Mark Suster: A Primer on Exits

7/29/2019 Mark Suster: A Primer on Exits

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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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Documents

Mark Suster: A Primer on Exits