify| &more Funding, growing & exiting tech companies
  5. 5. W h a t ’ s H a p p e n i n g ? E x i t D a t a & Tr e n d s
  6. 6. Private & Confidential | 6 E x i t Tr e n d s i n C a n a d a Source: pitchbook.com 7 7 5 9 4 9 6 9 8 11 13 6 1 1 0 2 4 6 8 10 12 14 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 NumberofDeals Canadian Information Techonology Companies Exits by Type Merger/Acquisition IPO
  7. 7. Private & Confidential | 7 E x i t Tr e n d s i n C a n a d a ( c o n t ’ d ) Source: pitchbook.com 133 104 134 117 143 108 124 109 159 115 117 75 7 7 5 9 4 10 6 9 8 12 13 6 19.0 14.9 26.8 13.0 35.8 10.8 20.7 12.1 19.9 9.6 9.0 12.5 - 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 0 20 40 60 80 100 120 140 160 180 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Fundraise:ExitRatio NumberofDeals Canadian IT Company Fundraises vs. Exits Fundraising Deals Exit Deals Fundraise - Exit Ratio
  8. 8. Private & Confidential | 8 W h o ’ s b u y i n g ? Source: pitchbook.com United States 62% Canada 23% International 15% Buyer By Geography Private 46%Public 54% Buyer By Type
  9. 9. Private & Confidential | 9 B u y e r s - w h o ’ s b u y i n g C a n a d i a n t e c h n o l o g y c o m p a n i e s ?
  10. 10. Private & Confidential | 10 E x i t s b y A g e Source: pitchbook.com 35 24 18 9 10 0 5 10 15 20 25 30 35 40 0 - 5 years 6 - 10 years 11 - 15 years 16 - 20 years 21 - 38 years Number of Companies Exits by Age of Company
  11. 11. Private & Confidential | 11 E x i t s b y Va l u e Source: pitchbook.com 64 24 7 1 0 10 20 30 40 50 60 70 Undisclosed < $50 Million $50M - $150M > $150M NumberofCompanies Exit Values by Size
  12. 12. Private & Confidential | 12 Va l u a t i o n s Source: pitchbook.com 0.6x 1.4x 1.6x 1.7x 1.6x 7.3x 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x Communications and Networking IT Services Software EV / Revenue Multiples (TTM) 6.0x 12.2x 12.2x 13.5x 21.3x 21.1x 0.0x 5.0x 10.0x 15.0x 20.0x 25.0x Communications and Networking IT Services Software EV / EBITDA Multiples (TTM)
  13. 13. O u t i n t h e w i l d C a s e s t u d i e s o f S u c c e s s f u l E x i t s
  14. 14. Private & Confidential | 14 Te r r a s c a l e ✓ Sector: Storage software ✓ Status: Revenue-generating (early) ✓ Funding: Seed, Series A ✓ Outcome: 10x return ✓ Deal factors: ✓ Meaningful tech ✓ Joint customers ✓ Had alternatives ✓ Very motivated buyer ✓ Buy-side banker Post mortem: Great return, but should we have sold?
  15. 15. Private & Confidential | 15 L o c a l m i n d ✓ Sector: Mobile, local, social ✓ Status: Pre-revenue ✓ Funding: Seed ✓ Outcome: 25x return (and counting) ✓ Deal factors: ✓ massive free user growth ✓ Unsure about long term prospects ✓ Founders initiated product level talks ✓ Light funding - optionality Post mortem: Took an all-stock flyer. So far delivering great multiples
  16. 16. Private & Confidential | 16 Tu n g l e ✓ Sector: Mobile, productivity ✓ Status: Pre-revenue ✓ Funding: Seed, Series A ✓ Outcome: Very solid single digit multiples ✓ Deal factors: ✓ massive free user growth ✓ Integrations and BD talks with all major platforms ✓ Large user base on the BB platform ✓ Existing BD, marketing relationship ✓ Motivated buyer. Clear fit with a strategic program Post mortem: Right decision for the company. All cash deal
  17. 17. Private & Confidential | 17 G o i n s t a n t ✓ Sector: Collaboration, productivity ✓ Status: Pre-revenue ✓ Funding: Seed ✓ Outcome: > 10x return. 10 months from seed to exit ✓ Deal factors: ✓ Meaningful tech ✓ Driven from the top ✓ Company sold the future ✓ Known investors forced respect ✓ Founder generated alternatives and played hard Post mortem: Great outcome in a very short time frame
  18. 18. L e s s o n s L e a r n e d P l a n n i n g y o u r e x i t
  19. 19. Private & Confidential | 19 E x i t R u l e # 1
  20. 20. Private & Confidential | 20 E x i t R u l e # 2
  21. 21. Private & Confidential | 21 E x i t R u l e # 3
  22. 22. Private & Confidential | 22 B u y e r T y p e s Founder ✓ Product-driven ✓ Based on desire ✓ Top down ✓ No prior relationship needed Manager ✓ Fact-driven ✓ Based on clear business case ✓ Pushed up to CEO ✓ Need evidence (joint customers)
  23. 23. Private & Confidential | 23 T h e i s s u e w i t h m o s t e x i t s ✓ Most exits are sub $50M ✓ Few credible, specialized exit advisors ✓ You end up doing it yourself ✓ No leverage, expertise ✓ Have to run the company as well ✓ Negotiating with your future boss 64 24 7 1 0 10 20 30 40 50 60 70 Undisclosed < $50 Million $50M - $150M > $150M NumberofCompanies Exit Values by Size
  24. 24. Private & Confidential | 24 D r i v e r s o f d e a l v a l u e ✓ Alternatives (runway, competition) ✓ Scarcity ✓ Mortal enemies ✓ Growth (fear) ✓ Market leadership (2 way) ✓ Does the buyer’s CEO Want this? ✓ On strategy ✓ Currency ✓ Time and timing (including markets)
  25. 25. Private & Confidential | 25 O t h e r c o n s i d e r a t i o n s Earn Outs: ✓ Disagreement about value ✓ Shift risk to seller ✓ Almost never get paid out ✓ Create risk for both sides ✓ Try and avoid Management buyouts: ✓ Pursue before 3rd party sale ✓ Timebox ✓ Consider conflict ✓ Can they pay? Role of VCs: ✓ Corp Dev access ✓ Advisor intros ✓ Secret handshake Pre-Banking phase: ✓ 18 - 24 mths pre sale ✓ Build relationships ✓ Create optionality
  26. 26. Web: surepathcapital.com email: mm@surepathcapital.com Blog: startupcfo.ca Social: @startupcfo Questions?

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