What Founders Need to Know: You Were Funded for a Liquidity Event – Start Looking

Steve Blank

Liquidity. While you might be interested in building a company that changes the world, regardless of how long it takes, your investors are interested in funding a company that changes the world so they can have a liquidity event within the life of their fund ~7-10 years. (A

Will you be happy at your finish line?

Berkonomics

If you own a significant piece of the business, is this a time to consider planning an eventual exit or liquidity event? The liquidity event and beyondHave you figured out what you want to have, or to be, when you reach the end of your personal run in this business life?

Avoid the race to zero…

Berkonomics

Protecting the business The liquidity event and beyondWhen do you sell your company? Obviously we all want to sell at the top. And there is the problem. How do you know when you are at or near that right point to sell for maximum value?

Sell when growth is high, even if cash flow is low.

Berkonomics

For high growth ventures being groomed for a lucrative liquidity event, this is usually a wise choice, presuming additional growth capital can be successfully raised on agreeable terms. The liquidity event and beyond

Ohio 20

Turning out the lights is a type of exit.

Berkonomics

Pilot-authors tell their stories in the first person, and all of us readers slow down to think while reading of these events, wondering “what if” or whether this could happen to me. General The liquidity event and beyond

Entrepreneurs: Take the time to celebrate your exit.

Berkonomics

The liquidity event and beyondWe come to the end of this cycle of insights with a thought about how you might view your successful exit from the company you have spent so much effort to build.

Timing your exit – Don’t ride it over the top.

Berkonomics

The liquidity event and beyondDave’s note: For the second time, we invite Basil Peters, author of “Early Exits,” back as our guest – to provide more of his insight into the “when” to exit by selling your business.

Angels and VCs: Don’t be greedy even if you can.

Berkonomics

Sometimes the end game or sale of the company is not a happy event for the early investors, including the entrepreneur or the founders. Further, preferred stock holders can be recipient of accrued dividends in a sale or liquidation. The liquidity event and beyond

Flippers vs Keepers–At times earnings don’t matter

Berkonomics

The liquidity event and beyondDave’s note: We are privileged this week to host a post by Arthur Lipper, a well-respected member of the international financial community since 1954.

Envision the end game. Advance toward the goal.

Berkonomics

But most of us dream of selling the business someday for lots of money and building our wealth upon that event. The liquidity event and beyond

Entrepreneurs do not easily retire.

Berkonomics

Next week, we begin again with new insights from startup through liquidity event, including guest postings by some of the nation’s best known angel investors and entrepreneurs. The liquidity event and beyond This is the final posting in this cycle.

Provide for succession well in advance of need.

Berkonomics

The liquidity event and beyond When we are young and early in our business lives, we feel infallible to the degree that we do not think of what might happen if we die while in office or decide to leave the company for any reason.

Start a deal room and keep it current.

Berkonomics

The liquidity event and beyond Maybe you have not heard the term, “deal book.” That’s a comprehensive piece on a company for use by a buyer in determining fit.

Failure is the greatest of teachers.

Berkonomics

The liquidity event and beyond Not all companies are successful. The end game can be a failure of the business. In fact, many angel investors or venture capitalists look for and respect the lessons learned by entrepreneurs that have survived a failed business.

The muted thrill of the deal closing.

Berkonomics

But the closing was such a non-event that you wonder why people even call it a “closing.”. The liquidity event and beyond Now you have worked for months to get this deal to the closing, anticipating the wire transfers to the shareholders that will come any minute.

A million things can kill the deal.

Berkonomics

Paying commissions to undisclosed third parties in order to obtain deals, hiding or entering misleading financial data, associating with anyone with a past SEC suspension, and many more “gotcha” events, qualify as strong deterrents to a good closing. The liquidity event and beyond

Do you engage an investment banker?

Berkonomics

The liquidity event and beyond Many CEOs have asked me if I felt an investment banker adds value if the buyer has already been identified.

The most satisfying life journey is never about the money.

Berkonomics

And yet, as I recall the greatest thrills, the memorable events, the best of memories, almost none are about the money. The liquidity event and beyond

Don’t be greedy even if you have the power.

Berkonomics

Sometimes the end game or sale of the company is not a happy event. Is there a liquidation preference in place where the preferred investors can take a multiple of their investment, (twice or three times the amount) from a sale before the common shares receive anything?

List ten companies that could buy your business.

Berkonomics

Next, have the group focus upon column three, ignoring the obvious gain our company would make in liquidity to shareholders. Email readers continue here.] The magic of this exercise is not only in the organization of group focus upon the liquidity event and possible buyers.

Timing is everything in a sale of a business.

Berkonomics

But they occur often enough to watch for and take advantage of if ready to make the run for a liquidity event. The liquidity event and beyond

Money is not the only measure of success.

Berkonomics

I propose that there are few times in life when the opportunity opens to look only outward, to participate in charity events, extended family vacations, community boards and even coaching other entrepreneurs. The liquidity event and beyondYou’ve surely heard of Maslow’s Hierarchy of Needs, in which Abraham Maslow laid out a human’s needs from the physiological first, to safety, then love and belonging, on to esteem and finally self-actualization.

Think of your exit as you commit your resources along the way.

