Exiting the Exit

Below please find a guest column that Nino Marakovic and Elizabeth Clarkson contributed to Fortune Term Sheet, in which they debate what makes for a better exit — an IPO or acquisition?

Everyone in the venture-backed technology industry — entrepreneurs, venture capitalists, and limited partners — can probably agree that a healthy exit market is critical. Without sufficient exits, there would be a liquidity gap, which would negatively impact everyone. Yet not all “successful exits” affect all the players in the venture world the same way. Accordingly, there are different views on the best path to liquidity.

Take IPOs. They’ve historically generated amazing returns for employees and investors — more than M&A exits.

Read more

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Research Delivers Investment Lessons for Achieving International ROI

In May 2014, New Zealand tech success story GreenButton was acquired by US software giant Microsoft adding the company to a small but growing list of successful Angel funded kiwi technology exits. 

Dan Khan a tech entrepreneur, investor and former director of Lightning Lab, New Zealand’s first tech company accelerator, has conducted in-depth research on behalf of AANZ and NZVIF into the journey of the company from startup to exit. The resulting papers provide valuable insights for kiwis driving towards doing international deals, the subject of this years Asian Business Angels Forum (#ABAFNZ15) in Queenstown, October 14-16 2015.

ABAF2015, NZ

GreenButton’s success was not born overnight. The reality is one of relentless determination by the founder; big, bold decisions, backed by serious hard work; emotional challenges resulting from financial strains and extensive periods of being away from friends and family; an unrelenting focus on the end goal and a substantial commitment of expertise, time and effort by lead investors.

Angels invested in, or working on investing in Kiwi tech companies can learn how to achieve the highs and bear the lows of tech success on the world stage from the detailed research paper which steps through the “Anatomy of a Successful Exit: The GreenButton story”. Download it here.

Dan has also written a short form overview of his findings in a personal “Reflections on a Successful Exit: A Post-Post-Mortem of the GreenButton Story”, to entrepreneurs as he tours the country. His travel is being supported by the Angel Association of New Zealand and The New Zealand Venture Investment Fund. To receive a copy of the overview paper click here.

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Tom McKaskill talks Angel/Founder alignment #AANZSummit14

Angel Association New Zealand Summit 2014

Each year’s Angel Association New Zealand Annual Summit brings keynote speakers from around the world to share their knowledge and networks.

In 2015 we will hold a special Summit, merging it with 2015’s Asian Business Angel Forum and welcoming Angels who are looking for opportunities to do business with New Zealanders.

In 2014 we welcomed Australian entrepreneur and Angel investor Tom McKaskill as guest speaker and panel member. Tom McKaskill has some pithy advice for angel investors and angel backed companies. He encourages us to build ventures that acquirers can exploit quickly on a global basis and create alignment early on.

Read more from Tom here

To view this video on youtube click here

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John Huston: Knowledge and Insights #AANZSummit14

Angel Association New Zealand Summit 2014

Angel Association New Zealand Annual Summit 2014 welcomed leading American Angel John Huston as keynote speaker and panel member to share his knowledge and insights with the New Zealand Angel investing community.

Read more from John Huston here:

http://www.angelassociation.co.nz/news/angel-entrepreneur-news/2014/10/angels-light-path-nz-start-ups

http://www.angelassociation.co.nz/news/2014/10/guest-post-john-huston-keynote-speaker-aanzsummit14

Download resources shared by John Huston here:

http://www.angelassociation.co.nz/resources/john-huston-presentations-documents

 

To view this video on youtube click here

ABAF2015, NZ

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ACA Report 2: John Huston on exit strategy “Driving lucrative exits is not a quick flip…”

John Huston led a session at the 2014 ACA conference (www.angelcapitalassociation.org/2014summit/) in Washington, DC, on “Driving Lucrative Investments from the Board room”.  His focus on exit strategy was clear and loud.

John, ex-Chairman of the Angel Capital Association & the Angel Resource Institute, is quite literally a walking wikipedia of Angel intel and an energetic presenter. He founded his Angel investment group, Ohio TechAngels, in 2004 after retiring from a 30 year banking career and is currently investing out of their third fund focused solely on Ohio-based technology start-ups. At 282 members it is one of the largest groups in North America.

We will be welcoming John Huston to New Zealand in October 2014 at the #AANZ Summit14 at Orakei Bay, Auckland. Register for the Summit today to hear from John in person, places are limited so be quick.

John started his ACA 2014 presentation advising “great exits start with exit-goal congruence, and therefore it is important to give founders the heads up this is where you are heading from the get go. You are both going to be building financial and entrepreneurial wealth.”

“Your message regarding exit-strategy to founders: if you want $3-5m in your pocket in about 5 years and you’ll be working 80 hour weeks. Minimum wage!”

As their angel investor you want them to see their baby grow up and be successful.

He then asked the question Angels should all ask themselves: Are you growing your “ABC” (angel backed company) to attract financial or strategic buyers? Financial exits which are 6-8x and based on ebita take too long. This is NOT what you are after. Strategic exits is about building real value.

Are VCs required for the exit? He had no good or bad answer. But noted that VC’s goals are rarely aligned with angels. They are required to balance their duty to LPs against ABC shareholders and will generally want all ABC directors off the board. And always ask is the VC director you are getting the one that PERSONALLY drove the last exit. Chances are he didn’t. VC’s are motivated by raising the next fund… and what metrics they need to demonstrate to do this.

Publicly owned companies also have very different goals from an ABC. Maxing shareholder value etc not selling the company. Share performance vs sector performance etc, ie: not big multiples.

Angels buy and sell our shares at a negotiated price and do the following:

  • Raise follow on rounds
  • Help recruit team
  • Replace CEO
  • Build strategic value
  • Drive lucrative exits (which are NOT the same as ‘quick flip’ strategies)

Other gems of Angel wisdom from John included:

Dilution kills you. So be as capital efficient as possible.

Angel Investor directors need tools training and aligned expectations.

Build a capital access plan. If you need VCs you are adding another layer of risk. You will have to increase the price and value enormously to outweigh the dilution.

Know the difference between an IRR and multiples.

Take an inventory – your strategic assets (what you own) and capability (what you do).

Identify potential acquirers. Prioritize a maximum of 5 identified by their ability to pay $50m for the company and their willingness to bid. Then work on their willingness. Can you sell anything to them and then identify the customers that will impress them? Not every customer will have the same value to the acquirer.

Track TSB (targeted strategic buyer) and attract their attention.

Engage a banker. If needed.

Have all directors take more of a role in the sale of the business so that CEO can keep driving the sales.

Alternative strategy is “build a great company and they will come!” which is not an exit strategy that has any more chance of success than build a great product and they will come.

John concluded with a bunch of questions Ohio Tech Angels have identified to ask founders, with number one on the list being the need for them to answer: Why would an acquirer want to buy your company?

– Suse Reynolds, from Washington, DC, USA

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