Startup founders need to keep a close eye on financial metrics such as recurring revenues from the get-go so they have a clear sense of their business’s value if they choose to sell, one of the city’s leading entrepreneurs told Techopia Live this week.
You.i TV co-founder Jason Flick, who left the Kanata-based software company earlier this year after U.S. media giant WarnerMedia acquired it for a reported US$100 million, said startup leaders need to have the mindset that their company could receive an offer from a potential buyer at any time.
Flick said You.i’s management team initially didn’t intend to sell the company and instead planned to pursue a series-D funding round. It was only after those efforts came up dry that the company switched course, and it might not have been as prepared for negotiations as it should have been, he added.
Flick said developing an exit strategy should be top of mind for every entrepreneur, no matter what stage a company is at.
“Put effort into it,” he said. “You’ve always got to invest in that area and be aware of who your potential acquirers are and keep that as part of your rolling strategy. Revenue is great, progress is great, but it’s always nice to have that option there.”
'Be ready to be ready'
Numbercrunch co-founder Susan Richards, who provides virtual CFO services to local tech firms, agreed.
“Be ready to be ready,” she told host Michael Curran during a roundtable discussion this week. “Things can turn when you least expect it. These transactions really do come down to financials.”
Noting that metrics such as annual and monthly recurring revenues can be calculated in different ways, Flick urged founders to make sure they choose a formula that maximizes their firms’ potential valuations.
“I think that’s an area we didn’t do great on,” he conceded. “We just got lazy.”
Richards added that negotiations over potential acquisitions can sometimes get “heated” and said sellers have to stay calm, rationally assess the offer and make the best possible deal for them and their shareholders – even if it’s not necessarily the value they were hoping for at the outset.
“You’re always going to feel you left money on the table,” she said. “I think (founders) just ultimately have to get comfortable with the number that they’re (willing) to take.”
Flick noted that it’s important for everyone with a financial interest in the deal to be on the same page.
“You need to really look at your stakeholders,” he said. “You need to know where they sit, who’s going to push, who’s not.”
Hiring experienced M&A advisers is also essential, he added, especially when negotiating with a corporate powerhouse such as WarnerMedia owner AT&T.
“Having good lawyers and having good financial representation is key to dance with those giants,” Flick explained.
For more insights from this week’s discussion, watch the video above.