Information Startup Entrepreneurs Should Consider

Over the last five years, I have reviewed hundreds of Business Plans and heard numerous pitches by entrepreneurs attempting find that willing investor who can make all their dreams come true. One stickey issue is the description of the “Exit” strategy.

 Often times you hear, “Well we are planning to do an IPO, be Acquired or, if we have to, we are prepared to run the business.” I guess they feel that if they cover all the potential exits except going out of business, that should cover them!

I was reading Lorne Groe’s blog Confessions of a Corporate Dealmaker, and found it full of great information that all startups should read and understand. He mentions 400/90/10, which is that there are about 400 exits a year of venture backed companies of which 90% are through M&A and 10% via IPO! The bottom line is that, regardless of what you might wish for, there is a significantly higher probability that your exit will be from an acquisition and you should be incorporating this into your business strategy and processes.

Also incorporated in their pitch, I hear a lot of talk about this acquistion happening in the first two or three years. Lorne comments that in 2005 the median time between initial venture funding and acquisition was 5.4 years. This was worse than 2004 at 4.6 and 2003 at 3.6. Although these are median numbers, they still fly in the face of the founder who is thinking two or three years and I’m out.

 I think that any startup team will really benefit from following Lorne’s blog. He just started his blog earlier this month, but he’s put some valuable information and should be followed closely. Keep up the good work Lorne!


2 Responses to “Information Startup Entrepreneurs Should Consider”

  1. 1 John Nelson February 11, 2006 at 5:41 am

    The axiom regarding investment liquidity events should be: “Hope for the best, but plan for the worst…” I gave a paper at the EVCA conference in 1995 that reviewed ‘exit’ activities of VC funded deals for the period 1985-1994 — Based on available VCA/V1 data available at the time, over 94% of ‘exits’ were via M&A. The M&A statistics, of course, were skewed by inclusion of all of the ‘write-off’ deals where assets were acquired by founders or another party for a nominal amount… often $1.

    I often recommend to entrepreneurs that they keep a split mind regarding liquidity events; that is, do all of the right things to position the company for an ‘exit’ (governance, accounting, et. al.), but manage and drive the company toward growth of cash-flow, growth of top-linr, and then build of EBITDA, as tho’ the success of the business might have to be defined without a traditional VC ‘exit’.

  2. 2 stock June 4, 2009 at 1:51 am

    OHH Some very interesting and insightful thoughts. Adding this to my bookmarks. ^_^

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