Exit: The Good, The Bad, The Ugly

The End Game

Creating Winning Exit Strategies

March 4, 2016

M A R K M A C L E O D , F O U N D E R | @ S TA R T U P C F O

Private & Confidential | 2

A g e n d a✓ What’s happening? Activity, trends, data

✓ Out in the Wild: Case studies

✓ Lessons learned: How to plan your exit


I n t r o d u c i n g S u r e P a t h

Funding, growing and exiting venture-backed startups since 1999

Raised over $100M in VC in the US,

Canada and Asia ◆

3 years as a VC (Real Ventures)

Worked corporate development and

exited many companies

◆ Airbnb

Blackberry Rackable Systems

Return Path & others

14 years as CFO for some of Canada’s leading technology

companies ◆

FreshBooks Shopify Tungle

& many others


T h e S u r e P a t h D i f f e r e n c e

InvolvementExperience

Access Flexibility Commitment

in the most successful tech companies

to Tier 1 investors & strategic partners

to give great service regardless of deal size

to help Canadian companies and their

investors succeed

FreshBooks|Frank & Oak|Shopify|&more

Funding, growing & exiting tech companies

W h a t ’ s H a p p e n i n g ? E x i t D a t a & T r e n d s


E x i t T r e n d s i n C a n a d a

Source: pitchbook.com

7 7

5

9

4

9

6

98

11

13

6

1

1

0

2

4

6

8

10

12

14

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015

Num

ber

of D

eals

Canadian Information Techonology Companies Exits by Type

Merger/Acquisition IPO


E x i t T r e n d s i n C a n a d a ( c o n t ’ d )


133

104

134

117

143

108

124

109

159

115 117

75

7

7

5

9

4

10

6

9

8

12 13

6

19.0

14.9

26.8

13.0

35.8

10.8

20.7

12.1

19.9

9.6 9.0 12.5

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

0

20

40

60

80

100

120

140

160

180

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015

Fun

dra

ise :

Exit

Ra

tio

Nu

mb

er o

f De

als

Canadian IT Company Fundraises vs. Exits

Fundraising Deals Exit Deals Fundraise - Exit Ratio


W h o ’ s b u y i n g ?


United States62%

Canada23%

International15%

Buyer By Geography

Private46%Public

54%

Buyer By Type


B u y e r s - w h o ’ s b u y i n g C a n a d i a n t e c h n o l o g y c o m p a n i e s ?


E x i t s b y A g e


35

24

18

9

10

0 5 10 15 20 25 30 35 40

0 - 5 years

6 - 10 years

11 - 15 years

16 - 20 years

21 - 38 years

Number of Companies

Exits by Age of Company


E x i t s b y Va l u e


64

24

7

10

10

20

30

40

50

60

70

Undisclosed < $50 Million $50M - $150M > $150M

Num

ber

of C

om

pa

nies

Exit Values by Size


Va l u a t i o n s


0.6x

1.4x

1.6x

1.7x

1.6x

7.3x

0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x

Communications and Networking

IT Services

Software

EV / Revenue Multiples (TTM)

6.0x

12.2x

12.2x

13.5x

21.3x

21.1x

0.0x 5.0x 10.0x 15.0x 20.0x 25.0x

Communications and Networking

IT Services

Software

EV / EBITDA Multiples (TTM)

O u t i n t h e w i l d C a s e s t u d i e s o f S u c c e s s f u l E x i t s


Te r r a s c a l e✓ Sector: Storage software

✓ Status: Revenue-generating (early)

✓ Funding: Seed, Series A

✓ Outcome: 10x return

✓ Deal factors:

✓ Meaningful tech

✓ Joint customers

✓ Had alternatives

✓ Very motivated buyer

✓ Buy-side banker

Post mortem: Great return, but should we have sold?


L o c a l m i n d✓ Sector: Mobile, local, social

✓ Status: Pre-revenue

✓ Funding: Seed

✓ Outcome: 25x return (and counting)

✓ Deal factors:

✓ massive free user growth

✓ Unsure about long term prospects

✓ Founders initiated product level talks

✓ Light funding - optionality

Post mortem: Took an all-stock flyer. So far delivering great multiples


Tu n g l e

✓ Sector: Mobile, productivity


✓ Funding: Seed, Series A

✓ Outcome: Very solid single digit multiples

✓ Deal factors:

✓ massive free user growth

✓ Integrations and BD talks with all major platforms

✓ Large user base on the BB platform

✓ Existing BD, marketing relationship

✓ Motivated buyer. Clear fit with a strategic program

Post mortem: Right decision for the company. All cash deal


G o i n s t a n t

✓ Sector: Collaboration, productivity


✓ Funding: Seed

✓ Outcome: > 10x return. 10 months from seed to exit

✓ Deal factors:

✓ Meaningful tech

✓ Driven from the top

✓ Company sold the future

✓ Known investors forced respect

✓ Founder generated alternatives and played hard

Post mortem: Great outcome in a very short time frame

L e s s o n s L e a r n e d P l a n n i n g y o u r e x i t


E x i t R u l e # 1


E x i t R u l e # 2


E x i t R u l e # 3


B u y e r T y p e sFounder

✓ Product-driven

✓ Based on desire

✓ Top down

✓ No prior relationship needed

Manager

✓ Fact-driven

✓ Based on clear business case

✓ Pushed up to CEO

✓ Need evidence (joint customers)


T h e i s s u e w i t h m o s t e x i t s✓ Most exits are sub $50M

✓ Few credible, specialized exit advisors

✓ You end up doing it yourself

✓ No leverage, expertise

✓ Have to run the company as well

✓ Negotiating with your future boss

64

24

7

10

10

20

30

40

50

60

70

Undisclosed < $50 Million $50M - $150M > $150M

Num

ber

of C

om

pa

nies

Exit Values by Size


D r i v e r s o f d e a l v a l u e✓ Alternatives (runway, competition)

✓ Scarcity

✓ Mortal enemies

✓ Growth (fear)

✓ Market leadership (2 way)

✓ Does the buyer’s CEO Want this?

✓ On strategy

✓ Currency

✓ Time and timing (including markets)


O t h e r c o n s i d e r a t i o n sEarn Outs:

✓ Disagreement about value

✓ Shift risk to seller

✓ Almost never get paid out

✓ Create risk for both sides

✓ Try and avoid

Management buyouts:

✓ Pursue before 3rd party sale

✓ Timebox

✓ Consider conflict

✓ Can they pay?

Role of VCs:

✓ Corp Dev access

✓ Advisor intros

✓ Secret handshake

Pre-Banking phase:

✓ 18 - 24 mths pre sale

✓ Build relationships

✓ Create optionality

Web: surepathcapital.com

email: [email protected]

Blog: startupcfo.ca

Social: @startupcfo

Questions?

Exit: The Good, The Bad, The Ugly

Education