You’ve heard the story about the early bird that catches the worm? Well, it’s never too early to start planning your exit from your tech business.
You worked hard to get your start-up and high-growth tech business off the ground, therefore if you want to get a maximum return from the hard work, time, and money you put into it, then it pays dividends to start with an exit goal in mind.
I’m not saying you need to hard code your exit plan. But you’ll gain strategic advantages if you have an exit plan you can review and update as your company, the market in which you operate, and indeed the economy evolves.
Let me explain how this works:
Helps You To Operate With A Clear Vision
Do you want to sell your tech business to a public company? Go public? Use it to produce cash to fund your next venture? Or even to create a legacy for your children’s future?
Having an end goal helps you to set the course of the direction you want to take your business.
Puts You In A Favourable Light With Investors
Businesses that can demonstrate a long-term strategy, including contingency plans, show how they’re a risk worth taking to investors, and thus their value increases.
Makes It Easier To Raise Money
Lenders and investors want to know how they’re going to get their money back.
Demonstrate you have a long term vision, run a tight ship and keep track of important metrics, and you’ll reduce perceived risk.
More importantly, give investors the comfort that you’ll deploy their capital effectively and you can expect to secure the best finance deal.
But that’s not all. Early bird exit strategies have practical advantages.
Time To Explore Your Options
Implementing exit strategies always take longer than expected. Along the way, you do not want to run out of cash or be forced into a weak negotiating position.
So start planning your exit early, so that you can ensure your preferred choice is viable.
More importantly, you can explore alternative financing options such as debt funding; you can use independently or collaboratively to effect the transaction.
Your options include:
- Selling a majority share but keeping an interest in the company beyond your term as the CEO
Banks don’t like funding share buybacks. More often than not they don’t see it as a legitimate use of funding.Here’s the thing. Banks are no longer the only option for companies seeking capital for share buybacks. Today you can obtain the funds you need from non-traditional sources of debt finance.But wait, there’s more. Know that non-traditional debt funders often add value to share buyback deals with useful growth funding. - Acquisition by a private equity firm
If you choose to sell your business to a PE firm for a majority stake, you can use its capital and resources to operate and scale your business over a set period. Early exit planning provides time to find a PE firm with a specialism in your sector. - Mergers and acquisitions
You can sell your company to a bigger one for a profit and receive cash or stock as compensation. The benefits: Original investors get paid. Also, key employees stay during the transition period, then have the opportunity to cash out. - Management buyout (MBO)You can use bank debt to fund MBOs. Assets typically secure loans.Here lies a problem for tech businesses who do not have traditional tangible assets. Early exit planning gives you time to explore alternative forms of MBO debt funding, such as structured loans as opposed to asset-backed.
- Initial Public Offering (IPO)
If you’re an established tech company, you may come to the point when further funding from PE or VC is no longer an option. In this instance, you can choose to take your company public via an IPO.Of course, IPOs are costly. Early exit planning gives you the time you need to explore your options. In particular, time to seek out and speak to specialist debt funds about alternative forms of IPO planning.
Time To Prepare Financials
Exits make money for stakeholders. Interested parties will want to see figures on every aspect of your business, and anything else that affects the financial health of the company.
Time To Finance Your Exit
Early exit planning gives you the time you need to explore alternative options to fund your runway to exit without excessively diluting your ownership.
For example, if you’re cash poor, as many high growth tech companies are, did you know you can use debt to fund your exit?
Debt funders lend to tech companies with a proven business model and who have reached the point in their development at which they are scalable. They see value in commercial models and intangible assets that banks often miss.
Options available to you include interest only term loans, unsecured lending, specialist IP secured loans and other innovative growth finance.
Time To Get A Proper Valuation
It takes time to determine a company’s worth, including assets, debts, intellectual property, and equipment. A specialist broker can help you with this task.
To Sum Up
The early bird catches the worm.
It may seem odd thinking about exit when you’re growing your business. But early exit planning provides strategic, practical and monetary advantages.
To get your exit plan off to a good start, get good advice from a financial expert.
Trust me; it will be worth it.
