Sara Deshpande has been privy to twenty-seven investments and six acquisitions in her time as a Partner with Maven Ventures. She sits down with SheWorx to discuss how, in today’s unpredictable world, a startup can successfully position itself for an exit.
Develop an Exit Strategy Right from the Get-Go
While you may struggle to imagine a scenario that would take you, the founder, out of the driver’s seat, it’s important to make concessions for the future. Where do you see yourself in five years? Will you have a family? Do you have other projects that may take precedence over this one? Is your startup wildly successful or is it starting to lose steam?
While developing an exit strategy doesn’t exactly top the priority list in the first stages of a startup, it’s an important part of the fundraising process. Investors want to see an exit strategy because the exit is the most important part of the equation. It’s what gives them a return. By identifying when and how you will leave your startup (ie. if sales reach xx, if profit margin falls below xx, if xx key talent is not recruited by xx date, etc.), you are also better equipped to make difficult decisions if and when the time comes.
Build a Rockstar Tech Team
Deshpande can’t emphasize enough the value of a strong, cohesive tech team. This might mean having an ace engineer who is a master at building tech infrastructure, a trusted team lead who can manage the development process, and several other key players who understand your brand and product, inside and out. Take home point: Investors look for talent they can’t recruit on their own. In this case, the buyer will be more interested in the talent, than the product being sold.
Cultivate Relationships with Potential Buyers Early-On
“Know who your potential partners are… and start to build those conversations early on”
Start networking. Do your research. Know who might be in the market and looking to purchase. Make a list of potential buyers and build relationships with them. Is your product attractive to a specific company? Find out how you can work together. Are they trying to diversify? How can you leverage your brand to give them a competitive advantage? If you play your cards right, what starts out as a discussion about partnerships can eventually morph into a merger or acquisition.
Be Aware of your Cash Position
The worst time to exit your startup is when you’re running on empty. Finding an appropriate buyer can take months, and you want to make sure you have enough money in the bank to continue operations as per usual. Increasing revenue during acquisition talks can push you into a new “range” of traction for investors. You need to figure out what will increase investor demand, which will in turn increase your valuation. As your valuation goes up, other companies are more likely to want to negotiate a deal.
A good fundraiser can generate buzz and excitement with a good pitch. Same thing goes for an acquisition. You need to sell your company just like you would a product. What makes you unique? What makes you desirable? Regularly engage your network and romance more than one potential buyer if you need to generate some healthy competition.
Meet Sara at2017 SheWorx100 Summit in SF on May 10th!