One of the first steps while starting your company should be defining your exit strategy. This may seem premature at the beginning of your journey; however, it’s critical to understand how to spend your time strategically. You may want to complete an IPO, remain private, or be acquired by an industry leader. Each of these paths will require different tactics and you must understand what steps you’ll need to follow and focus on. At Loopd, our exit goal was to join an industry leader because we wanted to grow and scale our product offering as fast as possible. The event industry is very fragmented and larger companies are integrating point solutions into their full product suites. It made sense for Loopd to join an industry leader to gain access to a larger global pipeline and have the resources to maintain and develop our future product roadmap.
As a startup, you will want industry leader executives reaching out to you with an acquisition opportunity. This will put you in a position of power, which will give you leverage during the negotiation stage. To achieve this, I recommend starting strategic partnerships with leaders in your space. Companies are run by people and it’s important that you create strong relationships with the right key players. First, you should create a list of companies by location, size, and mission statement. While location may seem irrelevant it’s an important deciding factor, since the company may want your team to move to their headquarters. Second, pick three companies and determine how you will provide value to each one. Third, find an introduction to a strategic contact at each company.
The motive for each partnership should be simple to understand and clearly stated. You want to demonstrate apparent value to achieve quick momentum. For Loopd event companies were the best fit. It would have been a stretch to work with retail or healthcare companies. To work with companies outside of your target industry you should change your positioning from a vertical solution to a horizontal platform. A good way to start your partnership and build trust with a potential acquiring company is to run a proof of concept that addresses an important product gap. Running a successful proof of concept for internal product owners and corporate development managers will build trust and begin to create some internal advocates. Think of it as building a team, you want a product owner who buys into your solution and will go to bat with their team on your behalf.
When the time is right an executive team member should reach out to you to learn more. At this point you should have a presentation ready that explains your proof of concept, how your solution adds value, and why it makes sense for your companies to team up together. But it’s not just about the technology – presenting with confidence is a must and you have to clearly demonstrate how the missions and purposes of your two companies are aligned. If the executive team starts asking a lot of questions take this as a good sign. End your first meeting by setting a deadline for a letter of intent. A letter of intent is similar to a term sheet for the deal that has high level figures and a timeline for due diligence.
Once you have a letter of intent you’ll start the due diligence process. The buyer will request materials with a due diligence checklist. Make sure you compile the materials in the checklist as quickly as possible and share the materials in a data room. Due diligence can range from a few weeks to a few months. If the due diligence is smooth and successful you should receive a purchase agreement. Certainly this is a high-level overview of the acquisition process, but these were the key steps that the Loopd followed to achieve our goal.
Key takeaways for entrepreneurs:
- Define your exit strategy in the early part of establishing your company. This will help direct your time and efforts.
- Create a target list of companies you want to be acquired by and prioritize that list by location, size, and mission statement for best alignment.
- Create strategic relationships with individuals at target companies.
- Demonstrate your value through proof of concept demos, including how your technology fills a product gap, to build internal advocates who can help you position yourself.
Editor’s Note: Loopd was acquired by eTouches on March 2, 2017
Author Biography
Brian is the Director of Product of etouches, the leader in cloud-based events management software. At etouches he leads the company’s strategic objectives related to mobile, data and engagement technology. This includes driving user experience design, setting product direction, and guiding technical and design teams for all of their mobile, data and engagement products.
Previously Brian was the CEO of Loopd, the emerging leader in offline analytics that uses socially-smart wearables and actionable metrics to help marketers understand, target and interact with visitors in a fashion that has never been done before. Loopd brings a unique twist to real analytics by making two-way engagement possible. Etouches acquired Loopd in December 2016.
Twitter: @BFried9131
LinkedIn: linkedin.com/in/brianmfriedman