Exit Plan
Founders often start businesses with two big aims.
They want to create and lead an organisation towards a chosen objective, and by doing this they want to create a life-changing amount of money.
These two aims are commonly at odds with one another in the sense that keeping control as you grow the company, continuing to own it all, and calling the shots means limiting the key ingredient for growth, which is capital investment. Founders who are happiest being rulers of their empires perhaps control smaller, less well-capitalised companies operating below their potential. That can be just fine where a business makes steady efficient growth in its niche as a smaller firm, or it may be a path to failure. The exceptions are the bossess of big companies who kept control, the likes of Elon Musk and Marc Benioff, who poured their millions they’d already made into funding SpaceX, Tesla, and Salesforce.com. Growth with control didn’t come for free. If a founder’s business performs close to its potential, and they can accept the erosion of control over what they’ve created, then they have a shot at a bigger company and maybe life-changing wealth too.
But the road to exit is littered with founders who both failed to make their exit and gave up control along the way. These people stayed true to the aim of the big exit through capital-fuelled growth, only they didn’t execute to the necessary potential along their journey.
For me, as it is for many founders, the plan was always to build a business that I could eventually sell. The big goal of creating something valuable from nothing was something that both our founder shareholders and employee shadow equity holders alike could unite behind. Being co-owners on a journey lit a flame of ambition under everyone, created a vision for a common destiny of more financial independence, and forged tangible professional ambition, so at the end we could each wear the badge that said, “We’ve made it, we were good enough!”
Begin With the End in Mind
After we started our business, my wife encouraged me to fix up a business planning get-together with the co-founders. The goal would be to agree on the aims for the company. Because I’d suggested it to the other guys, I would never have admitted that our discussion dedicated to growth and exit goals felt superficial and fake, like I was promoting a make-believe conversation. But we did come up with a plan, which was to grow the company to tens of millions in revenue over five years and then sell. We were all agreed on that, and it meant thereafter we had complete alignment that we were in it for fast growth and a strong exit. The financial forecast we did was a best guess estimate that we struggled to achieve, and it took us seven years to reach our exit goal. But the act of producing that first plan committed us to a path that would make us a capital-intensive, fast-growth company, willing to cede ownership in the name of progress and exit.
Though our first business plan covered many useful topics and focused us on what we needed to do to get traction, it didn’t include ideas as to who we thought would be interested in buying our company when we’d reached the end of our venture-capital-backed growth trajectory.
We were four years into our project, when my eyes were opened to the need to be specific with exit planning. Until that time, if anyone had asked, I’d have said we were building a company that we’d take public. I was only saying that because I had had no more thoughts or real plans on the subject.
That was a mistake.
As I was investigating alternatives to venture capital funding for early-stage businesses, I found out that there was a small public market for funding companies like mine. As I investigated further, this discussion gave me much more insight to what an IPO—going public—would mean.
Bankers and an IPO
I met with bankers who were expert in floating companies on the London Stock Exchange’s AIM market. The idea was to raise capital by selling a minority stake to institutional buyers. We were principally interested in the high valuations this route to capital raise could deliver. It was not a classic exit conversation. But the bankers set out a plan for the years ahead as a publicly traded stock, and it became clear that the bar for predictability of growth and the cost of compliance and visibility as a public company was very high. If we wished to avoid share price volatility, we’d have to operate exceptionally well each quarter. My research showed that the risk attached to a fast-moving, cash-burning SaaS business meant our stock would interest only a handful of buying institutions, further increasing price volatility. The cost of a flotation also took a hefty chunk of the funds we’d be raising, and once we were public, the management and compliance overhead expenses would stay with us.
As a founder, my decision around how much of my stock I’d choose to sell versus retain, both initially and into the future, would be to a large degree out of my hands, because my decision would drive sentiment toward our stock in the market. Therefore, an IPO would be a long road to diversifying my own risk profile, one that was very intertwined with the business. My own share selling would take time, and over that period be subject to the fluctuations and sensitivities of the public market and our performance.
