Following a successful investment period that ended in 2023, NV3 eagerly anticipates the subsequent phases of its startups’ growth journey: the pursuit of additional investments or the preparation for an exit. With the latter representing the ultimate objective, this article aims to provide valuable tips and essential insights for successfully navigating an exit strategy.
Last year’s acquisition of phos by Ingenico
This event not only marked a significant milestone for the two companies involved (and NV3 itself) but also brought valuable insights for the broader fintech landscape and the local ecosystem. Phos, a software POS startup, and Ingenico, a global leader in seamless payments, coming together signified a strategic move expected to bolster both companies' offerings and market presence. For phos, this acquisition provided an opportunity to scale its innovative solutions and access a broader customer base. For Ingenico, it represented a chance to enhance its digital payment capabilities and strengthen its position in the market. Moreover, this development held immense importance for the local ecosystem as it showcased the potential for growth and success for other startups in the region. Aleksandar Terziyski, a partner at New Vision 3 (NV3), was instrumental in facilitating this landmark transaction for NV3.
Fundraising & Exit readiness
An exit or another large fundraising event is not just a milestone but a crucial phase in the development of any startup. Aleksandar Terziyski emphasizes the importance of alignment between founders and investors from day one, with a shared focus on business development, KPIs, and the understanding that a recapitalization event is a likely future scenario. He notes that an exit and the next funding round are identical events, both testaments to a startup's growth and achievement of its goals. The decision to head for an exit or large fundraising should be on the agenda of the founders, CEO, and management of growth companies from day one.
The process itself can be broadly divided into four phases:
Preparation: Even prior to any formal fundraising, the Company should keep relevant investment material at hand, and update Company’s progress dynamically. At the initial stage of a formal process, the company must decide whether to hire an external advisor or organize an internal structure to support the process. This involves preparing more extensive exit memorandums, teasers, and other documents and materials to initiate talks with potential partners interested in buying the company.
Negotiation: This phase involves meeting the company's management, sharing information, and starting commercial due diligence. It is also the stage where a term sheet or a letter of intent is first presented, and the two parties begin to negotiate the main terms of the deal. This is where VCs and investors can be included, and an indicative offer is signed.
Validation: This phase involves validating all information through specific due diligences - legal, technical, financial, etc. After that, the parties develop a Share Purchase Agreement (SPA) that is about buying and selling shares. The end of phase 3 is when the parties officially sign a deal.
Completion: The final part is connected to legal processes like regulatory approvals. The final step is the bank transfer.
Aleksandar highlights that the level of involvement of VCs and investors depends on the company's strategy. Their networks can be used for connecting with potential buyers or advisors. Investors play an important role in helping the company build its story, presentations, and sharing feedback, but they are not involved in developing the materials. Proactive investors often initiate a complete overhaul of this process well before it begins.
Common Pitfalls for Startups
Aleksandar shares crucial advice for founders going through an M&A event: never lose control of the business and don't focus enough efforts in this direction. These milestones often take months, sometimes over a year, and the startup management should be prepared for the deal to fail at any second while continue running their business successfully afterward. This also gives founders "bargaining power" by showcasing how the business is developing.
One common mistake in an exit or fundraising process is that founders sometimes promise more than they can achieve. Although this can sometimes open the door for the deal, it has repercussions further down the line.
Another important factor is stakeholder management and setting the right expectations from the beginning for investors, management, founders, and employees.
Finally, understanding your investors is paramount. This knowledge not only saves time but also facilitates early discussions, streamlines the process, and ensures a more swift and effective outcome.
Key takeaways from Aleksandar
Based on his previous experience at Roland Berger as a consultant and 10 years VC experience at NV3 and previously at NEVEQ, Aleksandar shares several key pieces of advice for founders going through an M&A event:
Maintain Focus on the business: Never lose control of the business and don't focus all efforts in the direction of recapitalization. These milestones often take months, sometimes over a year, and the management should be prepared for the deal to fail at any moment and have a plan to continue running their business successfully afterward. This approach also gives founders "bargaining power" by showcasing how the business is developing.
Manage Expectations: One of the most common mistakes in an M&A event is that founders sometimes promise more than they can actually achieve. Although this can sometimes open the door for the deal, it has repercussions further down the line.
Stakeholder Management: It is crucial to set the right expectations from the beginning for all stakeholders involved - investors, management, founders, and employees.
Aleksandar emphasizes that an exit or large fundraising event is a testament to a startup's growth and achievement of its goals. However, it is crucial to approach it with a clear strategy, realistic expectations, and a well-thought-out plan that considers all possible scenarios.
Conclusion
The process of exiting a startup is multifaceted and requires meticulous planning and execution. From preparing the necessary documents to negotiating terms and managing stakeholders' expectations, every step is crucial. Aleksandar Terziyski's insights provide a valuable roadmap for founders and investors navigating this journey, emphasizing the importance of maintaining control, setting clear expectations, and being prepared for any outcome.