2021 was a year for the books for exit activities. Pitchbook reported that the value of PE exits through to the end of Q3 in 2021 ($638 billion) was already 50% larger than the next highest annual figure. Tech companies, in particular, attained extraordinary exit values.
These successful exits don’t happen by accident. They are the fruit of months of dedicated work and years of planning. In our experience,
These are 5 factors that make a difference for founders planning a (successful) exit:
Tip 1: Build a sellable business.
In 2021, IPOs (include two massive public offerings by Robolex and Coinbase) have contributed most to the historic exit values. Private equity-backed exits and SPACs also contributed to the strong exit performance this year.
As a founder, you should take time to understand the current trends in exit vehicles and the market for each. This understanding will form the foundation of your business planning when you’re planning to exit your startup. From this foundation, you can focus on building a business that appeals to your desired audience of investors for your exit.
Achieving this takes long-term planning, creative thinking, and networking. It also requires your business to be operating intelligently and compliantly, the tips below will help you with this.
Tip 2: Clean your corporate house before searching for buyers.
It’s better to have your corporate documents in order before buyers start requesting documents. Doing so helps to instil confidence in investors while helping the process progress without unnecessary delays. If any regulators become involved, this also helps to ensure your i’s are dotted and t’s are crossed before it’s too late.
Tip 3: Check who owns your IP.
Your company’s intellectual property (IP) is one of its most critical assets, and your IP arrangements will be placed under a microscope during an exit event. Proactively confirming that you own or hold valid rights to the IP used will help you preempt any issues.
You should create a digital catalog of the following documents related to your company’s IP:
- Employee and independent contractor IP assignment agreements.
- Contracts for material IP owned by others and used by your company.
- Details of a recent source code scan.
- Confirmation of domain name purchase.
- Patent, copyright, or trademark documentation.
- Licenses and licensing agreements.
- IP claims and/or litigation documents.
Tip 4: Wrap your head around due diligence.
Things can progress quite quickly once a potential buyer shows interest. If you know and understand what goes into the due diligence process, you can get a head start by having essential documents cataloged and ready to go once things kick off.
You should organize, catalog, and create digital copies of your important corporate documents, including:
- Corporate formation documents, including business licenses.
- Shareholder documents.
- Key contracts, including supplier contracts, customer contracts, joint venture/partnership agreements, NDAs, and loan and/or mortgage documents.
- Financing documents.
- Financial statements.
- Employee contracts and independent contractor agreements.
- Employee handbooks and other workplace policies.
- Documents pertaining to any legal claims, including settlements.
Doing this can also help keep legal costs down throughout the due diligence process. (Read our other tips for keeping your legal costs in check for more tips like this.)
Tip 5: Get the right team in place!
In advance of your exit, you should have the right team in place within your company and in control of the exit event. In terms of your internal team, you should know and understand the goals of key managerial staff and employees with significant equity holdings following the exit. Do they want to remain involved in the company or would they prefer to pursue other passions with the money they’ve earned thus far? Knowing this can help you negotiate an exit that works for those key players who helped the company get to where it is today.
Externally, you should have vetted and retained legal counsel, an accountancy firm, and financial planners before sourcing a buyer. There is so much work to be done before an exit event, and doing it before the ball gets rolling formally can reduce the volume of work to be completed with urgency, as well as the associated stress.
Hoping to Plan Your Own Successful Exit?
You’ll note an overarching theme here: plan ahead. Planning for your future successful exit helps to ensure the process runs as smoothly as possible from seeking offers to settlement. If you need assistance with planning for your successful exit, reach out. We’d love to help.
Otherwise, if you have any questions you’d like us to answer in a future 5 Tip Friday article, let us know! Feel free to comment on the social media post sharing this content or email us at firstname.lastname@example.org
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