Planning Your Exit: How and Why Some Studios Get Bought | James Kosta
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Transcript of Planning Your Exit: How and Why Some Studios Get Bought | James Kosta
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Planning Your ExitHow and Why Some Studios Get Bought
James KostaOperating Partner
Signia Venture Partners
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Make ‘Exiting’ Part Of Your Startup PlanPaid-In Capital
• Are Founders ‘investing’ in the company with money or time?• Did Founders bring equipment or IP into the Company?• Does the Company truly own everything?
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Make ‘Exiting’ Part Of Your Startup PlanHuman Resources
• Do Founders know how to hire and delegate?• Is Employees’ work product legally owned?• Flat org charts feel great, but can’t scale.
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Make ‘Exiting’ Part Of Your Startup Plan• Focus
• Is the Company going to be tech, IP or consumer focused?• Trim the ‘fat’.• Build vs. Buy: Does it add value?
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Why Are Some Studios Worth So Much?• Users are your single greatest asset.• Understanding them multiplies value.• Sell pre-launch = lower risk.• Sell post-launch = Better have TRACTION!
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How Studio Valuations Are Calculated(LTV * # Users) + (20% * Payroll/yr) + (X Factor)
X Factor can be:• IP value• Acceleration of development• Opportunity cost• Value to competitor
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Attracting Investment Capital and PartnersPartners:
• How much are your users worth at your competitors’ LTV?• How attractive would your IP be to competitors’ in-network users?• What tech have you developed that can enhance a competitors’ LTV?
Your LTV$
Your Marketin
gYour IP
Their LTV$$$
Their Marketin
gYour IP
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Attracting Investment Capital and PartnersInvestors:
• Focus shows in hiring, operations and community management.• Depth of Board• Fair valuation• LTV has been optimized• Can it scale?
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Evaluating an OfferUse a third-party advocate/consultant to assist and advise.
• Can say things you can’t.• Should be connected into the M&A community.• Plausible deniability
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Evaluating an OfferTips:
• Don’t over-negotiate or negotiate by red-line.• Use the phone or meet in person.• Despite rumors: Investors and Partners don’t want to beat you down.
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Win-Win FTW• Retention• Holdbacks• Earn-outs• Control of IP Litigation• Indemnity
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Barriers to Execution• Invention Disclosure/Ownership• Open-Source Licenses• Retention• Potential Litigation
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Summing It All UpBuild your company in a way that makes sense.Start with the mega-scale. Work backwards.Spend time on your HR documents. Be reasonable but firm.Get to know your competitors. Take comfort in your shared challenges.Don’t build a xenophobic/nepotistic Board.Set milestones and HIT THEM! Publish them to create urgency.Check your ego when negotiating. No one owes you anything.