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The Benefits of a Family Office

The Benefits of a Family Office

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    Timing Your Exit

    January 27, 2022

    2 min read For every business, there comes a time to sell. Whether you are a startup or an investor, recognizing when this time is key to success. In this article, we cover when you should consider selling a business, how long it takes, and the benefit of taking an early exit. When to Sell Your Business Ask the following questions to find if now is the right time to sell your business: Do you still want to run the business? You may want to move on to new projects and opportunities and the current business may no longer be fulfilling. Do you still believe in the business and what it can do for you? Sometimes the market changes and the business opportunity is no longer there. What can you get from the business today versus two years from now? Waiting a few years to sell may give you a better exit. Do you need more funding, and can you raise it? If your business needs funding to continue and you can raise it, then do so. If you cannot, then consider exiting. What do the other team members want to do? Aside from your own interests, what do the other stakeholders want? It takes a team to run a business. If they want an exit, that should be part of the consideration. Early Exits In setting the exit, most investors look to maximize the exit value. It’s important to remember that the metric investors use, IRR or Internal Rate of Return, has a time component to it. The faster the exit, the higher the IRR. As an investor, consider pursuing the highest IRR over the biggest dollar exit as bigger exits take longer. While the news highlights the biggest exits, the vast majority of exits are under $20M. Selling a business for under $20M is not that hard. Growing a business and selling it over $100M is very hard. Most acquirers don’t need the business to be large, they only need to know the business model is defined and is profitable. Staying in the deal longer opens up the investor for dilution and other events that reduce the return on investment. A startup should be proving its business model and turning it into a repeatable, predictable process. With funding and time, it will scale. As an angel investor, you should look for early exits and structure your investments accordingly. Timeline for an Exit Most startups are launched with the idea of selling the business for a substantial gain in five to seven years. Many companies reach that stage and find they can’t sell the business, at least not for the price they want. It takes six months to a year to complete a buyout. Delays often come from the startup not being prepared or ready for the M&A process. Also, setting valuation and final terms can take substantial time for research and negotiations. To shorten the time, consider the following: Identify and contact the likely buyers and build a relationship before starting the process. Position the startup leadership as a thought leader with published articles and keynote speeches to provide credibility. Build a data room of key documents that will be used in a transaction process. This is basically a gathering process but does take some time. Beware of competitors in the diligence process as they will have access to your detailed financials and other information. Understand the interest level from the buyer and what other activities may delay their work on your deal. Set realistic expectations for how fast things will go. Read more in the TEN Capital eGuide: http://staging.startupfundingespresso.com/how-to-achieve-an-exit/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    Ways a Startup Can Achieve an Exit

    January 20, 2022

    2 min read There are many ways to exit a business, each with its own benefits and drawbacks. In this article we discuss the many ways in which a startup can exit the marketplace. Buyer Options There are several options for selling your business. Below are a few buyers from which you can choose: Strategic: The buyer buys your business to provide strategic value for their company. Financial: This buyer looks solely at the financials, in particular the cash flow, and buys the company without consideration to the strategic implications of their business. Management Team/Employee: This buyer works in the company and wants to own the business or continue to run it. Competitor: This buyer is a competitor and wants to take your business off the market by merging it into their own. Private equity: This is a buyer who plans to take over the business with a new management team and business plan. Generational transfer: This is typically a family member who wants to take over the business. Other Exit Options There are several other ways to exit a business. Some options include: Selling the business to an investor. This provides liquidity to the owners. The downside is it’s not clear what happens to the employees and the direction of the company. Develop an employee stock ownership plan. This transfers ownership to the employees and brings tax benefits to you. The downside is that the valuation will most likely be lower than an outright sale. Use a management buyout. This provides liquidity to the owners but can take some time to complete, even years. Transfer the business to a family member. This provides the family member with an income and potentially a career. There are estate tax consequences that must be considered with this option. In exiting your business, consider the impact not only on yourself, but also on the employees, customers, and others associated with the business. What If It Doesn’t Sell? Most startups are launched with the idea of selling the business for a substantial gain in five to seven years. Many companies reach that stage and find they can’t sell the business, at least not for the price they want. Here are some options: Reduce your burn rate to zero and keep running the business. Split up the business into its component parts (team, inventory, technology) and sell to multiple buyers. Sell the business to the other founders or to investors and take a revenue share for your equity portion of the business. Line up a manager of the business to take your place and then dividend back to the investors a portion of the revenue until they receive a payback amount. While you may not reach a full acquisition as planned, there are several ways to exit the business and pay back the investors. Read more in the TEN Capital eGuide: http://staging.startupfundingespresso.com/how-to-achieve-an-exit/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    Startup Exit Strategy

