(FROM THE WALL STREET JOURNAL 6/18/15)
Many entrepreneurs focus their energies on starting and running
their businesses, and may overlook the potential drawbacks of their
exit strategies, or ways investors will get their money back.
Acquisitions and initial public offerings can bring
unanticipated challenges. For instance, Etsy Inc.'s stock has
fallen nearly 50% since its market debut in April, in part because
of a wider-than-expected quarterly loss last month.
On The Accelerators, a blog on the challenges and strategies for
starting new businesses, experienced entrepreneurs and investors
shared their perspectives on exit strategies, including
acquisitions and IPOs.
Edited excerpts:
An Exit Isn't a Finish Line
There are many kinds of exits, and not all of them are created
equal.
With acqui-hires, a company buys a team. Often, the team gets
taken care of but the new company isn't interested in the service
or idea they are chasing, and will shut it down. Asset sales are
the opposite: a company wants some of the technology or assets, but
the team doesn't get taken care of as part of the deal.
Going public is the gold standard of exits, where both the
shareholders and employees make significant money. But we're now
seeing more companies staying private. Thanks to increased access
to funding, startups are able to get the money they need at the
valuation they want.
While an exit is an incredible accomplishment worthy of a
celebration, it is never the finish line. In fact, it's just the
beginning. If your intention is to build an enduring company, the
fight for excellence never ends. And getting to greatness gets
harder and harder with each rung of the ladder.
Great founders know an exit isn't the end, it's just the next
step.
-- Maynard Webb, founder of the Webb Investment Network, Los
Gatos, Calif.
Always Look for Options
It's currently in vogue for founders to claim they're "in it for
the long haul" and are "looking to build a lasting enterprise."
Everyone wants to change the world, but at the end of the day
you have to be able to provide a return to your investors. That's
why I believe founders should always look for potential exits. That
doesn't mean they should be actively looking to sell their
business. It simply means that responsible founders survey the
landscape and always have a solid understanding of their
options.
When entrepreneurs understand their exit opportunities, they're
able to develop better overall strategies for the company.
At BodeTree, we've worked with everyone from banks to insurance
companies, and each interaction has helped us understand our
overall opportunity, the market's needs and our place in it. It
also helped us formulate our long-term strategy and refine our
goals.
When entrepreneurs refuse to engage with potential suitors out
of principle, they miss out on valuable insights that can help them
in the long run.
-- Chris Myers, co-founder and CEO of BodeTree, Denver
A Knock on Your Door
Imagine someone knocks on your door and tells you they want to
buy your house, despite the fact that it's not on the market.
That's what it felt like when we sold Expertcity, the creator of
GoToMeeting, to Citrix [Systems Inc.].
They politely approached us, said they had an interest in
acquiring our company, and asked, "How much?"
As our negotiations became serious, we started thinking about
alternatives. We were more concerned with ensuring a cultural fit
with our acquirer than squeezing the last dollar out of the
deal.
Citrix promised to operate Expertcity as a separate division and
maintain its offices in Santa Barbara.
In the end, Expertcity's revenue was growing so fast that it was
becoming too expensive for Citrix to purchase. Thus, doing nothing
became our plan of action. It pressured Citrix to expeditiously
complete the transaction.
-- John Greathouse, partner at Rincon Venture Partners, Santa
Barbara, Calif.
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