Brian Hopcraft, Managing Director, Lewis & Clark Ventures; Matt Watson, Founder & CEO, Stackify; Davyeon Ross, COO, Shottracker; Michael Keenan, Chairman & CEO, Heatron & EC Manufacturing; Debbie Wilkerson, President & CEO, Great Kansas City Community Foundation; and David Holzman, President, Allied Business Group speak at Techweek Kansas City Summit 2016 on “the successful exit strategy.” The panel is moderated by Landon Young, CEO, Donate Equity.
Entrepreneurs need to understand the growth cycle of their companies and also plan its exit and transitions carefully. The panelists feel that it is important for a company to choose an exit strategy that aligns with their business needs and personal goals. The most common favorable exit strategies are to sell the business, sell the assets of the business, merge it with another business, or sell shares in the business to the public at large. Brian believes that “Great companies are bought, not sold.” Any business can scale and build innovative products, but at a certain phase, it has to decide whether they raise more money or exit from the business. It’s a critical decision as the business owner needs to get the right partner whom they will like to sell the company to, preferably a strategic buyer. It’s definitely an emotional decision as companies are made by people, so selling it means a detachment – “You are not CEO of a company, you are CEO of 10-15 families” who build the company.
In case of an acquisition, there is a chance that the acquirer may or may not retain the old management team, and may or may not make substantial changes to the company's operations, staff, and business lines. The deal involved can be cash deals, stock in cash deals or cash and earn-out deals. An earn-out is a conditional payout, which involves shifting some of the purchase price to be paid in the future on the realization of future earnings or some other benchmarks of success. It is highly crucial that while selling a business, one should include their attorneys, investment banks, accounts, and financial advisors.
The panelists conclude the session stating that “99% of entrepreneurs build their company for sell.” So, it can be useful if they can add the charitable component in the deal before signing on the dotted line. As Debbie points out, it is beneficial for tax purposes.