How To Prepare For A Start-Up Exit

By Ofer Katz
Globes, Tel Aviv, Israel.

Many entrepreneurs found start-ups, raise a lot of money, and hope that one day they will be able to hold an IPO or sell their venture for a large sum.

But what happens on the day before the exit? How, if at all, is it possible to be readier as a start-up for an IPO or future acquisition offer and to realize it properly?

As a man who has assisted quite a few acquisitions of start-ups in recent years (including the acquisition of Onavo Ltd. by Facebook Inc. (Nasdaq: FB) for $150 million, the acquisition of Wilocity Ltd. by Qualcomm Inc. (Nasdaq: QCOM) for $400 million, and the sale of Kotera Ltd. to Amobee Ltd. for $150 million), here are some tips that every entrepreneur, tyro or experienced alike, should know:

1. A start-up should always be ready to be acquired

After you have decided to float your start-up or you have received an acquisition offer from a third party, two big risks that can be prepared for in advance are the time needed to complete the examination process and relevant notifications, and unpleasant surprises that are liable to emerge during the review, which might change the presentations and previous reports.

The risk is to reach this status unprepared and to restart the legal and financial preparations from scratch. Unpreparedness will almost certainly delay the closing of the deal and the value of transaction to the point of jeopardizing it altogether.

Do you want an exit and lower risk? Manage your company optimally from end to end, with an emphasis on all the issues, including legal and financial ones, from day one.

2. Raise your handling of employees to an art form

Handle all matters related to employees with dignity and let professionals deal with each issue, which are many: hiring, firing, regulations, options, salary agreements and confidentiality, relocation and non-competition, bonuses, and more.

Remember: your employees are the people who will bring your start-up to success, but they are also the company’s biggest expense. Work by the book, treat your employees fairly so they will feel that they are partners contributing to the success, but prepare everything in advance to avoid dealing with unpleasantness or unnecessary exposures.

3. Properly manage and document commitments to partners, customers, and suppliers

All commitments to third parties (partners, customers, and suppliers) must be properly handled from day one, and be disclosed and available to a future buyer or review team.

In general, be very careful about what you write and what you are signing in an agreement, because on the exit day, someone will seek all these agreements.

For example, have you committed to share ownership of your technology with a partner, customer, or supplier? Expect problems before the exit, which will cost a lot of money and headaches.

4. Take into account that to receive an acquisition offer, you must hold a long dialogue with the buyer

There are various ways to reach the status of an acquisition offer. Whether the offer is from a hostile competitor, a company seeking to expand its products line, a customer who believes in your technology, or a strategic investor who has been involved in the company for a long time — the common denominator is people and relationships.

Allocate resources and special attention to the target audience among the potential buyer, invest in a relationship with it, and it is sometimes also worthwhile to draw up a strategy and to get special advisers so the opportunity will not be lost while you are busy with the day-to-day management of the company.

5. Manage the fundraising process to create value for the company or it will manage you

As entrepreneurs, you must know your start-up’s financial condition at any given moment and when you will next have to raise money. This means that you must manage forecasts and reports, monitoring, and board of directors meetings.

If you become confused and use up the money raised too fast, or alternatively, you “succeed” in holding financing round at too high a company value, it will be difficult to raise more money, and you might even be sold. In addition, be careful to choose the best investors — the difference in value of a good and smart investor can be much greater than the difference in the terms of his investment.

Beyond that, always look forward and think where the next source of financing will come from, when you will need it, and conduct yourself accordingly. There are many financing alternatives at the various stages (venture capital funds, angel investors, banks, and Chief Scientist incubators). Your job is to pick the best investors for you.

6. Work with professional and experienced service providers from day one

An entrepreneur must not miss the opportunity to sell or float the company, after signing a memorandum of understanding or the IPO process has gotten underway.

This may be the once-in-a-lifetime opportunity for the company, and possibly for the entrepreneur as well. One of the ways to minimize the risk is to “equip” yourself in advance with experienced lawyers and accountants who have done it before and are familiar with the obstacles and their possible solutions, and who have the time for the process and timetable, while handling skillful negotiations with the other party in a way that will strengthen the entrepreneur, the company, and the shareholders in the deal.

Ofer Katz is the founder and CEO of Nextage Ltd.. a financial services management company for Israeli and US start-ups. The company is a partner in 8200 EISP, the entrepreneurship program of Unit 8200 veterans.

(c)2014 the Globes (Tel Aviv, Israel)
Visit the Globes (Tel Aviv, Israel) at
Distributed by MCT Information Services

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