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Negotiating the Terms Sheet

2min read Negotiating the Terms Sheet  During the ACA Summit, Robert Robinson of the Hawaii Angels offered the following advice. There are three elements to understand in any negotiation: Commitment – what have the parties agreed to? Verification – how will we know that everyone fulfills their commitment? Enforcement – what happens if a party does not fulfill its commitment? Areas to negotiate include: –Expectations–Process–Terms Sheet–Communications–Portfolio governance–Follow-on financing–Exit During the presentation, he brought up a key point of negotiation when he stated,“Principles unite, numbers divide.” As soon as someone starts using numbers, conflicts start to arise. At some point in the negotiation, numbers must be used, but building a common base first goes a long way in helping navigate through the possible numbers later. The negotiation process itself is important. In this blog post, a first-time CEO gives his experience in negotiating with a VC and applies it to angels. Knowing the terms and what they mean is critical to the negotiation process. I’ve sat across the negotiation table with entrepreneurs who, from time to time, lean over to their attorney and ask, “What does that term mean?” To that end, we’ve taken steps to provide more training to entrepreneurs in the form of special events like the Central Texas Entrepreneur Funding Symposium and Mock Terms Sheet practices sponsored by Andrews Kurth. For a tutorial review of Terms Sheet terms, check out this site.   Read more on TEN Capital Network 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

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

How To Plan for an Exit

2 min read At some point, every startup will need to exit the marketplace. Being prepared is key to doing this with success. In this article, we discuss how to plan for an exit and how to prepare for exit negotiations. Planning For an Exit Here are some key steps to take in planning the exit for your company: Understand why you are exiting the business.   Is this exit going to be seller motivated or buyer motivated? Explore the options. Consider who would be the best acquirer or which company would be best to merge with. Consider the market and industry. Is your industry consolidating? Is the market growing? Know what your company is worth. Research comparable valuations of similar companies. Revenue is typically a key factor along with profit. Start talking with potential acquirers and update them regularly on your progress. Ask other founders and CEOs for their exit experience. Find out what they discovered in going through an exit. Ask your current investors about their experience with exits to see what they know. Once you have a target acquirer, make a list of what they want to see in your company in order to buy it. This list becomes your strategic plan. Negotiating an 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.  Why are you 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. Preparing to Achieve an Exit At every fundraise stage the CEO can choose to raise funding or sell the business. If you choose to sell your business, how can you go about doing so? Meet all the C-level people at companies that could acquire you, and the CEOs of companies who are potential acquirers. Gain an introduction and then generate an ongoing dialog with the CEO. In the process of doing so, you can determine their interest in your type of business. If they like what you do and can see how it fits into their business, then you have an opportunity to pursue being acquired. As always in business it is about starting and building relationships. 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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