The recent acquisition of our portfolio company of ten years, UltraSoC, by Siemens shows that historic business events continue despite the ongoing pandemic. For all startups, the rules of “how to exit well” still apply. But if the maxim is true, that “companies are bought not sold”, how do you pro-actively steer your organisation towards an exit?
Hope is not a strategy
Every company that takes VC money, is ultimately on a journey toward an exit. That much is obvious. What is sometimes less obvious to those further away from the coal face is that you don’t build a company just to ‘sell’ it. After all, it would be hard to base all your decision-making on a non-deterministic event. Hope is not a strategy. But it does benefit founders and their companies to sense-check the way they think about their ultimate exit, right from the beginning.
Finding the right acquirer should be more about attraction than promotion. This is the art of being known, by the right people, at the right time. Yes, visibility is down to good PR, but it shouldn’t just boost your fame indiscriminately, it should strategically control your reputation. Potential acquirers need to know first that you exist, and second that you are uniquely interesting.
A systematic approach is required. You should know your top 5 likely acquirers, maybe the next 10 potential ones too. The decision-makers in those organisations should be known to you as well as the peripheral influencers. Then you can ask yourself what they know about you. Are they positively disposed towards you and if not, what can you do to change that? Getting the right message in front of the right people so that they know the right things about you is the key, then they can spontaneously start to think about you as a positive acquisition opportunity.
You’re not selling, you’re laying the foundations. You’re creating the sizzle. The result is that you emerge as part of their natural evolution: they come to see how you are just the missing piece they need.
The art of blowing your own trumpet
It’s a cultural thing, but US companies tend to be better than their European counterparts at telling the world about themselves. They can – and often do – talk themselves into pole position. Often companies with inferior technology and less traction can win the favour of acquirers over their quieter European competitors. Yes, you can be “small and interesting”, but it’s a big world out there and any company under $200 million can easily be invisible to the bigger fish. So trumpet-blowing is a necessity, not just loud, but proud.
Magic Pony was a company where, as investors, we were able to give a timely nudge towards the spotlight. Over the course of our investment we encouraged the founder to ‘get out there’ and contrary to his instincts, let people know what he was doing. Though reticent at first, ultimately he embraced the stage where at some point, some key decision maker present in the audience took notice and ultimately, with Jack Dorsey’s close involvement, Twitter acquired the business. Had the opportunity been missed, it’s possible that a competitor of inferior quality but noisier presence could have satisfied Twitter’s need. This leads to a further reason for being open to the idea of acquisition: the category leader’s premium. Being first in your sector, particularly when being acquired by a tech major, is preferable. To be noticed by the giants; you need to stand tall!
As was the concern of Rob at Magic Pony, there is a downside to high visibility and this is where timing and readiness come in. Making the kind of noise that attracts attention can alert your competitors to an opportunity. They may then be able to out-manoeuvre or out-execute you. It’s a risk and is indicative of the ‘right-time, right-place’ element of this process. But don’t let perfection be the enemy of progress. Boldness, not timidity, is more likely the quality of the entrepreneur, so perhaps this is a truth to bear in mind, rather than be steered by.
We encourage the companies we work with to maintain a live list of potential acquirers – and a deeper level of individual relationships within that list. They have not just one target acquirer, but a few. Plans A, B and C are present, not obsessively, but with enough of a pulse to stay warm, grow and be ready for when the time is right. Some later stage companies have Exit Committees, set up to manage all the processes mentioned above.
Build it and they will come
There is no hard and fast formula for success. However, an exit is the inescapable reality of the VC-funded startup. Growing an exceptional company can be its own exit strategy. It will tell its own story through its success and standing in the sector. However, a future-facing outlook to the wider ecosystem that could and should be interested in your company will surely benefit the company you’re working so hard to build.