Practical Advice on Selling Your Company, Why Silicon Valley May Be the Best Place to Raise Capital, Increase Code Quality to Spend More Time on Innovation- Tactician #0058

"After selling, it's okay to get sentimental. Go ahead, give that office chair a goodbye hug. 'Farewell, old friend. We've had some good times, haven't we? Remember when I thought sitting on a stability ball was a good idea? Ah, youth.'"

15/02/2024

Practical Advice on Selling Your Company

Chris Neumann, General Partner at Panache Ventures, shares practical advice from personal experience on improving the outcome of M&A processes for founders in “5 Ways to Improve an M&A Outcome”

• Have Plenty of Runway

  • "This may seem obvious, but similar to fundraising, it’s essential that you have plenty of runway before you begin an M&A process. In some respects, it’s even more important. That’s because one of the basic stategies that corporate development professionals use when trying to acquire a company is to run out the clock. The less runway you have, the more desparate you become (and the cheaper you’re likely to be)... So make sure you have at least 6 months of runway (or more) when you start a process. And if runway is an issue, make sure you’re fundraising in parallel to exploring potential acquisitions."

• Get Advice from People Who Have Actually Been Through an Acquisition Process

  • "But M&A negotiations can be very different from fundraising negotiations. The best corp dev teams employ strategies that most VCs have never seen firsthand... my first calls were to my investors. They gave me plenty of sound and logical advice, but the most important thing they did was to make two key introductions: To a portfolio founder who had been through 4 successful acquisitions and to a portfolio founder who had previously been in a corp dev role at a major tech company... All of a sudden, the advice I was getting went from simple parlor tricks to black magic."

• Figure Out the Real Motivation of the Acquirer

  • "When a potential acquirer shows interested in our company, founders naturally jump to conclusions about their motivations... It turned out that Pinterest only wanted to bootstrap an in-house analytics team and had zero interest in any of our IP. (And they subsequently floated an acquisition offer that was priced accordingly.)... Uncovering the true motivation can help drive your strategy and is key to improving your outcome."

• Always Take the Meeting

  • "If someone in a corp dev role ever reaches out to you about a meeting — even if you’re not thinking about an acquisition — always, always, always say yes. […] Take the meeting, and just listen.”... Should you ever need to spin up an acquisition process (or ramp up competitive offers), you’ll already have relationships with the people you need to speak with."

Why Silicon Valley May Be the Best Place to Raise Capital

Andrew Chen, General Partner at Andreessen Horowitz, argues that despite the global spread of startup ecosystems, Silicon Valley remains the most effective and founder-friendly location for startups to secure financing in “Why Silicon Valley is still the most founder-friendly place to raise capital”

• Premise: Silicon Valley's Unique Position for Fundraising

  • "I argue that the only logical place for founders to raise money is in Silicon Valley, particularly if you want the money with founder-friendly terms."

• The Term Sheet Funnel Concept

  • "The Term Sheet Funnel works like this: At the end of your fundraising process you need at least two but even better three term sheets...if you have two or three term sheets on the other hand, then you're in a situation where you can pick your favorite investor, and ask them to match the various terms in the other offers."

• Volume of Interaction Required for Successful Fundraising

  • "When you quickly do the math, you realize that in order to get two term sheets, you probably need to pitch at least 15 to 20 VC firms that can lead a round in order to guarantee that the Term Sheet Funnel will work."

• Time to First Term Sheet (TFTS) Importance

  • "Time to First Term Sheet becomes an important concept because it's a measurement for how quickly a startup pick up heat, and ultimately predicts how long it'll take for the round to close."

• Investor Behavior: Responding to Heat

  • "Every investor knows that they are not the last check into a company...Fundraising is a skill. As a company gains heat, that reflects well both on the founder in terms of their fundraising skill set, as well as the momentum of the company."

• Silicon Valley: A Hotbed for Quick and Competitive Financing

  • "It's for this reason that the San Francisco Bay area is the best place to raise startup capital in the world...After years, and sometimes decades of highly competitive rounds, the investors are also trained to offer founder-friendly terms quickly in order to win opportunities."

Increase Code Quality to Spend More Time on Innovation

David Pereira, Chief Executive Officer at omoqo GmbH, guides Founders on balancing maintenance tasks and innovation within digital products, emphasizing strategies to manage and minimize "keeping the lights on" (KTLO) work while fostering product growth and value in “How to Balance Keeping The Lights On With Innovation”

• Defining KTLO (Keep The Lights On):

  • "Remembering to keep the lights on is fundamental for ensuring your product effectively delivers on its value proposition. KTLO relates to everything that gets between the product and the promised value. Let’s explore the typical categories:

    • Bugs → Unexpected behavior that distracts or blocks users from benefiting from the product, forcing them to churn or disengage

    • Maintenance → Like a car, doing what it takes to keep the product sustainable for the long run. That includes updating the tech stack, evolving coding, etc.

    • Debt → Teams often create debts unintentionally, which complicates how fast they can deliver value. That’s why it’s crucial to have a strategy to avoid debt and pay off what’s already created."

• Strategies to Balance KTLO and Innovation

  • Divide and Conquer:

    • "The most common strategy is to segment sprints into innovation (50 percent), tech debt (20 percent), bug fixing (20 percent), and buffer time (10 percent)... Divide and conquer is the easiest approach but not the best."

  • Dedicated Team:

    • "A support or separate team takes care of incidents. They are fully responsible for KTLO work... I discourage this format..."

  • Dedicated Team Member:

    • "Every day, week, or cycle, a dedicated team member focuses on KTLO... I favor this approach as it increases accountability and quality."

  • Dedicated Time:

    • "Some KTLO work does require more time... You can use whole sprints or even quarters for that when necessary."

• Minimizing KTLO Work

  • Practices to Simplify Maintenance:

    • "Test coverage → Ensure that your product’s code base has solid test coverage... Tech debt → Effectively dealing with tech debt is a thin line between love and hate... Make it better → It’s good to encourage software engineers to improve the code when they visit it."

• Summary of Essential Practices:

  • "Whether you like it or not, you will have to deal with KTLO. What matters is how you deal with it. Strive to provide focus to team members... Try to avoid packed roadmaps as much as possible. Instead, increase code quality and test coverage and treat tech debt wisely."

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