There are a number of different factors that will influence the timing of when you might want to sell your business. Some reasons are planned, or internally motivated, while others are triggered by external conditions.
It is often said that great software companies are acquired rather than sold. By integrating your products and driving business for your partners, you will put yourself in the best position to attract an incoming acquisition offer. However, whether or not you do attract an incoming offer, there are ways to signal to prospective acquirers your willingness to explore strategic options without quite putting out a “for sale” sign on your front lawn. In that regard, it is helpful to have some idea of when might be a good time to start putting out those signals.
In terms of planned or internally motivated factors, some of the ones that you might want to consider years in advance include getting to a milestone ARR or revenue level (such as $5M, $10M or $20M) at which you attract the attention of an increased pool of buyers; the life of your VC fund and when they are looking for liquidity on their investment in your company; your penetration and saturation for the market spaces in which you are selling and your potential to achieve growth and profitability in the adjacent market spaces you mapped out in the Strategy phase outlined above; your success (or lack thereof) in your growth plans and the potential requirement for a costly and time-consuming pivot; the requirement for another round of financing that might dilute existing shareholders; founder or team fatigue; or your desire (especially if you are a large shareholder and/or essential to the company’s operations) to take cash off the table and move on to other things in your life.
As we all know, even the best laid plans often go awry. Sometimes, perhaps even often, there are exogenous events that can impact and potentially accelerate your carefully planned timing. As a very relevant and topical example, the M&A markets are booming right now in part because the COVID-19 outbreak caused many founder entrepreneurs to face the prospect that they might lose millions in the value of their businesses, and they are now responding by seizing the opportunity afforded by the snapback in the stock markets to test the market value for their companies. Other external triggers might include the onset of a market consolidation with the acquisition of one or more of your competitors or a rollup initiated by a private equity-backed platform company; impending regulatory changes that will cause significant changes – for good or for bad – in your market; a sudden health scare or personal issue for you or someone in your family that causes you to rethink what you can dedicate to the business going forward; the emergence of frothy bubble-like market conditions that you want to take advantage of; or best of all, that you receive a serious incoming inquiry that is worthy of your and your board’s consideration.
Recap and Action Items
Like all things in life, success is a matter of preparation meets opportunity. When it comes to an exit for your company, there are 5 things you can START doing now to get the most out of all the efforts you are putting in now to scale your business:
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Define your growth strategy
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Identify and form relationships with your target list
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Choose your advisor(s)
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Always be transaction-ready
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Consider the right timing
Planning for your company’s exit is a no-regrets move: either you pick up some great habits that enable you to better grow your business, or you end up in a situation where you get a great outcome by acquisition because you put yourself in the right place when the right time comes along.
My name is Alexander Rink. Drawing upon over 20 years of experience growing early-stage companies, my team and I help CEOs and Boards of Directors of companies from $1M to $25M in revenues identify and resolve strategic and organizational challenges to accelerate their company’s growth in a capital efficient manner.
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