Shawn Atkinson, partner at international law firm Orrick, shares his advice on how to achieve a successful exit.
While many tech founders start their businesses with innovative ideas and altruistic intentions, many forget that part of the measure of success is having a smooth and positive exit, be that a public (IPO) or private sale transaction.
In order to fully capitalise on any opportunity and ensure a seamless process, there are a few key considerations that tech founders should be aware of at the outset.
Prepare for the journey
Preparing your company for sale, first and foremost means preparing your team. This includes having solid records in place and ensuring that intellectual property (IP) protections are comprehensive and up-to-date.
Making sure financial records and accounts are meticulous, timely and transparent is also critical to having a strong, competitive sale process. Having a prospective purchaser uncover that a target company’s annual accounts or other regulatory filings are not up to date at best makes the target look disorganised and can trigger more in-depth diligence being done by a prospective purchaser’s advisers.
Further, a sale process is a very taxing process and inevitably involves the entire company. Often a founder has to rely on a lot of good will from existing employees to put in that little bit extra – from staff who are already stretched doing their day job!
Building an effective mental health programme in your business is an imperative
In addition, a sale process can be a very personal experience too. Building a business from scratch means founders are often incredibly emotionally invested, and going through the sale process is often difficult, without any certainty of outcome. Having a dedicated mentor or board level advisor can be a huge help – someone who has been through the process before and who can act as a sounding board or helping hand.
Understand the route
While internal preparation is important, researching the market or pool of potential acquirers is also critical. Understanding what they like to see, and what they don’t, enables an already stretched team to focus their time and effort in the right places. While having a good advisor in place should help, you should not underestimate the value of knowing your own market – both in terms of dealing with prospective purchasers but also freeing up your financial advisors to focus their time on real value-add items.
Appreciating that each prospective buyer is different is essential. Some potential acquirers are looking for a business that can replicate what they offer, while others may be looking to use your innovation to revolutionise their business. Also, fully appreciating the commercial rationale for an acquisition from the start can also help mitigate any disagreements down the line, as both sides have a fundamental understanding of each other’s goals.
Going through a sale process necessitates a great number of decisions, but as with any transformative change, being realistic is imperative. Having a measured view about the implications in terms of pricing, process, timings and the impact on your business pipeline and costs helps manage sky high expectations both personally and of the wider management team.
How to choose a PR firm that’s right for your startup or scaleup
The sale of a company can be a burdensome process that will inevitably impact the founder’s ability to focus on the business, so make sure that key stakeholders in the company are aware of how this will affect short term prospects. While there may be disruption during the process, stay focused on the end result and accept that challenges now can mean opportunities later.
Get the right team
Choosing the right legal, financial or accounting advisors makes a huge difference to the success of any transaction. Get fit for purpose advisors who partner effectively with you and your senior management team – it’s about finding someone who seems like an extended member of the team, but has an objective perspective. The right advisors should take much of the burden off the company in terms of process.
Once you have the right advisory team, empower them and let them do what they do best. Putting your trust in them means letting them drive the process and accepting that they have the business’s best interest at heart, even if they suggest something you may not agree with.