Chapter 6 : Exit Strategies for Technology Ventures

Introduction to Exit Strategy

Three basic categories of exit strategies commonly pursued by technology entrepreneurs and their investors :

• Acquisition
• Merger
• Public Offering

Acquisition

Common strategic value drivers obtained by the acquiring company :

• Broader product lines
• Expanding the technology base
• Adding markets and distribution channels
• Increasing the customer base
• Creating economics of scale
• Extending internal skills

Mergers

• Decitions on control of the merged companies is part of the merger negotiations.
• Earn out strategy used for ventures consistently generating strong positive cash flow
• A merger protects against market encrachment, product innovation, or an unwarranted takeover.

Venture Valuation

• Multiples Technique, straightforward least mathematical and most often used technique that relies on identifying a key metric within an industry
• Discounted cash flow, interest rate used to determine the return on current cash

Going Public

Technology entreprenuers must carefully evaluate the advantages and disadvantages of going public

• Evaluating a good time for the venture to initiate an IPO
• Underwriter selection
• Registration statement and timetable
• Selling document of the company
• Preliminary prospectus distributed to the underwriting group once filed
• Reporting requirements

Advantages and Disavantages

•  Advantages : obtain new equity capital on the best possible terms, obtain value and              transferability of the organitation, enchance the company's ability obtain future funds.
• Disadvantages : public exposure and potential loss of control, loss of flexibility and increased administrative burdens, expenses involed in the IPO process