If you’re an entrepreneur, hopefully you’ve thought through your “end game”. Certainly there are some businesses that are closely held through generations, often as family businesses (although this often fails by the third generation). But for everyone else out there that isn’t founding a family dynasty, there are really two (desirable) outcomes – 1) Go Public 2) Get Bought. Obviously there are some unattractive outcomes like going bankrupt, but let’s not dwell on that!
Even though there is a lot of hype about unicorns and IPO’s, in fact going public is not the most common outcome for entrepreneurs. In fact it’s not even very likely at all! In a given year in the U.S., there are generally fewer than 200 IPOs, while there are typically 2000 – 4000 VC firm investments made during the year. Obviously many companies raise multiple rounds, but you can see the point! Even more importantly, there are roughly 600,000 “employer firms” that are born in the U.S. each year and, of those, between 50,000 and 100,000 raise money from angel investors depending upon the year (more data on the angel and VC landscape, as well as how to successfully raise money from angels and VC’s in our online course Designing the Perfect Investor™ )
Soooo, let’s be honest, if you’re an entrepreneur, the most likely (desirable) outcome for you, outside of that family dynasty, is, yes, getting acquired.
I attended a briefing a few weeks ago by the Corum Group, a global software M&A group. One of their insights for companies interested in being acquired is “You need a Sales Process”. Obviously this is good for an M&A team to say, but quite frankly, I agree with them. In their briefing, they did an excellent job going over the “process” it takes to be acquired. It’s a long one (we’ve done it before!) and they had some excellent and very accurate insights.
When they talk about a sales process, they mean a process for selling your business. I liked their emphasis on having multiple bidders – speaking from experience, it is hard to drum up multiple companies who want to acquire your company and have the cash or stock to do so, on your own (and at the same time!). I also was impressed with the wide array of buyers that had successfully acquired a Corum client, many of them somewhat unexpected, but obviously offering a very attractive exit to the startup team.
The current M&A cycle is very strong, with roughly $4 trillion currently available for acquisitions, divided between strategic acquirers ($1 trillion) and private equity acquirers ($3 trillion). The Corum Group thinks there are a lot of reasons that this strength will continue, but they highlighted a number of mistakes an entrepreneurial team can make that can reduce the value of their company in the M&A market and I thought I would share these with you! Be careful not to hurt your chances of a successful and rewarding outcome for all of your hard work by making these mistakes.
1. Consolidation of Market Segment (and missing the consolidation wave)
2. Game-changing Tech Paradigm Shift (and missing the shift!)
3. Personal/Partner/Management Health (Startup Therapy™ from VentureWrench can help here!)
4. Conflict – Founders/Investors/Personal (Startup Therapy™ can help here too!)
5. Litigation/Negligence/Criminal Acts (See Building Your Startup Team)
6. Death or Incapacitation (just bad all around!)
For more M&A insights, Corum has a number of past webinars online. We have added some of them to the VentureWrench Library.