The most impressive start ups reach a point where they can complete an initial public offering as a mature, profitable company. These IPOs are the dream ticket, where the company raises a war chest and pays off its venture-backed investor cap table; and in these situations, founders do indeed take a great deal of their much welcome cash in exchange reducing their ownership.
After three or four meetings, I thanked the bankers from the London Stock Exchange and brought our discussions to a close. I now had my misgivings about an IPO, and to be honest, given the limited number of institutions interested in volatile tech, the bankers didn’t see this as a totally brilliant idea either.
As I took my venture discussions elsewhere, I held onto the thought that if somebody were going to make the decision to buy our business one day, then I needed to start thinking about who that could be. I didn’t write off floating on the public market one day, but with its many pitfalls, I seriously needed to think about who else may have wanted to become the owner of our company in a few short years’ time.
Before my mental ruminating led me to any names, I realised there would be a long list of practical considerations our future buyer would likely have when looking at us. The choices we were already making that centred around where we were located, where we were selling, our target customers, the types of technology we used, and who our partners were, were all things about which a future buyer would have a point of view.
Even though selling the business would take several more years, we needed to have a target buyer in mind. If we didn’t know the type of company we might sell to, then we could end up building a company that didn’t meet the needs of a potential buyer.
Identifying a Strategic Buyer
There are two universes of buyers: strategic and financial. Strategic buyers are other corporations looking to add innovation by buying a start-up and absorbing it. Financial buyers are private equity funds looking to buy companies that they can optimise for further growth and/or profitability, so that they can later sell the improved asset for a premium.
Selling to a strategic buyer requires your business to align with the board objectives of the acquiring corporation, so that if they approach you or you (or your bank) approach them, there’s a meeting of interests that drives a deal. Designing your business with identified strategic buyers in mind is helpful. In every industry there are major trends that play out over years. For example, in retail the shift to e-commerce began in the late 1990s, and in the automotive sector the shift to hybrids and EVs began in the early 2000s. In both sectors the large incumbents are still investing and buying businesses to transform, even now.
In software, the largest providers, the superpowers arm themselves with capabilities to compete against one another. Over the previous decade, as we started out, the biggest customer relationship management vendors had embarked on an acquisition spree, buying capability in contact centres, marketing, analytics, AI, and more. Their thesis was that their customers wanted to get a 360-degree view of the people and businesses that buy from them, and they wanted to be very targeted at engaging customers. This was a trend into which our business fitted, with our customers able to offer better and more personal buyer choices using our software. It gave them a better customer experience.
So, we knew that customers who bought CRM also bought from us, meaning a big CRM vendor would be a good fit to acquire us. That led us logically to consider what those companies might be scanning for in the market. The leading CRM vendors with deepest pockets—Salesforce, Microsoft, and Oracle—were US businesses, and to get on their radar we needed several things to happen.
Competing and winning in the US market was certainly the best way to get their attention, if they saw customer budget allocated away from them over to us. As a result, we put more resources into our US business. As we explored and expanded the list of potential buyers, it became clear that a massive proportion of the buyer market in our category was in the United States. Operating successfully in that market and having a US customer base and story to tell about the market were going to be table stakes to every buyer, including our eventual acquirer. Any buyer of ours would be looking for the opportunity to take a proven product in the US market and scale it out much further.
Up to this point we’d become very comfortable building product that was tightly integrated with CRM. Using tight integrations to one major vendor allowed us to give customers a very joined-up experience at a lower cost to do business than if we’d been more technology neutral. Planning for exit was a wake-up for us. We realised the advantage of using technologies and integrations around a single vendor ecosystem would disadvantage our exit options. Research showed that companies did not want to buy vendor-specific technology businesses where that vendor was a competitor, as they’d need to rewrite so much of the product.
Shifting to a pragmatic solution, we built and moved our functionality and processes onto open independent systems. We then created more lightweight interfaces with CRM. Whilst this investment was costly and time-consuming, and in truth never fully finished, it was necessary. As we learned later during the selling process, confirming CRM “independence” was one of the first pieces of due diligence done by every one of the interested buyers.
