Planning for an ExitSome Lessons for VCs

& Entrepreneurs

Mark Suster

Rincon Venture Partners LP & CEO Summit, November 2012

@msuster

Understanding the Market for Venture

Exits

Most Entrepreneurs Have Unrealistic Expectations of Exit

ValuesI can always

get acqui-hired for 15 million

bucks

I can always get acqui-hired for 15 million

bucks

Or As Pandodaily Put It

Of course it’s much harder than that – but you wouldn’t know it

from the press

Most VCs Don’t Have a Strong Sense of Exit Values Either. It’s

Not Only HRs

The Fallacy of Bimodal Returns. Great Funds Often Built in the

Middle

Source: USV return data per AVC.com

The Reality Is - There Aren’t Many VC Exits > $100 million

Source: Capital IQ

And Many of These Raised Huge Sums of Money so Returns Aren’t Clear

And There Aren’t Many VC Tech IPOs Either

Source: Capital IQ

The Median VC Exit Value for 2010 Was $70 million

Guess What?Entry Price Matters

Source: Flag Capital via Bryce.VC

What Does This Mean for Entrepreneurs and

VCs?

I Recommend Entrepreneurs Start Lean, Only Go Fat If Product/Market

Fit Fat

Inflection Point

Keep Options Open

Pro

gres

s / C

apita

l

Time

When The Hors D’oeuvres Tray is Passed Take Two

And Put One in Your Pocket

Just Don’t Take the Whole Tray!

Total investment ($m)

Small Initial Check

ownership %

20%

As a VC We Try to Lean in Early on Winners & Avoid “The Mark Up

Game”

10%

$0.5 $2m

30%

Lean Early on 20-25%

Big Winners

$8m$4m

Get Ownership

in Solid Performers

1

3

2

“Fat is good when you’re on to something really special, but …

Sometimes NOT Having a Big VC Above you in the Cap Table is a

Great Thing for both VC & Entrepreneur”

It Keeps a lot More Options OpenSource: Mark Suster. Having been burned before by misaligned incentives on exits

Selling Your Company

Companies Are Bought, Not Sold

PR Matters. I know. It shouldn’t. It does.

Get Biz Dev or Sales Deal People buy people they know.

Start Early. Need to Take Early Meetings (just like raising VC)

Leverage VCs. Corp Dev use as a quality filter

Use Banks Wisely. Some deals fees nothing compared to price increase, closure %. But bank must have skin in the game.

Need to Know What Type of Acquisition You Would Be

Purchase Price

Value to Acquirer

Talent Hire

Product Gap

Strategic Threat

Revenue Driver

Defensive Move

$1m / Dev Location Matters

Avoid or Delay Disruption

Can’t Afford to Have A Competitor Own

Organizational Purchases

IT Dep’tBusiness Buyer Legal / FinanceSell Your Product

ProductSales Corp DevSell Your Company

Champion You

Beat You Up

In some companies Corp Dev leads strategy / investments. In others they are the deal execution teams. Know your buyer.

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