Planning for an Exit Some Lessons for VCs & Entrepreneurs

Mark Suster Rincon Venture Partners LP & CEO Summit, November 2012 @msuster

Understanding the Market for Venture Exits

Most Entrepreneurs Have Unrealistic Expectations of Exit Values

I can always get acqui-hired for 15 million bucks

Or As Pandodaily Put It

Of course its much harder than that but you wouldnt know it from the press

Most VCs Dont Have a Strong Sense of Exit Values Either. Its Not Only HRs

The Fallacy of Bimodal Returns. Great Funds Often Built in the Middle

Source: USV return data per AVC.com

The Reality Is - There Arent Many VC Exits > $100 million

Source: Capital IQ

And Many of These Raised Huge Sums of Money so Returns Arent Clear

And There Arent Many VC Tech IPOs Either

Source: Capital IQ

The Median VC Exit Value for 2010 Was $70 million Guess What? Entry Price Matters

Source: Flag Capital via Bryce.VC

What Does This Mean for Entrepreneurs and VCs?

I Recommend Entrepreneurs Start Lean, Only Go Fat If Product/Market Fit

Progress / Capital
Fat

Keep Options Open

Inflection Point

Time

When The Hors Doeuvres Tray is Passed Take Two

And Put One in Your Pocket

Just Dont Take the Whole Tray!

As a VC We Try to Lean in Early on Winners & Avoid The Mark Up Game

ownership %

3
30%

1
20%

Get Ownership in Solid Performers

2
Lean Early on 20-25% Big Winners

Small Initial Check

10%

$0.5

$2m

$4m

$8m Total investment ($m)

Fat is good when youre on to something really special, but Sometimes NOT Having a Big VC Above you in the Cap Table is a Great Thing for both VC & Entrepreneur

It Keeps a lot More Options Open

Source: Mark Suster. Having been burned before by misaligned incentives on exits

Selling Your Company

Companies Are Bought, Not Sold

PR Matters. I know. It shouldnt. It does. Get Biz Dev or Sales Deal People buy people they know. Start Early. Need to Take Early Meetings (just like raising VC) Leverage VCs. Corp Dev use as a quality filter

Use Banks Wisely. Some deals fees nothing compared to price increase, closure %. But bank must have skin in the game.

Need to Know What Type of Acquisition You Would Be

Value to Acquirer
Defensive Move Strategic Threat Revenue Driver Product Gap Talent Hire
$1m / Dev Location Matters Avoid or Delay Disruption Cant Afford to Have A Competitor Own

Purchase Price

Organizational Purchases
Champion You Beat You Up

Sell Your Product

Business Buyer

IT Dept

Legal / Finance

Sell Your Company

Sales

Product

Corp Dev

In some companies Corp Dev leads strategy / investments. In others they are the deal execution teams. Know your buyer.

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