We learned that partnerships were a useful way of creating interest around our business, which could spill over from commercial cooperation to more strategic interest. We aimed to develop partnerships with businesses on our target acquirer list, knowing that strategic buyers often purchase companies that are well known to them, and where there are deep relationships at an executive level that combine with common alignment in business direction to spark an M&A conversation.
We invested in three main technology partnerships, knowing they could create that M&A interest with those companies as well as with direct competitors to those firms as we took deals away from them and created positive PR around the market. In our case we chose one CRM vendor, and two industry partnerships, one in telecoms software and a second in media with a major search platform. In all three cases we took the time to create product integrations that added value to those sectors, and we invested in executive engagement to build champions in these bigger firms so that they promoted our cause. We did the work around co-selling to customers as well as enabling the partner’s own go-to-market teams so that they could sell the joint solution by themselves.
Private Equity
As well as strategic buyers, it was possible that our future owner would be a financial buyer looking to bag a great company with plenty of scope still to mature and grow, so that they in turn could sell it or take it public.
The number of venture capital investors in my company continued to grow and over this time I developed a picture of the financial and operating conditions that would make our business an appealing target to purchase. At monthly board meetings, time and again I would hear discussions about growth, capital efficiency, cash break even, and predictability. I learned about the health metrics of start-ups, and how both sophisticated investors and future financial buyers would judge our business. The list of potential exit options expands a great deal when a company becomes a target for private equity buyers. Private equity firms are funded by institutions to make a steady return on their behalf through buying and optimising companies. They use these funds as an equity stake in the businesses they acquire, alongside debt funding leveraged from banks to cover the full enterprise value of their purchases. PE is a large segment, as increased regulation and fewer IPOs in the public markets have pushed more institutional money into private equity funds. This industry has many trillions of dollars of assets under its control.
Typically professional, patient, and more flexible than public markets, the PE industry makes good returns for investors or LPs. This has driven a long term a trend towards further institutional investment and private equity firms managing bigger portfolios. The PE market is constantly on the lookout for good companies to buy, and for a long time as the cost of the necessary bank debt remained low, buyouts could be competitive for the right type of company.
Other forms of PE investment such as distressed business turnarounds and corporate mergers were not my focus, and thus are not the concern of these notes.
When PE buys a business, their injection of capital and skill is used to prepare that company for its next growth stage. Like you as a seller, from the start they will have their thoughts on what they need to get at their point of exit, and all their decisions will be working back from there.
They will be looking at your business to see how in its early venture stage the company has had predictable sales and demonstrated good operational decision making. Usually this means that if there has been a period of burning through investor cash, the company will now have reached breakeven and positive cash generation. This would confirm a proven market, proven sales system, customer success, and a low-risk company in good financial health. The more conviction possible financial buyers can build in this respect, the more likely you’ll get an offer, and the higher the valuation.
If these criteria are met, then the PE firm will see an opportunity get involved and use its equity and debt funding to take the business to the next level, where it can deliver more value and leave further future value on the table for the subsequent buyer.
Your own growth journey will have been a “J” curve to get to this point of exit, likely growing at a compound annual growth rate of more than 25 per cent during your sales process. In J curve growth, the bottom of the J represents the inevitable investment ahead of the curve that occurs after the company is launched. But then you hope to see the cash consumption curve hit bottom, turn upwards, pass the old point of origin, and rise higher – and in SaaS create a cash generating annuity business .
PE firms will be considering how they make that J recovery even stronger, or invest at the top of an “S” curve to reignite robust growth again, making a “step change” on top of that S.
The most important factor for PE in ensuring future demand is total addressable market. It’s the thing upon which you estimated the future potential of your company as you found your niche and ideal customer. If your business is sound, a “good business” in all the ways described here, then access to capital new is cheaper than at VC stage and a private equity firm has a strong probability of creating strong returns and shareholder value through the deal. They know you have a product with proven demand, and their model means they can fund future company growth relatively cheaply, provided the market is there and demand remains strong.
