How Do I Exit and What Happens Next with Justin Kan, Jess Lee and Mike Marquez | Summary and Q&A

TL;DR

Three founders and an investment banker share insights on the process of building and selling startups, emphasizing the importance of building relationships, focusing on company growth, and considering the right time for an exit.

Key Insights

• 💪 Building a strong company and achieving product-market fit are the top priorities for founders before considering exits.
• 🗯️ Developing relationships with potential acquirers throughout the startup journey helps increase the chances of finding the right acquisition partner.
• 🔒 Selling to private equity firms differs from selling to corporate acquirers, and negotiating with private equity buyers can be a unique experience.
• ❓ Founders must keep employees informed and address their concerns during the sale process, being honest about uncertainties and emphasizing the company's commitment to success.
• 🍉 Long-term support, a strategic fit, and the potential for continued growth should be considered when selecting an acquirer.
• ⚾ Valuation should be based on realistic assessments of the company's worth, rather than inflated numbers, for a successful exit.

Transcript

all right thank you so much and we look like we're filling the crowd there's still some seats on the right and left for those standing in the back but I'm really excited about our panel right now how do I exit and what happens next I think particularly it disrupt in particularly a tech French we talk a lot about growth and building startups and goi... Read More

Questions & Answers

Q: When should founders start thinking about exit opportunities?

Founders should primarily focus on building a solid company first, with exit considerations coming after achieving product-market fit. However, developing relationships with potential acquirers from an early stage is beneficial.

Q: Who drives the momentum around a sale?

The founders must have a deal champion within the acquiring company who believes in the value and potential of the startup. This person's commitment is crucial to driving the deal to a close.

Q: How should founders handle employee questions during the sale process?

Transparency with employees is essential, but it's advisable to keep the sale process under wraps due to its potential for distraction and uncertainty. If news of the sale leaks, founders should acknowledge it but emphasize the unpredictable nature of the outcome.

Q: Is it important to address exit opportunities during fundraising?

It's generally not recommended to discuss exit opportunities during fundraising as it might raise concerns about founder commitment and can dissuade potential investors. Focus on building a good company and creating value, rather than exit strategies.

Q: What factors should be considered when selecting an acquirer?

Strategic fit, team satisfaction, valuation, and potential for continued development are crucial factors. Valuation, in particular, should align with the company's real worth and fundamentals, rather than focusing solely on a high valuation.

Summary

This video features a panel discussion on the topic of exits in the startup world. The panelists include Mike Marquez, the founder of a boutique investment bank; Justin Kahn, the CEO and founder of a startup law firm; and Jess Lee, a partner at a venture capital firm. They discuss when and how founders should start thinking about exits, the responsibilities of a founder in considering exit opportunities, and the factors to consider when selecting an acquisition offer. They also discuss how exiting a company can change the way founders approach investing in the future.

Questions & Answers

Q: When should a founder start thinking about exits?

The panelists agree that founders should start thinking about exits early on in the startup journey, but not to the point where it becomes a distraction from building a great company. Developing relationships with potential acquirers and understanding the strategic fit is important, but it shouldn't be the main focus at the early stages.

Q: How should founders navigate differences of opinion on exits with investors or board members?

It is important for founders to have a deal champion within the company who believes in the value of the acquisition. It's also important to have open and honest conversations with investors and board members to creatively solve any differences of opinion. Making sure everyone is aligned on the company's vision and goals is crucial.

Q: How should founders handle employee questions about a potential sale?

The panelists recommend being transparent with employees but also being mindful of their focus and distraction during the acquisition process. It's important to keep the process quiet until it's certain, and if it does get leaked, honesty is key in addressing employee concerns. Managing expectations and reminding employees to focus on building a great company is essential.

Q: Should founders mention exit opportunities during the fundraising process?

The panelists suggest that founders should focus on building a good company during the fundraising process rather than actively seeking exit opportunities. While it's important to have optionality and develop relationships with potential acquirers, it's not something that should be explicitly discussed or emphasized during early-stage fundraising.

Q: How do founders and investors handle differences in valuation during the acquisition process?

Valuation can be a challenge during the acquisition process, especially if the expectations of investors and founders don't align with what the acquirer is willing to pay. It's important to be realistic about the true value of the company and understand that valuations in private markets may not translate directly to the acquisition price. Managing the expectations of investors and employees is crucial in these situations.

Q: How has the experience of exiting a company impacted the panelists' approach to investing or starting new ventures?

The panelists note that exiting a company gives a different perspective on valuation and the importance of building a fundamentally sound business. It emphasizes the need to focus on creating a great company rather than just aiming for a high valuation. It also highlights the role that timing and strategic fit play in the decision to sell a company.

Q: How has the transition from being a founder to working at a larger company been for the panelists who have gone through acquisitions?

The panelists have had different experiences with this transition. One founder stayed with the acquiring company for a period of time and found that the stress levels decreased significantly. However, the team had to deal with more red tape and bureaucracy. It's a mixed experience, with some benefits and challenges depending on the individual and the company they joined.

Q: What factors should be considered when selecting an acquisition offer?

Factors to consider include the strategic fit of the acquiring company, the alignment of vision and culture, and the price being offered. It's important to weigh the benefits of partnering with a larger company for scale and resources against the potential risks and changes that may come with the acquisition.

Q: How long does the acquisition process typically take from start to finish?

The timeline can vary, but the panelists mention that the upfront courting and relationship-building process can take anywhere from a month to several years. Once there is a formal offer, the negotiation and due diligence period can range from 45 to 90 days. However, it ultimately depends on various factors and the specific situation.

Q: How can founders navigate the challenges of high valuations during the acquisition process?

High valuations can create challenges if the true value of the company doesn't match up with what the acquirer is willing to pay. It's important to focus on the fundamentals of the business and make sure that the valuation is based on factors such as revenue and cash flow. Founders should be aware that valuations in private markets can fluctuate, and the acquisition price may be different.

Takeaways

The panel discussion highlights the importance of founders considering exit opportunities while still focusing on building a great company. Developing relationships with potential acquirers early on provides optionality and allows for better control of the outcome. Valuations should be realistic and based on the true value of the business, taking into account factors such as revenue and cash flow. The transition from founder to employee at an acquiring company can be a mixed experience, with potential benefits and challenges. Founders should also be mindful of managing employee expectations and maintaining a focus on building a great company throughout the acquisition process.

Summary & Key Takeaways

• Building a good company and establishing product-market fit should be the primary focus for founders, with thoughts of exits coming later on.

• Developing relationships with potential acquirers and partners throughout the startup journey increases the chances of successful M&A deals.

• CEOs should consider the right timing for an exit, taking into account factors such as product growth, team energy, and strategic fit with potential acquirers.