How do you maximize your exit deal value?

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If you are a startup founder, you probably have a vision of how to grow your business and make a positive impact. But you also need to think about how to exit your venture and get the best possible return on your investment. Exiting your startup can be a complex and stressful process, but it can also be rewarding and satisfying if you plan ahead and negotiate well. In this article, you will learn how to maximize your exit deal value by following these six steps:

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1 Understand your exit options

When exiting your startup, there are several options to consider, depending on your goals, the market conditions, and the interest of potential buyers or investors. These include an acquisition, where another company buys your startup for cash, stock, or a combination of both; a merger, where your startup combines with another company to form a new entity; an initial public offering (IPO), where your startup goes public and sells its shares on a stock exchange; and a secondary sale, where existing shareholders sell their shares to new investors. Acquisitions can be strategic to gain access to technology, customers, or talent; mergers can increase market share or expand product portfolios; IPOs can raise capital or increase brand awareness; and secondary sales can provide liquidity or reduce risk.

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Akram Benmbarek

Tech & Finance Growth Leader | 1X IPO | Expertise: AI, SAAS, Smart Mobility,All digital, Fintech | Techwadi Co-founder
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The lesson I learned throughout my humble career, is that the exit should be the least of the entrepreneur's worries, and while you want to always start with an end game in mind, that shouldn't be the exit, but rather building a strong sustainable business that generates free cash flow. Typically, this kind of business requires both a good product that solves a real problem and a growing customer base that is willing to pay for it while leaving you a decent margin. By pursuing this goal which usually demands that you hire and empower the best and brightest, an entrepreneur implicitly prepares for a successful exit. A brilliant team that builds great defensible products and attracts customers is most acquirers’ dream.

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2 Evaluate your exit readiness

Before you pursue any exit option, you need to assess how ready your startup is to attract and impress potential buyers or investors. This means evaluating factors such as traction, scalability, differentiation, and team. Traction is the evidence of your startup's growth, performance, and potential, based on metrics like revenue, user base, retention, engagement, and profitability. Scalability is the ability of your startup to expand its operations, reach new markets, and generate more revenue without compromising quality or efficiency. Differentiation is the degree of your startup's uniqueness, innovation, and competitive advantage. Finally, team is the quality, diversity, and culture of your startup's founders, employees, and advisors. Consider their skills, experience, vision, passion, and alignment when evaluating this factor.

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3 Prepare your exit materials

Once you have determined your exit option and readiness, you need to prepare materials that will demonstrate your startup's story, successes, and potential to potential buyers or investors. This includes a pitch deck, which is a presentation summarizing the problem, solution, market, traction, business model, team, and ask. An executive summary is also necessary; it is a single page document that highlights the key points, value proposition, and exit opportunity. Additionally, a financial model should be created - a spreadsheet projecting revenue, expenses, cash flow, and valuation based on assumptions and scenarios. Finally, a data room should be established; it is an online platform storing and sharing confidential and sensitive information such as contracts, patents, customer lists, and financial statements.

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Raj Snehil Juneja

Building Tribe Capital- India | Ex-McKinsey | LSE
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While most sellers are able to put together the data room in prepreration for the exit, but targeted study around synergies for the buyer are often overlooked. Remember that exiting to a larger player through an M&A could also mean you would have payouts tied up in future earn outs. It's not only in the buyers interest, but yours too as a founder to ascertain where you would find the best chance of success to hit your earnout targets. Synergy analysis with potential buyers on your list will help you segment the top priority guys from the rest. This helps you understand before hand where to expend most effort.

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4 Find your exit partners

Executing an exit strategy requires finding the right partners to help you navigate the process and maximize your deal value. An exit advisor, such as a banker, broker, lawyer, or accountant, can provide advice on your exit option, valuation, timing, and negotiation. Additionally, a lead buyer or investor will make the first offer, set the terms, and lead due diligence and closing of the deal. They can be a strategic or financial buyer, or a venture capitalist or angel investor. Lastly, co-buyers or co-investors may join the lead buyer or investor in the deal as partners, syndicates, or consortiums. These can be other companies, funds, or individuals depending on the deal structure and size.

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Frederik S. Lysgaard Vind

Team Lead | Global People & Culture | Data & AI @ADC
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I recommend identifying your potential exit partners and buyers early on, preferably way before being ready for an exit. Investing time in this early gives you the opportunity to build and nurture strategic relationships, guide and ease the path towards an exit and can influence the strategic choices you make along the way to succeed with a better exit.

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5 Negotiate your exit terms

After you have identified your exit partners, it is important to negotiate the terms that will determine your deal value and post-exit relationship. These terms include the price, payment, earnout, escrow, equity, and role. The price is the amount of money that the buyer or investor will pay for your startup, either upfront or over time. The payment is the form of payment that the buyer or investor will use to pay for your startup, either in cash, stock, or a combination of both. An earnout is a contingent payment that the buyer or investor will pay to you based on your startup's future performance. An escrow is a portion of the payment that the buyer or investor will hold in a third-party account until certain conditions are met. Equity is the percentage of ownership that you will retain or receive in the new entity, either as shares, options, or warrants. Lastly, a role is the position and responsibilities that you will have in the new entity, either as a founder, employee, advisor, or board member.

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Alla Adam

Lean Startup & VC Coach | Investor | Author | International Speaker | Harvard Trained and Certified Crisis Negotiator
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No successful exit happens without the negotiation. No matter the level of success you were able to reach before the exit, make sure to think very carefully about your negotiation strategy and prepare ahead of time.

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6 Manage your exit process

The final step is to manage the exit process from the initial offer to the final closing, while maintaining your startup's momentum and morale. This includes conducting due diligence to verify and validate your startup's information, such as financials, legal, technical, and operational. Agreements must be signed to formalize and finalize the deal with documents such as the term sheet, letter of intent, purchase agreement, and shareholder agreement. The deal should be closed with an event that transfers ownership and control of your startup to the buyer or investor. Lastly, a smooth transition phase integrates your startup with the new entity by aligning vision, culture, systems, and processes.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Jesus Alagon
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Above all, never underestimate or undervalue what you are leaving behind. You contributed with a great effort, created value and leave a legacy that has intrinsic and real value. You are exiting but everything you are walking away from, is very valuable, Do not throw away any of your contributed components to it.

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Frederik S. Lysgaard Vind

Team Lead | Global People & Culture | Data & AI @ADC
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Don’t get stock after an exit. Aim for a short transition period after the exit, being “locked” can create disengagement and harm our well-being as well as the company’s performance. We need to be set free to move on mentally and physically.

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Neil Barman

GM & Business Head - APAC | Ph.D - Business Administration | 40 under 40 - Business World| Business Leader of the year 2022 - CXO Club India| Board Observer | Growth-hacker | Storyteller | Angel Investor|
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Maximizing the exit deal value of a startup is a complex endeavor that requires a strategic and multifaceted approach. Entrepreneurs seeking to achieve the highest possible valuation upon exiting their startup must carefully navigate various aspects of their business to showcase its potential, uniqueness, and growth. It requires a holistic approach that encompasses all aspects of your business. From developing a strong foundation and unique value proposition to demonstrating market traction, fostering strategic partnerships, and showcasing financial performance, every facet contributes to the overall perceived value of your startup.

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How do you maximize your exit deal value?

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1 Understand your exit options

2 Evaluate your exit readiness

3 Prepare your exit materials

4 Find your exit partners

5 Negotiate your exit terms

6 Manage your exit process

7 Here’s what else to consider

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