Exits
The logical conclusion of an entrepreneurial event, the selling of the business. Technology businesses seem to have the unusual property of unjustifiable values when exits come along. Some sell for text book multiples of revenue, profit/earnings, etc. Others sell for outrageous amounts, deemed "strategic" to the buyer, no amount of cash is beyond reason. In either case, there are several key things that can be done to enjoy the exit process:
- Be prepared at all times for due diligence. Many companies are so unprepared, it becomes difficult (and risky) for an acquirer to actually acquire the business. Keep in mind that all the risk, past and present, transfers to the acquirer. So despite claims of innocence, taxes need to have been paid, stock options grants done at fair value, past litigations (if any) properly wrapped up, well documented innovation, legal records exist covering non-disclosures, sales contracts and so on. This does not mean you need to be thinking and talking about acquisition from day 1 of a new business, but it does mean you have to understand how to run a business in a proper way so that it adheres to the relevant governing laws that might mean something to someone bigger.
- Be honest and up-front. Once the deal is closed and paperwork is all signed, you are often still on the hook for any trailing "secrets" that emerge. Generally covered by Escrow, terms and conditions of a properly done acquisition still give the acquirer openings to sue the Directors beyond the value of the Escrow for any undisclosed relevant information. Keeping secrets about your business is bad leadership anyway, not a formula for excellence. Make sure everything is disclosed up-front.
- Keep the deal a secret until it needs to be announced (typically by the disclosure laws that govern a public company if that's the acquirer). Customers and employees will quickly abandon their commitment to a business if they know about an acquisition before it is announced. Like anything learned from a rumour mill, people's tendencies are to think the worst so if they hear about an acquisition they will assume they are loosing their job and take their eye off the ball. Everyone needs to keep their heads down and achieve the objectives set out, especially the short term ones.