    January 17, 2022

    2 min read  The end goal of most startup organizations is to eventually exit the marketplace. This is when everyone involved in the deal makes their largest profit off the business. Strategy is key to a successful exit. In this article, we discuss how to plan for an exit, ways to exit, and how to negotiate the exit. Planning For an Exit Startups should start planning for an exit after they achieve product-market fit. The following are some key points to consider when planning your approach to an acquirer: What are the key metrics the acquirer will look for? What are the company’s metrics and how do they currently look? How big is the market for the company’s product? What initiatives are underway that will produce value for the company? How is your companies product compared to the competitor? What is your primary competitive advantage? How consistent is your growth rate? What is your forecast for the coming three years? How will your company be perceived by the potential buyer? Use them to guide your funding, hiring, and strategic plans. Looking For An Exit Startup investors look for an exit in the 5– to 7-year range. As a startup, you need to consider the exit from the beginning as the exit strategy can inform your decisions around funding, hiring, and more. Here are several exit options to consider: Mergers and acquisitions – most companies exit by being bought by a bigger company. Going public – some companies still use an IPO for an exit. It can be expensive due to compliance, so fewer companies take it. Private equity firm – more companies are staying private longer and often use PE firms to give the early investors an exit. Revenue sharing – some investors exit by taking a revenue share for their return. Liquidation – some companies can be sold for the assets to provide a return to the investors. Share buyout – some investors will accept a buyout of their shares from the company to provide an exit in the event there is no other option. If your investors are family members or others who do not expect to be paid back, then you can skip the exit and just maintain the business.  As you launch and grow your business, keep a list of potential exit options and consider what you would need to do to achieve it. Negotiating The Exit In negotiating the exit with an acquirer you’ll need to know the following: Key metrics about your business, both those that show the company in a positive light as well as a negative one. The total addressable market for your company. The top three opportunities your company can attack. The company’s competition and competitive advantage. The company’s track record in meeting forecasts and accomplishing milestones.  Also, acquirers will ask why you are selling the company and why now? Why is the acquiring company a good fit for your company? How closely aligned in operations is the company to the acquiring company’s operations? How much integration work will need to be done? What role will the CEO play after the acquisition? Think through the answers to these questions as most of them will come up.  Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

    Exits: How and When to Do It

    January 10, 2022

    2 min read As a startup investor, it is imperative that you are considering the exit strategy before beginning the investment as this is what determines your return on investment. When, how, and to whom the startup will sell are essential topics to cover at the beginning of your relationship with the startup organization. Let’s take a look at each of these topics. Timeline For an Exit Most exits come from another company buying the startup. It takes six months to a year to complete a buyout. Delays often come from the startup not being prepared or ready for the M&A process. Additionally, setting valuation and final terms can take substantial time for research and negotiations. To shorten the time, consider the following: Identify and contact the likely buyers and build a relationship before starting the process.  Position the startup leadership as a thought leader with published articles and keynote speeches to provide credibility. Build a data room of key documents that will be used in a transaction process. This is basically a gathering process, but does take some time.  Beware of competitors in the diligence process as they will have access to your detailed financials and other information. Understand the interest level from the buyer and what other activities may delay their work on your deal. Set realistic expectations for how fast things will go. Early Exits In setting the exit, most investors look to maximize the exit value. It’s important to remember that the metric investors use, Internal Rate of Return (IRR), has a time component to it. The faster the exit, the higher the IRR. As an investor, consider pursuing the highest IRR and not just the biggest dollar exit as bigger exits take longer. While the news highlights the biggest exits, the vast majority of exits are under $20M. Selling a business for under $20M is not that hard, however growing a business and selling it over $100M is very hard. Most acquirers don’t need the business to be large, they just need to know the business model is defined and is profitable. Staying in the deal longer opens up the investor for dilution and other events that reduce the return on investment. A startup should be proving their business model and turning it into a repeatable, predictable process. With funding and time, it will scale. As an angel investor, you should look for early exits and structure your investments accordingly. Finding Alignment Investors should gain alignment with the startup about the exit before making the investment. This includes the size and timing of the exit. There needs to be some clear thinking and research about who will buy the company and how much they will pay. The investors and the startup need to work together to achieve the exit. One of the biggest impacts on the exit for early-stage investors is follow-on funding. It’s important to gain alignment on the subsequent financing rounds required and the impact it will have on the early investors. It’s often the case the startup is overly optimistic and comes back later asking for additional funding.  Also, be sure to discuss the path the startup will take to achieve the exit; will the company grow organically, or will it push aggressively for growth? It’s important to maintain communication about the exit strategy and discuss whether the company is on track for it or not.  Finding The Buyer In selling a business there are two types of buyers: strategic buyers and financial buyers. Strategic buyers look for companies that can enhance their current business. Financial buyers look for companies that generate cash. Their motivations and concerns are different. The strategic buyer will look to see how closely the acquisition is to the buyer’s business and how much work it will take to integrate it, while the financial buyer will look at the financials to determine the cash flow and how long it may sustain. A company seeking a buyer will need to develop a relationship with CEO and VP-level contacts in the industry. This can be done through introductions, conferences, and other events. The company may also find an avenue through the corporate development team in some cases. Bankers are also potential conduits to potential acquirers. The board of directors of the acquiring company may provide an additional entry into the company. Finding the buyer takes time and building a rapport takes even more time.    Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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