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BoSEU24 | Imogen Wethered | How to Sell a Business in a Decade
The document provides a comprehensive guide on starting and selling a business, covering essential areas such as product development, fundraising strategies, and the M&A process. It emphasizes building a network, being capital efficient, and understanding different types of acquirers, along with their market presence and strategies. Additionally, it outlines the M&A process timeline and provides tips for successful negotiations and navigating challenges.
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BoSEU24 | Imogen Wethered | How to Sell a Business in a Decade
- 1. How to Start& Sell a Business in a Decade Imogen Wethered
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- 4. Reasons to Focus 1.Product Functionality and integrations 2. Sales Specialisms 3. Marketing Strategy 4. Upsell Potential 5. Category Creation 6. Acquisition
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- 6. Raising Tips 1.You controlyour timescales – not them 2.Qualify - Ask ticket size and expectations early 3.Confidence 4.Be wary of “Angels”
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- 8. Fundraising 1.Plenty of fundraisingoptions outside of VCs 2.Build a network: Existing angels, events, founder networks and contact databases 3.It’s ok to be capital efficient 4.Don’t let competitor raises panic you (I know it’s hard!) 5.Don’t raise in 3 tranches (2 max) 6.Female founder – Promotion-oriented answers
- 9. GTM & USAScale
- 10. GTM & USAScale 1. Build a network 2. Scale marketing approach from the outset 3. Americanize materials 4. Trade Govt support 5. Enter via a customer (if you can, but don’t hold out for it if you can’t) 6. When you build a team – prepare to spend 7. US presence helps M&A
- 11. Sales Pod Structure CloserAccount Manager/ Customer Success Outbound sales Inbound marketing
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- 14. M&A 1. Profit isimportant – 1-2 years 2. Capital efficiency - in last 2 years 3. Keep cash in the bank 4. ARR & Growth Rate - 50%/10 = 5 x ARR 5. Rule of 40 – Growth rate % + net profit % = 40% 6. Net Revenue Retention (minimal churn) 7. ACV + LTV:CAC 8. Initial US Traction 3 Years of Historics and Forecasts
- 15. M&A Stages • Early-stagegreat IP tech product = Acquihire • £2-4 million = more awkward / harder to sell • £5 million + = Good saleable business • £10 million + = Easy to sell
- 16. 5 Different Waysto Sell 1. Partnership that grows 2. Venture investor in target acquirer 3. Own outreach 4. Sit pretty 5. Investment Banker / M&A Advisor
- 17. Types of Acquirer Type% of market Private Equity 11% • Good price as you’re the platform • Want you to be in the medium hall at least • Will replace management team outgrown. • Focused on building the asset over 3-5 years (M&A to bolt more on, possible short term gains focus) • Different flavours – some have playbook to follow, others more of a partnership PE Backed Strategics 45% • Portfolio buying • Founders likely to become management roll in the top co with equity, other management team might be less needed • Less strong pricing as a consolidation play • But if company 6 in portfolio likely to be more cash and less equity Trade 40% • Wider range of flavours and deal structures • Typically justify higher prices due to strategic synergies • A partner to grow and scale with – their resources, territories and clients to upsell to • Less cash concerns and more stability for employees • Founder earnouts but with less accountability than in PE
- 18. M&A Process M&A ProcessTimescale Actions 1. Materials 2 month process CIM + Management Presentations | Exec summary | Financial package | NDAs & Process letters 2. Target Acquirers 2 week process • Acquirers + possibly majority investors • LI tactic 3. Approach + wait 4-6 week process • Tier 1 then to Tier 2 targets • Bankers have calls and share NDA and then CIM 4. Management Presentations & Pre-LOI Data • Present CIM (on holiday!) • Access to Financial Package • Questions to and Fro 5. Indications of Interest (IOI) 2-3 months after launch • Control timescales from the outset • Back and forth with interested parties 6. Letter of Intent (LOI) 3-4 months after launch • After discussions with interested parties • Bankers ask to submit LOIs • Messenger/negotiations between founder, board, advisor and banker • Involve lawyers & Accountants 7. Due-Diligence and Exclusivity 2 month process • Exclusivity • Weeks to gather a lot of information into a data room 8. Share Purchase Agreement 1 – 3 month process • A lot to negotiate beyond the pre-agreed valuation • Cash, stock options, closing mechanics, purchase price adjustments, reps and warranties, disclosure letter, indemnities, escrow, sellers rep + escrow, earnout 9. Completion 6-9 months total
- 19. Tips • Costs –Advisors, lawyers, accountants • Keep your files and secretarial docs in order • Prepare for tough negotiations end of day • Start IB conversations early to optimize strategy • Drive sales and keep cash in bank and profit
- 20. Finding an InvestmentBanker Benefits: Speed to market, broader reach for PE firms, expertise in challenging nuanced concepts, you may hire one later in any case. Qualification • What’s their typical deal size? • Are you in their sweet spot? • Who will support your deal? • Relevant past deals in your space to your target buyers?