I was learning I needed to concentrate more of my effort on the things that would maximise both our probability of getting an offer and shareholder value at the point of selling. I was learning that if I wanted to take the company to an exit, I needed to pay attention to the measures my board kept playing back to me: growth, efficiency, cash generation, and predictability. I was learning to take practical day-to-day decisions, often hard ones, that served those measures. Though you may say it was slack of me not to have been concerned with this stuff without the prodding from my board, I believe I was not uncommon as a founder in thinking that exiting was something to consider later, like a station to which the train would naturally arrive if everyone just got on with the journey of being entrepreneurial, creating and operating the business, keeping customers happy, and keeping fingers crossed. Making exit an inevitability, and consciously adding up many small actions over many years to make the business healthy and attractive, is more proactive and actionable than pinning your intentions to a far-off date and keeping fingers crossed.
Your business plan also needs to focus relentlessly on these essential tasks: make sales happen, become sales led, find predictability with a market fit in a niche you genuinely know, plan marketing message and engineering time to focus on problems big enough to excite future strategic and economic buyers long after you sell, and have a business plan that under promises but then delivers strong and repeatedly, because as historical results those will be scrutinised by any future acquirer. This way, over the long run your little victories will add up to strong double-digit multi-year sales growth, a good grip on your expenses, waste avoidance, and deliberately taking the steps that grow and cut your way to cash breakeven. Whilst in the early days, the idea of taking deliberate steps and preparing for an exit in the long run felt alien to me, within a few years I was changing our business on purpose, and planning for the future and for selling.
If Not Now, Then When?
We’d been trading for six years when, my three co-founders and I met for a half-day reconnect at a restaurant on the edge of London’s financial district, overlooking Liverpool Street station and above throngs of office workers on Bishopsgate. We’d been meaning to meet up since the summer, but a combination of never being long in the same country and customer deadlines meant it was nearly the end of October before we sat outside in the cold afternoon light, under gas heaters and blankets in the restaurant’s outdoor rooftop area.
I don’t recall every part of the conversation. At these get-togethers we usually spent time checking in on how we had each fared the several months since last meeting. We’d talk about our families, and always, in the end, we’d talk about our dreams of when this journey would be over, when we’d have proven our business a success by delivering a great new owner and strong future, and when we’d be more financially secure and independent for our toils. We were all tired. It felt like we’d been doing longer days over the last year than even when we started out. We’d been digging ourselves out of some holes in which we’d found ourselves where some months earlier sales had fallen off for a while and disgruntled staff had left.
But all the extra work had been paying off and we were heading for a strong result that year. A combination of near maniacal sales focus and a company reorganisation had got us a long way. Many of these changes I’d initiated with half an eye on our future sale.
I think that day, the four of us were probably patting ourselves on the back for not giving up, and for pushing on and turning the corner. But something just wasn’t clicking, and despite several reasons to be cheerful, our conversation was more muted and less jovial than I could remember over the last six years. Darkness was falling fast over the City of London, and the air was getting colder. We were shifting from one corner of the rooftop to the next to find the last rays of sunshine that were disappearing behind the glass tower opposite us, even though it was only three in the afternoon.
One of my co-founders—a thoughtful and reflective man, who unless presenting the latest architecture to a client, is a man of relatively few words—spoke. “I’ve had enough of this,” he said. “I can’t keep working this hard for a prize that never seems any closer. We’re all getting older and I want my life back. If I believed that we’d earn our reward for building this company, if we weren’t still living hand to mouth and our company was more stable, if we had great cash reserves—then maybe I could push on through to the next stage. But to be honest, right now I just want to quit. We need a plan to sell that we can stick to.”
And that was it. The four of us had worked tirelessly together, always with a common mission, on the same page and supportive to the hilt, and now we had a seismic change. It had been happening as I’d been absorbed in fund raising, sales, and operating, and although slowly reorganising the business for an eventual sale—“eventual” was the key word—I’d been keeping specific exit conversations firmly off the table. We weren’t ready. I wasn’t ready.
