Now the venture capitalists want us to rather carefully define our exit strategy, particularly strategic acquisitions: who will acquire our newly emerging companies, and how are we planning our growth to be appealing to these targets?
This coming week Tuesday & Wednesday October 19th and 20th, I will chair two panels on venture funding at Digital Hollywood http://bit.ly/91TW5z & http://bit.ly/b6SuaP. In preparation for these, I have been in communication with all the panelists. On one panel, four of the six panelists want to discuss M&A – mergers and acquisitions – and how hot this exit strategy (a market in its own right) is becoming. Of course, as I am chairing the panel and representing the audience of entrepreneurs, the panel will need to answer my questions on how they think we should prepare our companies toward this exit strategy.
Now, to be fair, I have insisted that my clients determine their exit strategy from the time we write the pitch piece for early stage investment –and that the growth strategy we implement on the way to that exit must stay focused on the exit.
One of the most difficult tasks of my shadow-CEO work is to keep the CEO focused on the opportunities which drive the valuation up for that exit, and which keep it on the path to the exit, which sometimes means turning down sexy new chances at other markets that lead away from that path.
Some years my approach to exit strategy is in style, other years not. I have chaired 3-4 venture panels each year for more than 10 years now. The panelists vary – mostly venture capitalists and investment bankers, and a few deal-making attorneys — and their positions on exit strategy move up and down like the stock market.
During a boom year, one of them said, “If an entrepreneur brings me a business plan with an acquisition exit, I’m not going to look at it. I’m not spending any bandwidth on any company that cannot command an IPO.”
During the crash years, when venture capitalists are consolidating their portfolio companies to save their cumulative-portfolio ROIs, they don’t talk about exits at all. They are trying to survive until they can raise their next Fund.
During growth years (after a crash), when a couple of IPOs are on the horizon and the market looks strong again, M&A activity heats up. The last cycle of this a few years ago found one panelist saying, “We like to see the plans for a strategic acquisition early on.”
Looks like 2011 is going to be one of those years. I’ll report back after the panels next week.