He launched Directpanel Research, an innovative online market research start-up, before finishing business school but was more concerned with seeing it grow, rather than selling it to investors.
“We weren’t actively looking for someone to buy the company. I didn’t think in those terms; it was more about trying to do something exciting,” says Alex, who launched Directpanel Research in 2000 with a co-founder who he met on ESSEC’s entrepreneurship program.
They raised €600,000 in seed-funding and grew the business for more than ten years after completing their MBA degrees. “We knew it was a possibility to sell, but we knew the odds were really low,” says Alex. “About three years after we started, we had several [interested parties], but for many reasons the deals didn’t go through.”
Out of the blue they were approached by Bolloré Group, the French investment firm, and eventually sold the business to them in 2011. “Considering that it had been a long journey, almost ten years, part of me wanted to try and do something else,” says Alex.
“It was a good business, but not the one I had dreamt of, so it was an opportunity to start again.”
Alex is just one of many start-up entrepreneurs who have made a lucrative exit after growing businesses from the ground up. As much as MBAs may cherish their companies, entrepreneurs rarely stick to one venture for lengthy spells.
Scores of start-ups negotiate with big investment firms and the worry is that entrepreneurs can get caught out while playing with the giants. Often, investors completely change acquired companies’ branding, fire the original staff, and even liquidate the businesses’ assets to make a quick profit.
On the other hand, selling off an established company can net you a profit – and offer you the opportunity to start a fresh venture in a different field.
Technology is one of the hottest sectors among MBAs this year and there is huge potential for money-hungry entrepreneurs to make a killing in the cyber-world – if Facebook’s acquisition of WhatsApp can teach us anything.
But when is a good time to sell? The answer lies in how you value your company, rather than investor’s opinions. “If you had the cash, would you take it all now and buy the stock in your own company? Because the decision is to essentially buy your own stock,” says Richard Muirhead, a serial entrepreneur who has founded, listed and sold his own start-up companies.
“If it’s going to be a life-changing financial experience and you probably would spend all of your money on the stock, then you should take the exit.” Richard co-founded software company Orchestream in his 20’s, which was listed on NASDAQ and the London Stock Exchange, before he sold it to Metasolv (later acquired by Oracle). The deal valued the business at nearly £8 million.
He launched Firestartr, an accelerator for tech entrepreneurs, about two years ago and is the current CEO of Automic, a software solutions company whose clients include eBay and Comcast.
Richard says that you can float your company too early, which can affect your ability to sell it to investors. “There were at least two other companies in our space in Europe who stuck it out and didn’t do the IPO, focused on the market, who built something strong and sustainable without the distractions, and ended up exiting with between 500 to 700 thousand – a very reasonable exit,” he says.
Timing is important, agrees Alain Falys, the co-founder and CEO of Yoyo, a mobile payments platform. “The timing [can be] a pure matter of luck or genius. So how do you plan for that? I don’t think you can without the market intelligence,” says Alain, who launched his business nine months ago.
Yoyo is part of a raft of tech start-ups Alain has founded, including OB10 Ltd, the leading e-invoicing platform which is AIM-listed and whose clients include Hewlett-Packard and Kellogg's. The company was aquired by Tungsten Corporation in 2013, in a deal worth £100 million.
Getting the interest of investors is crucial. “If you build something of value and customers pay for your services, then it’s pretty obvious people will be interested in your business,” says Alain.
But Richard, who also founded Tideway Systems, an IT solutions company which was aquired by BMC Software for an undisclosed amount, hints that you should be cautious. “Investors make out that they are extremely entrepreneurially friendly because that’s part of their market,” says Richard.
“They will talk about encouraging you to get whatever exit is best for you as an entrepreneur, but of course the exit drives their business much more than your business.”
Entrepreneurs may want a quick sale, but you can use the negotiating to your advantage. "You can negotiate when you have a good sense of who the buyer is,” says Alain.
MBA graduate Alex, who also sold his company for an undisclosed amount, led his negotiations and ensured that his staff had an employment opportunity under the new owners. “That was my number-one condition. I didn’t want them to lay off anyone, take the tech or any of our clients,” he says.
He also leveraged an offer from another company to drive up the sale price. “I put some pressure on the first company [which approached us]. They were over-doing the due-diligence and that was the main issue I had during the process,” says Alex.
However, Richard says that if you make the decision to sell, you need to ensure that you actually exit. Alain agrees: “If there is going to be a bidding war for your business, and in the end there is only one bidder, what do you do then?”
Getting through the start-up stage and negotiating a deal to sell your business to investors is difficult. But Richard says that new trends are making it easier. “There’s an increase in the fundamental quality of entrepreneur, who know how to get the job done. That makes a big difference,” he says.
“You can represent quite clearly the traction a company is achieving, even at an early stage, which means you can have an arms-length digital discussion about investment.”
Selling to multiple investors is also an option. And there are new types of investors that can help you raise initial funds on the tech scene, says Alain.
“There are a lot more corporate investors now. And they look at it [acquisition] in different ways to venture capitalists.”
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