Tips for Selling Your Tech Business
There are quite a few reasons for a tech company to consider an exit from business. These include exhausted founders, anxious investors, consolidation within the industry, or wildly unanticipated success. When those running the company consider the possibility of an exit, there will be numerous issues and questions to address concerning how to go about it. Let’s examine some thoughts on your approach, the sales process, and your strategy.
1. Set realistic expectations for your asking price.
First, the company should seek an honest valuation from an experienced valuation expert. With this in hand, you can set realistic expectations early in the process. A business broker and valuation expert will help you with industry due diligence and to present a clear, strong position moving forward throughout the process. This will help you to avoid morale issues and keep everyone focused on their tasks while the sale is ongoing. It entails discussing the best and worst case pricing scenarios with all of the interested players, such as management and investors. A Sacramento business valuation expert will tell you that pricing expectations should be based on factors such as: recent acquisition and valuation activity in the space; the perceived value of the team, particularly technology staff; and the prospect of outsized demand. As far as demand, your business broker will investigate the potential for interest from larger corporations or whether such interest can be generated.
2. Stage your company (as well as yourself).
Make certain that your company is in sound condition prior to presenting it to prospective buyers, and the due-diligence requests starts. Financial statements should be current. Also, if your company is backed by venture capital, it should be audited to ensure that transactions are correctly recorded and you are in compliance with standard Generally Accepted Accounting Principles (GAAP). You should also document and verify all files on your employee hiring, such as at-will work agreements, confidentiality and non-compete agreements, and any equity, options, or vesting agreements. Also make note of any agreements with terms which are extremely favorable to customers or strategic partners, like “most favored nation” pricing.
3. Understand the effect of funding choices.
There are a variety of goals and requirements for different participants. For example, traditional growth-capital investors typically are more farsighted in weighing when they might exit, and growth capitalists must answer to limited partners—many of whom are institutional investors who expect their funding to be locked up for a long time. And smaller investors frequently have more conservative timelines.
4. Leverage a greater group of potential acquirers.
Potential purchasers, in addition to the tech biggies, may now include local and national companies in industries like advertising, healthcare, and insurance. These types of companies are getting interested in acquiring tech companies, both for their products and for added creativity.
5. Leverage your advisers early.
The decision to hire an investment banker can be tricky, but some bankers with specific knowledge and experience can really help with a sale. However, many will work only on major deals, like those with $10 million in earnings before interest, taxes, depreciation and amortization (EBITDA) or $50 million in value. Thus, locating a banker with industry experience and a strong network isn’t an easy task. It usually requires the help of a business broker with extensive connections. Your Sacramento business expert will have experience dealing with the all aspects of investors, acquirers, employees, and founders. He will be comfortable and have knowledge of typical deal structures. Get your business broker involved early in your discussions, so that you have their counsel when the larger issues need to be sorted out.
Every exit process is different, and working with a Sacramento business broker to better understand the process will increase your odds of making a deal with which you’ll be very happy.
Access our materials on business succession planning and the opportunities to sell your business in the Sacramento area at our website Services. Select the information you’d like from the drop down menu. You can also send an email to Andrew Rogerson or call our office at (916) 570-2674.