It turned out he wasn’t the only one who felt that way. Another of our group had needed to spend much of the year in Asia trying to solve some intractable problems for a high profile customer. He was close to broken, a shadow of his usually bright positive. My third co-founder and his wife had recently started a family, and he was sleep deprived; and with their relatives living across the hemispheres, they were trying to work out where they wanted their life to be in the years ahead.
Life happens around founders as they give their all to their growing businesses, and there are times when carrying on without enough hope becomes impossible. My mistake was that I’d misjudged how demotivating our lack of a clear exit deadline would be. I’d not wanted to make plans, as I believed it would cause a distraction as we fixed our company, and that it would create false hope of a sale. I didn’t have the confidence that despite our best efforts we were close to being ready.
I don’t think I gave anyone much reassurance that day. By the time we’d picked over the bones of the conversation and agreed that things needed to change, it was dark and cold. I said I’d think some more about what we could do. We decided we’d get some dinner, and to clear our heads, we walked several miles together in a bitter wind to a restaurant in the West End of London, where I remember knocking back two or three glasses of wine rather faster than normal, eating fast, and jumping into an Uber home. I always think my best thoughts after sleeping, so I knew I’d be able to come up with a plan the next day; but at that moment I felt like the world we’d been creating was starting to unravel and that a clock had started ticking.
It was time to sell.
The next day I reflected on the revelation that serious change was needed, and I spoke to my wife, about it too. She said, “It just isn’t surprising that the other guys have reached this point. I am surprised it hasn’t happened before. You all work so hard and we all have so much committed into this business. If you can make an exit happen, we’ll all be happier. The financial stress and fear of failing will be gone and you four will feel differently about the business. In fact, I’m sure this is what you all need to find more energy for your company, to be able to commit to it again, and feel energised by it again.”
Whilst I felt the same as everyone else, I’d not opened my mind to initiating an exit, though there were so many reasons I might have wanted to.
There are three things that needed to happen before initiating the sale of the business: a desire to sell, the right timing for the company, and a board decision. Though in principle my desire to sell was the same as my co-founders, in practise I was tentative with the responsibility weighing heavily as I saw the road ahead.
I didn’t think the timing was right. It was close, but not right. Though we were getting closer to that day, we were no more than a year after a significant sales low for the company; and whilst our track record was improving, I estimated that we needed to reach 18 to 24 months of sales progress to convince a buyer we were growing predictably. If we sold now, it would mean keeping up an extraordinary run of sales for six to twelve months more during our exit process, throughout which I’d need to continue to run sales as well as be CEO. Could we really keep up the pace? Could I keep up the pace? It wasn’t just momentum and growth; I could see how we could get significantly bigger with our momentum and wanted the valuation to reflect that future success. I was thinking about my now-reduced equity stake in relation to that and what the pay-out might have been. If we wanted to get valued at a decent price, I felt we needed to show more strong quarters of high growth.
The final timing challenge we had was profitability. Whilst some strategic buyers may see past the losses of a particularly innovative acquisition target, most companies including the long list of economic buyers in private equity would be looking for companies that had turned the corner from investing and burning cash to cash generation and profitability. Through restructuring in late the previous year, I’d taken steps to move us more quickly to profitability, by removing a large amount of annualised cost from the company P&L, and since then we’d been adding fast to our top line, we were approaching profitability but yet to generate strong bottom-line results over a full financial year.
The meeting with my co-founders had been on a Thursday. Friday yielded no revelations for me only more reflections. My co-founders were right: the uncertainty was becoming harder to bear, and we had all been pushing ourselves past anything approaching normal work limits. But it was the uncertainty about the future that I was left thinking about. Putting aside the fact that the company founders had passed a point of no return, what was happening in the wider market concerned me too as more competitors entered our maturing market space.
My reflections on this led me to a fresh thought. What if waiting another year didn’t help our case? What if our results got worse not better? I did what I’d often done with a difficult financing decision on my hands: I called my brother for some advice.
“Richard, what have you got to lose by talking to some bankers?” he said. “They’ll know quickly if they think they can sell your business or not. They only make their fees if a deal gets done.”
He was right—there were other people who knew better than I did whether CloudSense would interest buyers.
