An overview of the M&A process for VC backed tech companies and how to prepare for an eventual sale of the company. The presentation was given to the joint Chatham and Madison NJ Tech Meetup on June 11, 2013

1. Financing Environment and
M&A for Tech Startups
Chatham and Madison Tech Meetup
June 11, 2013
George Abraham
george@rhodiumstrategies.com
917.776.4757
@skiinggeorge

2. Who is George Abraham…
Founder of Rhodium Strategies – advises emerging
growth technology companies, their investors, and
the companies who buy them-----
Strategic/M&A advice, business model generation
workshops, strategic consulting and independent
valuations-----
Clients include emerging growth technology
companies, VC funds & Global Fortune 100
enterprises------
Board member at Tekserve - $100m revenues, 200
employees

3. Who is George Abraham (cont)…
Founder of SAS Investors, an early stage
tech transfer focused VC fund
Led investments in Tacit Networks (sold to Packeteer for $78m);
Textronics (sold to Adidas for $36m); Hydroglobe (sold to
Graver Technologies) &Protonex (LSE: PTX.L; IPO valued
company at $110m)
Managing Director at the tech i-Bank C.E.
Unterberg Towbin; ran US private
placements for VC backed companies.

4. Who is George Abraham (cont)…
Selected Clients (present & past)
Valuation Clients (100+ present & past)

5. First, a note on being a
tech entrepreneur

6. Current Funding Environment
Venture capital activity ‘sluggish’ and
continuing to decline in Q1 2013

7. VC Deal Flow Trend
Q1 2013: $6.3 billion across 753 deals,
worst quarter in more than two years

8. Where is the money going?

9. Are you going to IPO?
PROBABLY NOT
Exit will come from a sale

10. M&A is the way to go – but still
a small percentage

11. VC backed M&A/IPO 2009-­‐‑13
Ratio seems steady at about 15% -­‐‑ 20% of
VC companies financed per year

12. Exit as multiple of
investment
Less than media would have you believe

13. More Stats on VC Funding and Exits

14. Info on exits, IPO and
trends in deal terms
Best places to get this info
Fenwick & West Venture Capital Survey
www.fenwick.com
Price Waterhouse MoneyTree Report
www.pwcmoneytree.com
Pitchbook www.pitchbook.com
National Venture Capital Association
www.nvca.org

15. Lets talk about M&A

16. Why do emerging tech
companies sell?
Google comes knocking
Do they even know you exist?
Timing is perfect; sector is hot
Tough to time the market
Shareholder fatigue; can’t raise money
Often the case – worst scenario for a good exit
Competition is brutal; Business not growing
fast enough; Hard to create channels of dist.
Need a strong partner
Board & Mgt plan 1 to 2 years ahead to sell
Smart way to go

17. If you don’t properly plan for M&A
*Run short of cash
before closing
*Desperate
negotiations
*Panic among
management team
*Tough to hire a banker
*Don’t have proper
relationships with
buyers

18. M&A Takes A Long Time
6 MONTHS TO A YEAR – PLUS PREP TIME

19. How to Plan for M&A
Cash in bank to ride out the process
It costs money to sell your company –
accountants, lawyers, bankers, travel etc etc
Who are the natural buyers?
What other industries could benefit from
your business?
Build strategic relationships 6 months to
a year before starting M&A process
Pull together a good team of advisors –
early in the process

20. Is your house in order?
Books & Records up to date?
All Shareholder authorizations and Board Minutes?
Equity incentive options issued and papered?
Employment agreements, invention assignment
agreements all signed and in one place?
Etc etc etc…

21. Prepare before you pitch
Information memorandum
Pitch deck
Projections (remember the earn-out…)
Justification for expected valuation
Diligence to support your pitch

22. Companies are Bought – Not Sold
Good exits happen when someone tries
to buy your company rather than you
trying to sell your company
Most likely to happen when you have a
pre-existing relationship with the buyer

23. Help the acquirer answer a key
question
The Acquirer will want to know:
How will buying this asset make my
existing business more valuable, and
how will I bring value to the asset I am
buying?
In your pitch – answer this question!

24. Deal Terms
Even if the deal is
for cash, you
never get all the
cash at closing!
Earn out
Holdback – 10% to 15%
Employment agrmnt
Non-compete

25. Geiing from LOI to Closing
DILIGENCE
A highly invasive process
They will ask for shocking amounts of
information
You have to get it all to them – fast
LEGAL DOCUMENTATION
Trees will die for your exit
Tempers will fray at times...

26. Almost always a hiccup right
before closing
Many things can
derail closing at the
11th hour
Minority shareholders
Last minute diligence
issues
Personality clash
Out of control lawyers
Loss of a key contract
Dispute about
distribution of proceeds

27. Summary
Common mistake – not
planning and preparing for
M&A
Getting deals done is hard,
time consuming, and
requires cash in the bank
Proper Prior Planning –
helps drive exit value
The M&A process is stressful
and will distract from your
core business activities
If you are successful, time
at the beach will be well
earned

28. THANK YOU!!!
George Abraham
Rhodium Strategies
george@rhodiumstrategies.com
917.776.4757
@skiinggeorge