A primer to think about exits at tech startups from a presentation I gave November 2012 at Rincon Venture Summit

1. Planning for an Exit
Some Lessons for VCs &
Entrepreneurs
Mark Suster
Rincon Venture Partners LP & CEO Summit,
November 2012
@msuster

2. Understanding the Market
for Venture Exits

3. Most Entrepreneurs Have Unrealistic
Expectations of Exit Values
IIcan always get
can always get
acqui-hired for
acqui-hired for
15 million bucks
15 million bucks

4. Or As Pandodaily Put It

5. Of course it’s much harder
than that – but you
wouldn’t know it from the
press

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

7. The Fallacy of Bimodal Returns. Great
Funds Often Built in the Middle
Source: USV return
data per AVC.com

8. 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

9. And There Aren’t Many VC Tech IPOs
Either
Source: Capital IQ

10. The Median VC Exit Value for 2010 Was
$70 million
Guess What?
Entry Price Matters
Source: Flag Capital via Bryce.VC

11. What Does This Mean for
Entrepreneurs and VCs?

12. I Recommend Entrepreneurs Start Lean,
Only Go Fat If Product/Market Fit
Fat
Progress / Capital
Keep Options
Open
Inflection Point
Time

13. When The Hors D’oeuvres Tray is Passed
Take Two

14. And Put One in Your Pocket

15. Just Don’t Take the Whole Tray!

16. As a VC We Try to Lean in Early on
Winners & Avoid “The Mark Up Game”
ownership %
3
Get
2
30% Ownership
in Solid
Performers
1 Lean Early
on 20-25%
20%
Big Winners
Small Initial
Check
10%
$0.5 $2m $4m $8m
Total investment ($m)

17. “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 Open
Source: Mark Suster. Having been burned before by misaligned incentives on exits

18. Selling Your Company

19. 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.

20. Need to Know What Type of Acquisition
You Would Be
Value to Acquirer Defensive
Move
 Can’t Afford to
Strategic
Have A
Threat
Competitor Own
 Avoid or Delay
Revenue Disruption
Driver
Product
Gap
Talent
Hire
 $1m / Dev
 Location Matters
Purchase Price

21. Organizational Purchases
Champion Beat You
You Up
Sell Your Product Business Buyer IT Dep’t Legal / Finance
Sell Your Company Sales Product Corp Dev
In some companies Corp Dev leads strategy / investments. In others they
are the deal execution teams. Know your buyer.

22. </end>