- 21. Final Tips “Luck iswhere preparation meets opportunity” Seneca, Roman Philosopher Manufacture your own luck "Small opportunities are often the beginning of great enterprises." Demosthenes Take opportunities "Decide what you want, and then act as if it were impossible to fail.” Brian Tracy Work hard and have grit
- 22. Final Tips “Sometimes youhave to learn things the really expensive and frustrating way” Me Gamify challenges Better, different or more niche Ideas don’t have to be unique ”It’s not a Zero sum game” Steve Forbes Accept and offer help
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Editor's Notes
- #3 10th Jan 2023 – Completed paperwork to sell QMS company Excited, delighted, proud and very tired + 8 months pregnant Started 2012, age 23. Sold 10 years + 6 months later. 6 weeks be Going to share story and key learnings – strategy, fundraising, & selling Using Dall.E
- #4 After uni – attended hackathon sponsored by O2 – challenged NFC Fraudulently represented designer – basic photoshop course on hols on FB – FH replied and had catfished cofounder Qing in themeparks - won Visual Telefonica’s accelerator application – outstanded to be one of 20 companies – office space, mentors + 40k Years of hardwork – O2 deal took years and fell through multiple times To try and make money – SMB waitlist app Closed in 2019 – after made target acquirer list Eg. Micros – Restaurants, CRMs that were retail specific Mentors and investors had given split opinions - ”Mentor Whiplash” Made decision Not all investors agreed 5 years later – proud we made the right choice as we build more sales and marketing presence in the one industry and a ore valuable business at sale
- #5 The reason focussing on multiple target markets is a challenge: 1. Restaurant app had very different use interface to retail – tables. 1,8000 POS systems. Different competitors to compete wirh. 2. Sales – typically sales people have built a career in one industry. So requires more sales people/teams 3. Similarly, marketing – you need multiple marketing messages and propositions and need to spend more. Spreading little cash you have too thin. 4. Upsell – expanding clients is the better way to grow ARR and therefor valuation. It scales more (at less cost) to sell more features and solutions to one market, than trying to sell variations of the same product to different markets. 5. Category – Most valuable pieces of advice from venture investor. “Trying to be too many things….You don’t own any of them + need to build a category”. Read Play Bigger, + Blue Ocean strategy. Q + AB space more competitive . Had more solutions. Not change company name. So came up with category concept to cover how we help retailers to choreograph customers and staff across retail offerings. RC then always next to logo. 6. Acquisition – Most acquirers have a primary market – industry and size focus. Few sell to restaurants and retailers. Within retail few sell to SMB and enterprise. Unless they’re big players, but this limits focus. We saw this issue knock valuation for competitors.