Picking a Bank
Before talking to any bankers I’d had a number of conversations with my board to get their buy in the process, through these discussions I’d been given the names of a couple of banks. One was a very well-known global investment bank responsible for buying and selling some of the largest companies in the world. The second was a small team led by two partners and five associates in London. They had a one-page website with a phone number on it. I also looked up another UK specialist who had sold a lot of tech businesses in the telecoms sector. These guys were a mid-sized outfit with maybe a hundred people working together.
When I met them for the first time, with each I had a very different experience.
The big global guys took me to a smart office with good coffee and paraded besuited beautiful people into the room where they explained how good their contacts were with the corporate development people (a.k.a. M&A buyers) for all the biggest companies on the planet. They told me that to generate interest, they could send out an information memorandum (IM) as a marketing teaser to many great target buyers. They told me which of the partners would be running the team and which of the flawlessly dressed senior associates would be my point person day to day, and how they’d prepare to market the business.
Next I met with the mid-sized telecoms software specialists. I was expecting to like the guys, and I did. They were not too big to get lost in their system, not too small a bank that they would go unnoticed, and specialised, meaning they’d know the possible strategic buyers well enough. They immediately gave me the impression I’d get more partner time with them and there was a team of associates keenly interested in my story and asking great questions so they could design a marketing approach for the business sale.
Finally I met with the two partners from the smaller outfit. We had coffee in Soho at a trendy hotel. They’d looked at my accounts and showed up full of knowledge about my sector, having sold similar businesses before. Their message was, “Your results are good and the market is hot right now. There’s lots of transactions happening. I’m sure we can sell your business for you.” After chatting for an hour about what a process might look like, I left that meeting with lots to think about.
After I’d met with the bankers, I talked it all through with my brother again. “Look, it’s an important decision,” he said. “This is going to be hard work for you and for them. You need to pick the people you think will get down to it and work hard, the people you can trust and take this all the way to the finish line. I don’t always agree with doing IMs, by the way. Your process needs to be specific to you. We don’t want to tell the world that CloudSense is up for sale. Plus, the people you need to speak to at the potential buyers are the P&L owners, not the corporate development guys. They are just for intros. They can’t buy your business. It’s not their job.”
What he said to me made sense. The bank most likely to sell the company would be a tight-knit, smart team who would work hard and run a very tailored process specific to my business and its needs, and they’d deal with the unavoidable hard challenges with focus and experience.
I met with each set of bankers a second time, and this time, I dug into how well they’d understood me, our business, and the complexities I’d explained around the situation and timing. We talked specifics about who would be working on the materials, and who would be coaching me on how to perform in this new environment. By the end of these meetings, I’d concluded that it was the smallest team that would give CloudSense the most focus and for whom this process would be a huge investment in time on a no-win-no-fee basis. They’d go the extra mile for us because the deal mattered to each person on the team.
I will be for ever grateful that I was introduced our bankers and that I was well advised to look for the right traits during the evaluation and not get distracted by the big talk and bigger offices of the larger banks. When the time is right to exit, picking the right bank may be the single biggest factor that determines your eventual outcome.
The Corporate Sales Process
This new team and I began working closely in the coming weeks. We began by creating a marketing deck for the company sale. This deck would grow and be enriched during the process until it was the core of our pitch to every prospective buyer. It began as a snapshot of the business introducing our vision, performance, team, origin story, market, product, and customer benefits.
Next we worked on the universe of buyers. Because of the planning I’d been doing, it was easy to create a list of strategic buyers, to which we added private equity firms interested in B2B software companies, ones who we thought would find our business attractive.
We worked together, reviewing our five-year growth plan of the business, and revising some targets. We wanted to show how having grown strongly and having begun to deliver profits, we were well placed to grow much further in our market. It took time to balance a plan that seemed both realistic to me and exciting for a potential buyer, but we got there and I knew we had something I could talk about with conviction to buyers.
With these things in place, our bankers began fixing calls with their contacts to discuss the business. Prospecting to sell a company is no different from building a sales funnel for anything else. Over the next two months we began to build a picture of who was interested. We signed non-disclosure agreements, and I had introductory calls with the businesses that wanted to learn more about the opportunity.
