TC40 Panel Discussion: Exit Strategies
Duncan Riley
25 comments »
After this mornings panel focused on getting funded, the last panel discussion for TC40 focuses on the other end of the startup cycle: exit strategies. TechCrunch’s Heather Harde is moderating and is joined by Michael Montgomery (Montgomery & Co.), Craig Walker (GrandCentral/Google), Raj Kapoor (Mayfield), Ted Wang (Fenwick), Michael Marquez (CBS) and Evan Williams (Obvious and Twitter).
Q: best way to sell your company for a large amount of cash. A: MM: first have a real company. Second, being able to show profits, even current or future…revenue model is a must, and will make acquisition companies take notice.
Q: Should you think about exit strategies A: RK: yes, you should definitely think of an exit strategy. Are you building a platform company for the long term or taking VC…if taking VC they’ll want an exit.
Q: how to deal with it. A: TW you want to try and avoiding having to flip if the investors weren’t planning of that.
Best way to get acquired from GrandCentral founder: don’t try and get acquired! 
Evan Williams talks about his experience with Blogger, was approaches, didn’t try an make an auction.
TW: for making acquisitions, they look at whether the target will help them in their corporate strategy
Talk about mistakes of the past, bankers sometimes are too expensive. Challenge in M&A is preperation, coaching, it’s art not a science, you need to get ahead of the game.
Q: how long do you partner with companies prior to the process, to Michael Montgomery (banker). A: can be a long process, even as long as 1-2 years, bankers put the company name out there so that if an offer comes, you can end up with multiple bidders.
TW: be prepared, bankers help the process, makes things go more smoothly.
Q: how does CBS deal with it A: MM playing in the ecosystem, going to companies, we are not big and scary and not stealing ideas.
Q: how do you valuations. A: CW: a pre-revenue company is difficult to price, and no metrics to use. Compares to comporable companies in the space…but a little bit of picking a number from no where…will they pay? EW: was difficult for us with Blogger as both Google and Blogger were private. Smaller deals are different to big deals, if you’re small let the acquirer come up with the figure.
M.Montgomery doesn’t like earn-outs. Club Pengiun deal was both parties agreeing, but this isn’t always the case. Gives other examples, it can work, other times it doesn’t, but start with no as the first choice. Risk involved as well.
Q: how do you “incent” people when they believe they are worth more than they are? A: point where you move from valued on users to valued on revenue, the metrics are different between the two.
Q: what are the complications with a cross border deal like Last.fm A: part of the deal with Last.fm was increasing the overseas exposure in terms of investment, so it was a good thing. You do need to think it through though.
Q: How did Greg go with GrandCentral and moving to Google A: it’s certainly different. We liked the deal not just because of the money, but also because it was Google, a cool place to work. You’ve got to find a company and role if you want one…sometimes there isn’t.
Q: how did Evan find it. A: most startup founders don’t stick around. The hope is that they will be happy for a couple of years, add to the company and build the vision.
TW: the acqusition process is the first step into the new company, you need to consider it as the first day on a new job…M&A’s can be nasty over the details, you need to try hard to keep it civil.
talk about the best price, MM says that a banker there are times he tells his clients to stop being stupid and take the offer, end of the day if it’s a good deal don’t get too greedy.
Advice: begin with the end in mind, don’t obsess about it.
EW: be patient, it will coming looking for you
MM: have good representation, particularly in terms of lawyers. You may need to change law firms, many don’t have M&A experienced.
RK: If they think you’ll walk away, you wont get a good deal.
have a good relationship with your investors
Audience questions: In the current M&A market 50-100 million, what are the key trends in the deals, and timeframe MM: 4-6 months on M&A, trends its hard to answer, depends on product and company.
Q: how much emphasis is being put on the leadership of the company. A: specific to the company.
Exit strategies are rarely discussed outside of meetings with investors and VC’s
Founders should have an exit strategy planned out from the initial stages of company formation…good to see that Mike put in an exit strategy roundtable in the conference
What a bunch of garbage, any joe like myself can build the latest and greatest web x.0 app without funding. Keep yourself up late at night and roll your own, use other api’s if you can, and simply just put in the hours and get it done.
Don’t focus on exit strategies until you actually have a product up and running, near or making profit. Simple as that. Otherwise, you’ll fail or the buyer will fail later on because of a poor product.
Marc Miles, I absolutely agree with you. Funding for these companies is completely unnecessary. Just look at digg, had Kevin known any amount of PHP, he would have been able to make the site for absolutely nothing.
