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5 Ways to Design a Successful Startup Exit Strategy

5 Ways to Design a Successful Startup Exit Strategy

6 minute read • July 7, 2023

Written by RBCx

RBCx’s own Karen Starns, along with other tech experts, share tips and advice on how to plan your exit strategy as a founder

For most founders and their VC backers, the pinnacle of success hovers somewhere between ringing the opening bell on the stock trading floor as their startup goes public and getting acquired by a bigger business for an eye-watering amount, becoming a newly-minted billionaire in the process.

The reality is that most don’t even come close.

Last year, a total of 29 Canadian VC-backed startups were acquired and not a single one went public, according to the Canadian Venture Capital & Private Equity (CVCA) 2022 market overview. Yet, reports show over half of Canadian startups hope to be acquired. This gap in expectations versus reality makes it worth examining the exit options available to entrepreneurs because, in the current slowdown of mergers and acquisitions (M&A) activity, a successful exit can mean so many things.

Enter four tech and finance experts who spoke recently at TechExit.io Vancouver on a panel titled ‘Exit Options: There are more avenues than you think!’ RBCx’s own Karen Starns, CEO of OJO Canada, shared her insights as someone who recently experienced an acquisition by RBC.

Other panelists included Andrew Hennigar, Partner, Borden Ladner Gervais LLP (BLG), Kim Kaplan, CEO and Founder, Snack App and former VP Product Management, Revenue Optimization & Marketing at Plenty of Fish (which was acquired by Match Group), while Shamil Hargovan, Managing Director at STS Capital Partners, served as the moderator.
If you missed the event or simply need a refresh, here are a five key takeaways from the session:

Deciding when to sell is unique for every startup

What drives the decision to sell varies for each entrepreneur. With so many considerations—long-term goals, specific circumstances and market conditions, to name a few—there isn’t a one-size-fits-all answer, and the right time for one venture may not work for another.

For Plenty of Fish, the decision to be acquired was fairly simple. The dating app “was 100 per cent founder-owned, so when Marcus [Frind] decided to sell, it was time to sell,” says Kim. “There wasn’t a lot of process behind it.”

Contrast that with the “complicated” deal Karen helped steer with RBC (an OJO investor and a go-to-market partner for the last five years) involving an intensive extraction of the team and tech from OJO’s U.S. operations. “We didn’t have a standalone Canadian division so we had to identify the people that would enable us to go big and move really quickly to essentially establish a new company out of an existing operation,” she explains. “We look at it as a win-win that enables RBCx to move faster in the homeownership space as well as for the U.S. organization that now has a great infusion of cash to help them continue on with their strategy.”

When deciding whether to sell, the legal mind on the panel answered it with a particularly lawyerly answer: “It depends on what you are,” Andrew says. “Are you a product or are you a company? Are you research and development or do you represent revenue growth for the acquirer? Are you at a point where you’ve exhausted growth capital in your market? There are a lot of questions that go into deciding whether it’s time to sell that are going to be unique to your company.”

As varied as the reasons and considerations are to exit, the speakers all agree on one thing: always be open to the idea. “Start your company with a vision for what it’s supposed to be,” says Andrew.

“Life happens so be open to opportunities, evaluate them with where you’re at and then make the hard decisions.”

Exits offer benefits beyond money

While selling a startup can represent a windfall to founders and team members, the value can extend far beyond any financial gains. This was one of Kim’s biggest takeaways from her time at Plenty of Fish, who took the acquisition as an opportunity to leverage the expertise around her.

“We didn’t have the rigour of budget and forecasting that you would expect of a company that is now public. So, knowing we were going public, I said to Match Group that I really wanted to learn how to budget and forecast really well from a corporate level to individual P&L level,” she explains.

“Now I offer this advice to any founder: figure out what you want to learn and as long as you’re open to changing and adapting then you can benefit personally.”

People matter

For founders, an acquisition and getting capital back to the investors are priorities but, so too are the people behind the business.

“If there’s a team that’s been behind your startup that has helped you grind and get to this point, you want to make sure they’re taken care of. You don’t want to leave anybody in the lurch,” says Kim. “So yes, it’s about the founder, but it’s also about the team.”

For Karen, taking care of the OJO Canada team started with being intentional about who they brought over from OJO Labs. “Many of the people hadn’t worked for large enterprises, so how do you think about who would be well-positioned to work in an organization that has more structure, more resource capabilities, and where a long-term career with RBC and RBCx could be a selling point for them,” she explains. “Having the right team and talent was critical. Otherwise RBC would have gone and built it themselves.”

Karen, however, is the first to admit that the integration process isn’t easy and extending an adequate adjustment period is critical.

“Everything is different and has a human toll, so it’s about understanding the pain points employees experience and to make sure that you’re spending the right amount of time on not only the work, but on the ways of working,”

she says. “I wish I had given my team a little more time to get their feet under them because it isn’t great to feel like you’re behind before you start. That was something that was controllable and we could have done better.”

The market has changed the M&A landscape

Despite the downturn in Canada’s startup scene, M&A continues to play a key role for tech companies — just not necessarily in the way founders and business-builders had hoped. With deals continuing to proceed at a lacklustre pace, entrepreneurs should expect more soft landings and acqui-hires.

“Acqui-hiring is huge,” says Karen, referring to the form of exit where a larger business buys a smaller one just to get its employees. “It’s such an easy way to grow quickly, especially if you’re missing certain capabilities. Doing an acquihire [in the prior company] let us move really fast.”

Kim further advises founders to reconsider the inflection point of taking more capital versus selling. “Yes, there’s that shiny object of taking more venture capital, but you might have to then grind another five years and ultimately end up with the exact same exit that you would have if you had done the exit earlier,” she says. “In this moment of lower valuations and not being able to raise rounds as easily, sometimes those acquisitions are better long-term financial wins.

Founders have to reframe their perspective on the market and what they thought it would have been a year ago.”

Keep your [exit] options open

From an investor perspective, Shamil similarly emphasizes the importance of a radical rethink, especially with so many unknowns.

“The most common M&A that you hear about is the 1 per cent of deals that are VC-backed and the 1 per cent of those deals that go IPO. That’s what all the press is about and it makes founders believe that that’s what you need to do: go raise monster rounds of money and IPO, but the truth is there are a million things that can go wrong along that journey,”

he says. “Kill your sequential thinking. The more adaptive you and your team are, the more you can recognize an opportunity.”

From private equity to management and employee buyouts (MEBO) to family offices and sovereign wealth funds, founders need to recognize there are a plethora of possibilities.

“I’m a firm believer that there are multiple paths to success, so make sure you explore even the ones that don’t seem obvious,” Karen adds. “Don’t feel like it’s a failure if you need to rethink things along the way.”

RBCx backs some of Canada’s most daring tech companies and idea generators. We turn our experience, networks, and capital into your competitive advantage to help drive lasting change. Speak with a RBCx Technology Advisor to learn more about how we can help your business grow.

This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.


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