During this time my finance team had started updating our data room. A data room is a series of folders containing every important company document and all the sales contracts the business has. It also contains details about employees, historical financials, board packs, HR disputes, and more. Any company like ours that’s been through several rounds of venture capital raising has a data room already, because it’s the place where investors, or in this case buyers, would spend time doing due diligence, researching, learning, and questioning how the business worked.
Finally the prospect funnel was maturing, the marketing deck had become a rich business presentation, and our financial plan was all agreed and checked for errors. It was time to meet with prospective buyers. One of the banking partners had coached me that this was something that all my leadership team would need to do with me, and I in turn spent time with each of them, going over their sections of the presentation, preparing and rehearsing what we thought would be the most likely questions.
It was becoming really clear to me just how much bigger the pool of private equity buyers was compared to strategic or corporate buyers. Though I’d known the universe of interested corporates would be less, equally I’d not appreciated quite how many companies are owned by PE firms and what opportunity that presented. As well as opportunity, PE presented a challenge because I believed in the CloudSense operation I’d built. I wanted to find a good home for it, but it was clear that there were two distinct communities of PE buyers: one group who saw the potential for future growth, funded by the debt they could access, and another who’d be looking for immediate efficiencies, because big cost saving would mean a SaaS business could run its committed contracts as a highly profitable, low effort, annuity income. My co-founders and I began pressing potential buyers to explain their intentions for our company if we were to proceed. This exercise was doubly important because private equity buyers don’t have their own managers like a strategic buyer does; they would be looking to our leadership team to remain in place to help them grow the business.
Exit
The progress of these conversations led us to a point where we knew we had serious buying interest from three PE firms. We asked all of them to submit their offer terms to acquire the company. There followed a tense dynamic of auctioning up the price of the business, during which the bankers more than earned their commissions and ensured shareholders could hit their exit targets.
A competitive sale of CloudSense is what we’d been dreaming of since we started trading and here we were, watching it unfold under the supervision of this expert team. We had to contain our growing excitement however as there were some important miles still to run.
We accepted an offer from a San Francisco based PE firm, who really bought into the vision of taking the company through its next stage of growth. We built the conviction that they were the right buyer during a crunch management presentation delivered to their partners at their offices overlooking the bay at One Market Street.
Over the following eight weeks, through many long days of lawyer’s negotiation, it gradually became clear that the hard work was done, we were down to the final few points to agree upon. Founders were happy, buyers were happy, we’d managed to get all the VCs with their various divergent list of interests and concerns onside too.
One month before Christmas, we sold our business for more than one hundred and ten million dollars. We threw a big party for our staff to thank them, many of whom had made life changing sums of money. A couple of weeks later the four of us sat down for dinner at the Goring Hotel in London’s Belgravia with our wives and partners and toasted the success of our journey. Our start- up story had come to a happy conclusion.
Final Thoughts:
In this note, I discuss the importance of early and deliberate exit planning for founders, emphasising how aligning on end goals can drive growth and ensure a successful transition.
Key Takeaways:
Begin with the End in Mind: Establish clear objectives for your company's growth and exit strategy from the outset to align efforts and expectations among co-founders and stakeholders.
Align Founder and Employee Goals: Unite founders and employees under a shared vision of growth and eventual exit, fostering ambition and a sense of co-ownership that drives collective success.
Be Specific in Exit Planning: Move beyond vague aspirations of going public; identify potential acquirers or exit routes early to tailor your growth strategy accordingly.
Understand the Implications of an IPO: Engage with financial experts to comprehend the requirements, benefits, and challenges of going public, ensuring it aligns with your company's goals and capabilities.
Adapt Plans as the Business Evolves: Recognize that initial forecasts may change; remain flexible and adjust your exit strategy in response to market dynamics and company performance.
By proactively planning for an exit and maintaining alignment among all stakeholders, founders have the change to navigate the complexities of growth and achieve a successful transition that reflects their initial aspirations.