- #6 We stayed capital efficient – raising £4.4 million of the years Sadly start-up news never made me realised this was the positive KPI it turned out to be Startup industry glorifies huge raises + it’s easier to find big venture funds looking for billion dollar unicorns, than investors just looking for a decent race horse. I always felt need to pretend our business could be a unicorn – only to hear feedback I already knew – that it was a good business but wouldn’t scale at venture page. Process exhausting. I wish I’d known earlier that some investors and many acquirers want capital efficient and safe bet B2B businesses First 3 raises from angels First one reasonably easy Second one much much harder – Angel stickler for numbers, busy trying to run business. Forecast model excessively complex. Eventual offer + advisory but valuation far too high. Then introed to more forward thinking investors
- #7 Key learnings from my process, that I would have done differently: To stop them asking me for excessive info. I should have said, we’re closing by this date, this is the information we have. Are you in or out. Should have asked ticket size. More confidence that this was happening with or without him Be wary of angels
- #8 Went to raise series A Raised advanced subscription to get some immediate cash in £400k To raise the bulk intended – put on unicorn costume – knew intuitive not the right thing to do I’d already met VCTs and new our round would come from a VCT 2019 closed first half of round from Seneca, Manchester based VCT VCTs – class of venture fund whose investors are able to gain EIS benefits on their investment. This limits the amount they can invest over a company lifetime. Limiting their follow-on ability. It often means they are looking for more capital efficient, lower risk return companies offering 3-5 x return, instead of 10x expectation of a VC. Also have evergreen fund cycles
- #9 Some of the top tips I’ve learnt about fundraising along the way There are plenty of fundraising options outside of VCs, you just need to research and network around. As a SaaS B2B company with credible brands, I knew we had a great investment opportunity, hopefully at a lower risk. But I didn’t know it was ok not to be a unicorn Building a network is key to finding and growing an investor base It’s ok to be capital efficient. There are investors that look for that. Nauta + US growth equity reached out in 2019 Don’t be fooled or try to compete with competitors I used to get jealous and then realised they would have to sell for at least £xm before the founders get anything. Possibly more if the investors negotiated a double dip preference stack They’re going to have to grow their team significantly. They’re further from selling than they otherwise would be. At M&A big raises for a company that doesn’t scale rapidly can really work against their founderes and early stage investors The more we raises the less savvy we were. Office meetings room names + pool table. Don’t try to raise in 3 tranches. Female founders asked questions focussed on prevention and loss vs, growth opportunity and scale.
- #10 GoToMarket After we raise our £2m Series A Needed to grow in the USA, but weren’t sure how and knew setting up a team was costly and high risk So we paid £20,000 to join a US accelerator Weve, focussed on helping companies scale in USA
- #11 Learnt following key approaches Build network by connecting with people in the USA Unlike the UK, where the market is small and you can build pipeline initially through growing your network, the US is so much bigger. So everything has to be done at scale. Building brand presence through tradeshows, webinars, PR, google ads and outbound sales are key to building US presence. Americanize your website and content to be in the US – at first toyed with dual site, then realised they’re used to USA Trade govt support Had been told best to enter via customer. But US accelerator learnings enabled us to generate leads on our own and we later spread with international customers moving us to USA, which helped. But it wasn’t essential. Hiring in the US is expensive and people warn you to be prepared to get it wrong. We were going to hire. But then Covid made selling online much easier. Later discussions with M&A advisors showed US traction was important
- #12 In addition to US accelerator, we also had support on better structuring sales team Previously had people doing every stage of the sales cycle, win client and manage relationship. Found people leant towards their preferred approach. We separated out lead gen, but still struggled with growth Only when we got people to really specialize and play to strengths that we saw performance improve Sales Pod structure – ex-marine on sales pods that operate together to target a specific vertical or region Precursor to Aaron Ross’ Predictable Revenue model
- #13 But while learning to build in USA, struggling with fact that had only raise half our series A, significantly increased costs and pipeline had slowed down. It was going to take time to build backup Cashflow was getting REALLY tight – negative red numbers Board – cut headcount, I was reluctant. Walking home – Cockroach Mentor – “Can the business work? How can it work?” Closest felt to burnout – hardwork never close, made me realise burnout when not working Had to cut heads – worst day of the business Covid struck and client stores closed – nail in coffin Then 3 incredible inbound leads in one day Go to market + new sales structure + Covid stratospheric levels of product market fit. – Insurance product Customers finally knew about and were searching for our solutions More companies arose Importance of timing – can’t control
