strategic consultant to:  

~ serial CEOs & CTOs in software, Internet, technology & digital media
~ experienced consultants in all fields to maximize their practices

This is a call you make both personally and from your opportunities. If you have controlled your early capital and board membership, and have found VCs who understand your market space and can provide both market savvy and connections for growth, strategic alliances and ultimate valuation, then give over a good deal of your company to venture capital partners and collaborate with them towards profitability and exit. Be careful in your choice and conduct your due diligence on the potential investor (or have one of your advisors do this).

If you have not given away much of your equity, and have offered very limited or no preferred shares, and are gaining traction and revenue in the marketplace from your own capital, you do not need “professional” money until it is time to scale rapidly, if at all. Perhaps, if you have built a cash cow and own most of it with other private partners (a more organic growth), it may be better to keep the company for the disbursements of profits, or sell it simply to a strategic buyer for a big payoff, never having involved venture capital.

If you have messed up your early capital, sometimes professional money can clear up the confusion, simplify your cap table and board members, and clear the path to easier success.

Also, your exit will determine what kind of capital to accept.  The “cash cow/simple sale” scenario may only need a boutique investment banker to exit.  An IPO is likely to involve venture capital, at least in the penultimate round. Then, a Tier One VC and their connection to Tier One underwriters are useful for bumping up your valuation (say, from $600M to $1B), and for training you to maintain that valuation during and after the IPO.

One client had interest from a boutique venture group with excellent references (I did the due diligence) and a 2nd offer from a Tier One VC. He hadn’t launched yet. Although his other advisors told him to go with the Tier One VC, he had shaken hands with the boutique group, whose references were excellent for support when the going got tough. The Tier One VCs, 5 blocks away, had told the CEO he was “investment number 142.” I advised him to stay with the boutique guys, whom he liked (and had shaken hands with, after all), because he didn’t need the Tier One VCs for several more rounds of capital, not now. And he needed the support of the boutique guys in the coming years. More than eight years later those boutique guys are with him still, and the company is still private and at the top position in its market segment.

Another client funded his company with only 33 private-money investors, and later took 25% of this private company public, keeping control of the company. He had lined up 6 Fortune 500 companies interested in buying the company. He took this small portion public to maintain a market value (a “floor”), below which none of the buyers could bid. This “floor” avoided the possibility of one of the F500 buyers stepping forward, while the others stepped back, and forcing his valuation down. It also created a bidding competition among them based on the market value of the stock. Remember he still had control of the company and all the decision making power. This worked out very well for him.

So, exit strategy is more complex than it would seem, and should be strategic, and should be planned for from the beginning. Declaring and planning exit strategies fall in and out of favor with the investment community, especially VCs. For many years I have chaired a venture panel every quarter, and I’ve heard it all – only IPOs will be considered (boom times); there are no IPOs – a strategic acquisition is the only exit that makes sense now, and even “there doesn’t need to be an exit strategy – just build a profitable company and the exit will take care of itself. Show us the scalability and the revenue and the cost controls, and we’ll invest and don’t mention your plan for exit.”

Well, some of that is true – if you can build such a company then you are in control of your choice of exit. But I believe you need a strategic exit goal, so that all your build-launch-grow-create wealth plans have a path, and you can follow that path to the creation of wealth.

Why? Because success is often your greatest nemesis – and it can distract you from your goal of creating wealth, or from building a company you want to keep for generations, or from the exit you have determined. A plan and good advisors will keep you on the path, so you don’t build for success only to lose out on the ultimate gain – cashing out, or building the next new thing, philanthropy, or whatever your next idea may be.