Meaningful founder exits
by Thiyagarajan Maruthavanan (Rajan)
Most startups die, only a few exceed expectations and become successful beyond imagination. These successful ones become the talk of the town, while the failed ones quietly fade away into the background. Nevertheless, it is the story of the moderately successful ones that get buried on the other side. In the purview of unicorn-chasing investors, it is these moderate success stories that come in the way of spectacular ones.
A Better Narrative for the Founder – The One That Is Often Suppressed
- Founder of Startup A, let’s call it LittleBox, raises $200K.
LittleBox extends its outreach to 50 well-paying customers within a span of 2.5 years. It is then acquired by a multi-billion dollar corporation, all within 3.5 years of its inception. The founder then spends another two years to complete her millions of dollars of earn-out and is then back to start the next. Here, the Angel Investors are happy with the return, while employees are super thrilled about the positive outcome.
- Founder of startup B, let’s call it BigDeal raises more than $1.5b.
BigDeal gets to unicorn status and indulges in one of the biggest brands spend ever in India. Eventually, can’t sell at scrap value even after being ten years in existence. Investors and employees feel cheated, even if it may or may not be the fault of the founder.
Which is a better story? If you ask the storytellers, they prefer celebrating the BigDeal one. After all, Blockbusters are a far more intriguing story to tell.
Inside the closed room of SaaSBoomi where founders share real lessons, startups like LittleBox were given its due highlight. Data that reflect the naked reality was shared without any distortion to showcase the right picture.
Pic credit – @KumarSachi
Praxify ($60m acquired by AthenaHealth), Minjar ($50m acquired by Nutanix), Martjack ( $30m acquired by Capillary), Calm.io ($10m+ acquired by Nutanix ), Mettl ($25m+ acquired by Mercer), Recruiterbox (acquired by Turn River Capital), Mezi ($100m+ acquired by Amex) , Little Eye Labs ($10m+ acquired by Facebook), CucumberTown (acquired by Cookpad), Threadsol ($12m acquired by Coat) and most recently ShieldSquare (acquired by Radware)
All these LittleBox-type startups have raised very little money compared to their exit price and have created far more founder impact and employee wealth.
Against the narrative & counter intuitive
Most founders join the startup race without knowing when it ends. Anyone beginning a venture is expected to plunge into fundraising. However, going on a mindless chase for fundraising reduces the odds of a meaningful LittleBox story while it pushes towards the possibilities of BigDeal glory (or burn).
According to Kumar Rangarajan, CEO of SlangLabs who earlier sold LightEyeLabs to Facebook in 2014 said.
“One has to be thoughtful when fundraising. I am thankful to few advisors that guided on being very thoughtful in raising very little funds. Else I would have not been in a position to exit the offer that came up with Facebook. Acquisition conversation messes up founder’s head. A startup is like a baby to a founder. The self-talk inside the mind is hard. The way to find peace is to think of your startup is the girl/boy given away for the marriage. Responsibility of the parent founder is to find the right other family in marriage where you know your kid can grow.”
Founders should not only be open to this possibility but should also actively learn from the experience of other founders on how to do the matchmaking. Only 11 technology startups in India could ever consider IPO in the last decade. Every other success story including Flipkart was an M&A.
According to Girish Redekar, co-founder of RecruiterBox (sold to Turn River in 2018)
“Once startups hit $1m in SaaS, there are now standard templates available for the M&A matchmaking discussion to happen.”
In most other cases where it is strategic, it is always concerning whether the outlook on the future is aligned. Startup M&A is the story of fear meets greed on a treasure hunt journey. Hence, knowing how an acquirer thinks about the future is very important.
“What an acquirer looks for is does this help in add or expand TAM? Does it shave off R&D cost? Or strengthens the competitive positioning in the market “
This is as per Aneesh Reddy, CEO & Co-founder of Capillary who acquired Martjack Sellerworx, Ruaha.
Not just knowing, better prepared
Takeaways for a founder from LittleBox contrast with BigDeal is that M&A is likely default path. It is useful, therefore, to do multi-threaded thinking early on and build strategic relationships.
- Right preparation at the start matters a lot (such as incorporation & finance discipline) and it helps reduce the regulation mess in a deal-making.
- Important to prepare the way in advance before the money runs out. To re-quote an often used idiom in this context “A terminally ill patients don’t get marriage proposals”.
- Chemistry fitness is far more important than haggling over the math of valuation. .
As per exit deal math laid out by Bryce Roberts of Indie.vc “A $20m exit with little or no funding creates more founder wealth than $200m exit with venture funding“
In conclusion – Founders should be aware of endgames, choose their path wisely and prepare multithreaded thinking in advance learning, a takeaway from other founders.
LittleBox stories are far more likely with meaningful founder outcomes than the BigDeal ones.
Published initially at https://www.linkedin.com/pulse/exits-hidden-thiyagarajan-maruthavanan-rajan-/