- #14 Before Never understood how companies got sold – thought get offer Dug in through founder conversations – many use M&A advisors to run a process, or include them in negotiation and increasing offers where they get an initial offer Corp Dev and PE leaders even ask companies to include bankers in negotiations Told board wanted to take one on – had to convince Had 2 years of conversations and learnt a lot, and then ran a process which lead to our eventual sale
- #15 First thing I learnt was about which metrics were important to help us to optimize our metrics at sale: Profit is important in M&A - 1-2 years of profit is ideal. Not burning cash. Be capital efficient at least in the last 2 years is important. Keeping cash in the bank is beneficial, gives more optionality, less pressure and gets distributed to shareholders ARR and growth rate % are the primary metrics that matter for valuation. Your growth rate becomes your multiplier Rule of 40 is that your growth rate + net profit should = 40 Net Revenue Retention - your ARR + expansion ARR minus churn and downsell (Churn is obviously a detractor from ARR and growth rate.) Customer average contract values and typical contract lengths LTV to CAC metrics - the multiple by which your customer lifetime value = your cost to acquire a customer And Initial US traction is important to sell to a US buyer (which most key SaaS strategics are) is also key because it gives you more optionality to find the best deal and it gets distributed back to the shareholders on exit. 3 Years of Historic and Forecast financials - were all the buyer would need to see. Compared to the 5 years of forecasts I’d been told by investors to share. Knowing these metrics really helped me to optimize our business in the timeframe leading to sale
- #16 Investment bankers also told me about the typical ARR baselines by which it was easier or harder to sell: Early-stage great IP tech product = Acquihire £2-4 million = more awkward / harder to sell £5 million + = Good saleable business £10 million + = Easy to sell
- #17 I have no affinity with investment bankers, but I like to be honest about using them, because I think it’s important There are the otherways you can sell Best way Partner that integrate and embed with Good approach. But takes time and can be risky to focus on one. We had no one obvious partner in our space that all clients use. Have seen examples of people that do this and then competitor builds own, so it’s good, but have to diversify Even if this works, you might use an M&A advisor later Some large tech companies have venture funds (Cisco, SAP, Salesforce), that you can gain investment from earlier. Or through their accelarators Own outreach – building relationships with Corp Dev, Product, Alliances or strategics Can work with strategics But with 111,500 PE firms in US & UK, with different specialisms, it’s impossible to cover the whole market to maximize offers Most PE firms come via bankers and PE firms speak to them regularly Sit pretty – build incredible company and wait for offers Or Engage an Investment Banker to run a process for you
- #18 These were my learnings from investment bankers about the types of acquirers and different nature of selling to each of them
- #19 The M&A Process
- #20 Costs – IB - 2.5% of purchase price, + monthly retainer Lawyer fees can be £200k to more than £500k Accountants can be £30k-70k Glad to have my files in order Used lawyers as secretary during deal, should have done so earlier Negotiations with highly sophisticated negotiators who do this for a living End of day in UK time – need a rest or better in evening Calls can be awkward – save all the hard points and put them in a document to discuss over emails. Gave me proof for the board also Earnouts are common, unless the founder leaves the business before Think about this early and build M&A relationships early, to optimize your business M&A advisor Silverpeak say they talk to businesses up to 3 years before, helping them to make important strategic decisions like whether to replatform their tech or not Drive sales all the time. I had a great sales team who continued to work on sales. Keep cash in the bank and stay profitable.
- #21 Why a banker Get out to market quickly with the right support to create your materials Cover a broader reach of the market including the relevant Private Equity firms, maximising your chances of getting a competitive offers. A similar benefit to using an Estate Agent to sell your house. Expertise in the challenging and nuanced M&A concepts - a deal is about much more than just valuation You may have to hire one later to negotiate the deal, so you’d benefit throughout the process from starting with one earlier who can support you with building your story and generating maximum offers.
- #22 Manufacture your own luck Hackathon heatwave, photoshop course Learn skills outside of curriculum Opportunities not risk Thought couldn’t be an entrepreneur as wasn’t a risk taker Work hard and have grit People want to hear about cheat sheets and overnight success, but a business take significant work and grit to stay with it through the tough times. You have to endure some pain to achieve success. Running a business in a competitive space, you constantly feel like you’re in a race. And you can outwork the competiton But if you love what you do and your controlling the shots, it doesn’t feel like work Sometimes worried wasted by 20s from a living life perspective, but I loved my work and loved Monday mornings
- #23 Gamify the difficult things When I found things tough, took great solace that I would learn from them My mantra Strategic steps to outcome Ideas are about execution, not who had the idea You business doesn’t have to be original. It needs to be commercially viable B2B – Laid, paid, made. Maslow’s hierarchy of needs B2B – generate ROI It’s not a Zero sum game - Ask for help, help people and connect others - it’s not a Zero sum game Remember People like to help others Top tip - when people give you advice/help don’t say you already know the information and answers they give you. It makes people think maybe you don’t really want their help.