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Planning for an Exit
Some Lessons for VCs &Entrepreneurs
Mark Suster
Rincon Venture Partners LP & CEO Summit,November 2012
@msuster
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Understanding the Market
for Venture Exits
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Most Entrepreneurs Have Unrealistic
Expectations of Exit Values
I can always getacqui-hired for
15 million bucks
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Or As Pandodaily Put It
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Of course its much harderthan that but you
wouldnt know it from thepress
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Most VCs Dont Have a Strong Sense of
Exit Values Either. Its Not Only HRs
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The Fallacy of Bimodal Returns. Great
Funds Often Built in the Middle
Source: USV return
data per AVC.com
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The Reality Is - There Arent Many VCExits > $100 million
Source: Capital IQ
And Many of These Raised Huge Sums of Money so Returns Arent Clear
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And There Arent Many VC Tech IPOs
Either
Source: Capital IQ
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The Median VC Exit Value for 2010 Was$70 million
Guess What?Entry Price Matters
Source: Flag Capital via Bryce.VC
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What Does This Mean for
Entrepreneurs and VCs?
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I Recommend Entrepreneurs Start Lean,
Only Go Fat If Product/Market FitFat
Inflection Point
Keep Options
Open
Progress
/Capital
Time
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When The Hors Doeuvres Tray is Passed
Take Two
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And Put One in Your Pocket
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Just Dont Take the Whole Tray!
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Total investment ($m)
Small InitialCheck
ownership %
20%
As a VC We Try to Lean in Early on
Winners & Avoid The Mark Up Game
10%
$0.5 $2m
30%
Lean Earlyon 20-25%
Big Winners
$8m$4m
GetOwnership
in SolidPerformers
1
3
2
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Fat is good when youre on to somethingreally special, but
Sometimes NOT Having a Big VC Aboveyou in the Cap Table is a Great Thing forboth VC & Entrepreneur
It Keeps a lot More Options Open
Source: Mark Suster. Having been burned before by misaligned incentives on exits
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Selling Your Company
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Companies Are Bought, Not Sold
PR Matters. I know. It shouldnt.It does.
Get Biz Dev or Sales DealPeople buy people they know.
Start Early. Need to Take EarlyMeetings (just like raising VC)
Leverage VCs. Corp Dev use asa quality filter
Use Banks Wisely. Some dealsfees nothing compared to priceincrease, closure %. But bankmust have skin in the game.
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Need to Know What Type of Acquisition
You Would Be
Purchase Price
Value to Acquirer
TalentHire
Product
Gap
Strategic
Threat
RevenueDriver
DefensiveMove
$1m / Dev Location Matters
Avoid or DelayDisruption
Cant Afford to
Have ACompetitor Own
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Organizational Purchases
IT DeptBusiness Buyer Legal / FinanceSell Your Product
ProductSales Corp DevSell Your Company
ChampionYou
Beat YouUp
In some companies Corp Dev leads strategy / investments. In others theyare the deal execution teams. Know your buyer.
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