Berkonomics

The liquidity event and beyond Each decision you make to commit resources affects the future value of the business to some degree. Minor decisions, such as replacing employees who have left the company or equipment needing updating, are usually considered operational in nature, and unless the business is changing direction, not relevant to this analysis.

Create equity value with every step.

Berkonomics

Positioning The liquidity event and beyondYou may be an architect or doctor or other professional managing your business, knowing that the end game value of your client or patient list is small and not easily transferred to any buyer without attrition.

Leave something on the table in a sale.

Berkonomics

The liquidity event and beyondIsn’t the goal of any negotiation to get the maximum possible out of the other side? I have learned from long experience that the last bit of concession is the most expensive in a negotiation.

Share your success with those who got you there.

Berkonomics

Some companies have good, formal stock option plans with properly priced options set to reward all in the event of a corporate sale. The liquidity event and beyondUsually, the higher the ranks, the more the options held and therefore the greater reward at exit. If there has never been outside investors to organize such an option program, many CEOs never get around to creating a system for rewarding employees in a sale. .

There are three kinds of business buyers.

Berkonomics

The liquidity event and beyond This is one of my favorite insights, since I lived this one in a positive exit from my computer business. Most people will tell you that there are two kinds of eventual buyers for your business: financial and strategic.

Everyone loves to leave a legacy.

Berkonomics

And once a month, while watching TV, I spend part of an evening writing personal messages to each birthday employee, recalling an event or complimenting a behavior or success. Even today, years later, I am met at industry events by former employees with a common refrain, “Our company was the best employer I have ever had, before or since.”. That is a legacy you cannot buy, at a cost of acknowledging individuals with respect and personal recognition.

Create stakeholder loyalty when times are good.

Berkonomics

Raising money The liquidity event and beyond There are several times when stakeholder loyalty is tested to the limit. For employees, a late or missed payroll is the ultimate test of corporate loyalty, divorced even from an employee’s ability to make do without a paycheck.

A successful exit is a great measure of a good journey.

Berkonomics

The liquidity event and beyond I’ve been involved with well over a dozen successful exits and four initial public offerings over the years, some of them with monstrous gains, some more modest. Then in addition, there are the exits that returned some portion of capital, but nothing more.

Does even a taste of ownership make a difference?

Berkonomics

If your company is not a “life style&# enterprise and you aim to sell it someday for liquidity, or even aim toward an IPO, then you should have some form of stock ownership or shadow ownership plan for your employees. I know from my own experience that no matter how good you think you are at company-building, it is those who surround you with talent that make the difference and add extraordinary value to create an eventual liquidity event.

10 Steps To Investing Successfully In New Ventures

Startup Professionals Musings

Once invested, you should expect no return until the first “liquidityevent in 3-5 years, maybe longer. Liquidity events include merger or acquisition (M&A), or Initial Public Offering (IPO) when the stock goes public.

Bring Your Startup to the U.S.

Early Growth Financial Services

There are also integrated service providers and a collaborative environment of founders working toward the common goal of a liquidity event. Ever wondered what expanding your startup internationally entails? We shed some light, and hopefully—provided some encouragement, during our recent webinar with David Glazer, Partner at Fried Frank, JD Breidenstein, Minister Counselor for Commercial Affairs and Ben Parkinson, Visa Analyst, both with the U.S.

What happens when a company is acquired for less money than it raised in funding?

Gust

The technical term for this is the “liquidation waterfall”, because on a liquidation event (whether good, as in a large buyout, or bad, as in a distress sale, investors (and others) get paid out in a specified order.

Why good people leave large tech companies

Steve Blank

The belief then was that most founders couldn’t acquire the HR, finance, sales, and board governance skills rapidly enough to steer the company to a liquidity event, so they hired professional managers. If you want to build a ship, don’t drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea. Antoine de Saint-Exupéry. I was visiting with an ex-student who’s now the CFO of a large public tech company.

10 Keys To Giving The Right Entrepreneur Your Money

Startup Professionals Musings

Once invested, you should expect no return until the first “liquidityevent in 3-5 years, maybe longer. Liquidity events include merger or acquisition (M&A), or Initial Public Offering (IPO) when the stock goes public.

A Guide to Wealth Management for Startup Founders

Early Growth Financial Services

Too often, entrepreneurs neglect planning for and managing personal finances as they focus on building their business, lining up financing, and steering toward an eventual liquidity event. One thing that’s probably not occupying much mind space as you’re building your company is managing your personal assets.

10 Common Dilemmas That Derail Many Entrepreneurs

Startup Professionals Musings

If you take investor money, expect a push for hockey-stick growth and a liquidity event, like going public (IPO) or sale (M&A), to get the payback.

7 Founding Sins Seed-Stage Startups Should Avoid

View from Seed

Jet-set lifestyles are perhaps appropriate after the liquidity event, but founders and executives must avoid them at all costs before that, as employees treat resources with the same respect (or lack thereof) as their leadership.

Intel Disrupted: Why large companies find it difficult to innovate, and what they can do about it

Steve Blank

Capital is returned to these investors through liquidity events (originally public offerings, but today mostly acquisitions). In the 21 st century it’s harder for large corporations to create disruptive breakthroughs.