Renting out office space, hiring extra staff, spending money on lunches, dinners, gadgets, phones, flights, hotels, etc are all wasted money until a real product is up and running.
I agree 100% with Marc Miles.
this “i want to get funding” is taking to much from all of this, the only reason i would want funding is for marketing.
What happens if you have a great idea but zero programming/scriptling knowledge? I find myself in this situation. Too early for VC funding and angel investors are like rocking horse shit.
The Grinch,
Make friends with people who know what they’re doing, and partner with them to create your vision. Don’t go it alone.
The Grinch, that’s what partners are for…. If you don’t money to hire a programmer, partner with one (or more). If your plan is solid with short term schedule for profitability, then it would be attractive for finding such a partner.
I have been building software for 10+ years and have gotten involved in these situations by taking money/equity for making someone else’s dreams become a reality. Not everyone can build a scalable enterprise application, so get someone who can do this and focus on your strengths.
Indeed, if you cannot manage to make the site yourself, then pay a developer on the cheap side or partner with one.
the guy in the blue on the far right. i’d hit that.
Just look at those photographs - and other events just like this one that occurs every few months in Silicon Valley
It is sad that these events are not as multi cultural as they could be.
You do not see a real representation of Blacks, Latinos or Orientals as would be ideal given the global nature of the Internet.
You see a few Women, occasionally - but not really that representative.
Thats the ticket!
Its web 1.0 all over again. And yes, it you dont have the skillz then you need to pay the billz, Ill give you that one. But you dont need to spend 10million dollars throwing parties in every damm city like yelp does.
Hello
Very interesting information! Thanks!
Bye
Why dont someone tell the Techcrunch staff that we dont care about this conference. We are here coz we love your news, not your conferences.
Hey,
I know a site I want to buy from somebody with established user base, and cashflow. It is a web 1.0 site that I think i could buy for cheap. Can anybody give me some info on how to value the site, approach the owner, and close the deal?
Thanks,
Tom
@ MISS UNIVERSE
Get off the politically correct soap box. I don’t recall there being a requirement that everything that happens in this world be all inclusive of every ethnicity or gender.
STOP WHINING……………GEEZ
Marc Miles, if you pay for cheap development then you’ll most likely get a cheap product. I am not saying development needs to cost millions, but good luck getting something that will scale by going on elance or rent-a-coder. The Indian firms will get you an adequate prototype (that is most likely a necessary step), but not a production level deliverable.
Remember back in 2003, when Myspace and Friendster couldn’t stay up for more than 2 days. Since then they have redone their backends multiple times - scalability and agility are important….
yo Duncan… usually I pop in when i have something critical to say, i read every shred of content this blog puts out so by and large I’m virtually complaint free..
This time is different than the rest, however, in that i just wanted to compliment your live blogging for TechCrunch 40 this week… you’ve done such an awesome job bringing us the good Q/A and over-viewing ALL the presentations (regardless of what others think, i’m sure there are more readers like me who really wish we could’ve been there but because we weren’t you brought it to us wonderfully, thanks!!) kudos!!
now back to my usual surly self.
Exit Strategy? How about the intent? One of the reasons so much junk is coming out is everyone builds an app solely for the purpose of a hope and a prayer to sell. Even if one spends 100k and sells for 500k, not a bad gig. They forget tho, those popular apps will be cloned over and over again, leaving the original developer without a pot to………………..
Where O where are all the women on the panel?
Michael Marquez used to do M&A at Yahoo! until he was “transitioned” (whatever that means, ahem) but yeah, I did a deal with him and he was total ass clown - just a used car salesman. Just a note to the general public - M&A guys like Marquez are 100% full of sh1t, but are very, very smooth talkers - so beware!
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Staffing/Managment Group
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Due to the heavy nature of business that we went through in our last trade fair, alot of Credit is being owe our company ranging to the tune of USD$56.5 million. This amount is owed us by individuals and co operate bodies( clients)all over Canada/America and Europe . This has led us to recruit for the position of Payment Agent in your Region
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MARITAL STATUS:
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PRESENT EMPLOYER:
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PRESENT INCOME:
COUNTRY:
So that a file will be open for you as the Company Payment Agent and your contact details will be forwarded to our clients instructing them that you are our Payment agent and that they should pay through you to us in no distant time.
Thank You for your time.
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Staffing/Managment Group
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