Hello, this is Victoria here with my last blog for the New Ventures BC seminar sessions. Basil Peters is up talking about the exit strategy. Most of you know him already and I think that there is no better person to be giving us all this seminar about this topic. If you want a more in-depth overview of the talk, please have a look at the video.
Basil is going over some very successful companies that were all acquired for under $20 Million. He is saying that big companies want to buy things for $10-30 million. Why? Because big companies don’t want to spend money on R&D, but would rather acquire companies. Examples with Club Penguin started in Kelowna. In just two years, they sold the company for $350 million. When can you sell the company? When you’ve proven the business model. It’s often the best time to sell. You have to sell on an upward trend. Sell on the promise and not the reality. Next side asks if you even need investors. He says because technology, networks and this huge global market evolving, you can build a valuable company for tens of thousands of dollars. Club Penguin, MetroLyrics, Plenty of Fish, all bootstrapped. So Basil says– if you can– bootstrap! If you don’t have an other option you have to raise private capital from either VCs or angel investors.
Definitions: What is venture capital really? He shows some graphs, but the point is that it’s changed. Here’s some interesting data. In America, each year VC Funds invest about 20 billion. So do angels. Even more surprising? Friends and Family investors invest about 5 to 10 times more. So the pot we thought was little, is actually a lot bigger and influential than we thought. Angel Co-Investment: it’s when groups of angels invest $5 million to $10 million together. Basil says there is no shortage of capital today.
Why do you need an exit strategy first? And how do you develop it? Sometimes there is no exit strategy and that is a strategy. Lifestyles business without investors is an exit strategy. The exit is just another business process. Start at the end and understand your goal. “Our exit strategy is to sell the company in X number of years for around X amount.” Check the alignment about how the ES will look like. Get a sign off on a written exit strategy.After going over some slides about why some exits are more successful without VCs, Basil explains how VCs block good exits.
Angels or VCs but not both: new research shows that based on 182 deals, when angels and VCs invest together, it didn’t work out as well. Basil recommends taking angel money and not VC money if you’re looking for less than $3-5 million.
Summary: Most acquisitions are done under $20 million and modern companies don’t need much capital. Bootstrap if you can, angels can finance up to $5-10 million. Basil encourages us to look at his blog and to get his book if we want to read and learn more about the exit strategy.