Basil Peters Strategic Exits Corporation

What Basil Peters, Strategic Exits Corporation says about topics vital to entrepreneurs

Basil Peters Posts – Titles

Basil Peters Posts  – Titles  (10  posts)

 

The Exit Strategy is the Most Important Business Plan Element

Why VC's Block an Exit

Angels Need a 20-25%/yr Return

When Can You Sell?

How to Ensure There's Alignment on Exit Strategy

Strategic Value Increases Valuation

How to Maximize the Selling Price

A Fair Vesting Formula Optimizes Interest Alignment

Valuation is Driven by the Future, not the Past

Basil Peters: What He Looks for in Successful Entrepreneurs

 


 

Basil Peters: What He Looks for in Successful Entrepreneurs

Basil Peters angel investor and Principal  Strategic Exits Corporation

“[Peters doesn’t] require [teams to have prior business experience].  I don’t think it’s a good filter, because if you look at the track record of entrepreneurs, there’s very little correlation between whether it’s their first venture or their third or fourth or fifth and success. Very often the greatest success is from the entrepreneur’s first company.

[][Peters doesn’t] usually invest in single entrepreneurs. [Most] of the time, it’s a team that is successful. [] If there’s only one person, there are a lot more failure[s].”

Peters discusses what he looks for in successful entrepreneurs.  “Some of the characteristics are that the successful entrepreneurs are always incredibly driven, [] very bright, [] absolutely honest, and [] good leaders. They often have personality defects [and] usually have a significant amount of self-doubt.  All entrepreneurs have self-doubt, but the good ones have more self-doubt than the mediocre ones, interestingly.”  Basil Peters,  Seed Capital From Angel Investors: Basil Peters, CEO and Fund Manager, Fundamental Technologies II, July 2010;   http://www.sramanamitra.com/2010/07/05/seed-capital-from-angel-investors-basil-peters-ceo-and-fund-manager-fundamental-technologies-ii

A Fair Vesting Formula Optimizes Interest Alignment

Basil Peters angel investor and Principal Strategic Exits Corporation

“Investors get 100% of their money back on the sale [of the company], so 50% vesting on the sale is fair and optimizes alignment [between entrepreneurs and investors].

[The] most fair vesting formula-  Assuming that was the fundamental agreement, and that 50% of the value is often created at the exit, then reverse vest: 50% of the shares [vesting] daily over  a three year period, and the other 50% when there is a ‘sale’ of the company.  

All vesting for senior employees accelerates on a sale of the company.”  Basil Peters, Maximizing Exit Value Angel Capital Association,  Annual Summit Workshop Apr. 15, 2009;  http://www.basilpeters.com/Presentations/Maximizing_Exit_Value_20090415_Part_2.pdf,  pg 30-31

How to Maximize the Selling Price

Basil Peters angel investor and Principal Strategic Exits Corporation

“There are several ways to maximize the final selling price [exit value]: 1. Structural value increase  2. Illuminating strategic value 3. Capitalizing on Inefficient Markets  4. Maintaining multiple bidders 5. Sales and negotiating skill.    

Structural value increase often [] can increase the final selling price by 10 to 15% [and] can be balance sheet changes, asset vs. share sales [etc.]. 

Illuminating strategic value [] often creates the largest fundamental increase in selling price.  It’s not actually creating strategic value, it usually has to be there already. [It] very often has to be illuminated for the potential buyers [].

Capitalizing on inefficient markets.  Markets for selling a business, especially for under $100M are very inefficient:  Information is difficult to access, there are [few] buyers, the market is illiquid [and] often very few[are] for sale [] [which favors sellers]. 

Always have multiple bidders [] to improve the probability of closing [and] to maximize the price. [Three is optimal.] 

Selling and negotiating skill [] can increase the final price by 50% or more.

[] When the exit process is well planned and professionally executed[,]  the exit date and exit valuation are both reasonably predictable.”  Basil Peters, Maximizing Exit Value, Angel Capital Association Annual Summit Workshop Apr. 15, 2009;  http://www.basilpeters.com/Presentations/Maximizing_Exit_Value_20090415_Part_2.pdf-  pg 18-25

Strategic Value Increases Valuation

Basil Peters angel investor and Principal Strategic Exits Corporation

Illuminating strategic value of an acquisition target can increase valuation.  “The only reason any company buys another company is because [it believes it] can increase the value of the company being acquired, and/or the acquired company will increase [its own value]. [] The most successful company sales [result in] the combination of the two businesses increas[ing] the total business valuation faster than either company could achieve alone. []

[Strategic value increases business valuation by] reducing competition [] [and/or cross selling or promotion of] complementary products or services. [] [Also an acquirer] that would like to develop a similar product or service [] will [often] pay to reduce []‘time to market’, [] [so] being fast is often better than being good.”  Incremental strategic value can show why “the business is worth more to [the prospective buyer] than to another bidder”, which drives why he’ll often pay more.  Basil Peters,  Illuminating Strategic Value When You Sell a Business,  August 1, 2009; http://www.exits.com/blog/illuminating-strategic-value-when-you-sell-a-business/

How to Ensure There's Alignment on Exit Strategy

Basil Peters angel investor and Principal Strategic Exits Corporation

 “It’s surprising how often there is a misalignment between key stakeholders on the exit strategy. The only way to check is to get a ‘signoff’ on a written exit strategy. [] [Check] alignment annually. [] [The] right way to build a company is [to] determine the type of business, build alignment on the exit strategy, THEN develop the financing plan and then start to contact investors.”   Basil Peters, Maximizing Exit Value Angel Capital Assn Annual Summit Workshop Apr. 15, 2009, pg 28 & 32; 

http://www.basilpeters.com/Presentations/Maximizing_Exit_Value_20090415_Part_2.pdf

When Can You Sell?

Basil Peters angel investor and Principal Strategic Exits Corporation

“When can [one] sell? [] [With] M&A [merger & acquisition] exits [] the real threshold is to ‘prove the business model’. [To prove the model] [] a recurring revenue business [] [should show] actual results for: revenue per customer, gross margin per customer, customer lifetime (or churn [i.e., how long one enjoys that customer]) [and] cost of customer acquisition.  In other words, how much is a customer worth and what do[es] [a customer] cost to acquire?

[With that proven model], [] credible projection[s] [can be built] that [show] if: new owners added $X millions of capital, the business would have Y customers and be worth $Z millions.

That’s when [one] can sell [although] there are often additional factors like competitors and market changes. [] As soon as [one] prove[s] the model is often the best time to sell.  [It’s] always best to sell on an upward trend. Sell[ing] on the promise, not the reality [is] often when [one] [gets] the best price.”   Basil Peters, Maximizing Exit Value Angel Capital Assn Annual Summit Workshop Apr. 15, 2009;  http://www.basilpeters.com/Presentations/Maximizing_Exit_Value_20090415_Part_2.pdf , pg 5-10

Angels Need a 20-25%/yr Return

Basil Peters angel investor and Principal Strategic Exits Corporation

“[] angels need to get 20% to 25% per year [] the same [return] as a venture fund.  So, if you do the math, [] angels need to make three to five times their money in three to five years.”    Basil Peters, Seed Capital From Angel Investors: Basil Peters, CEO and Fund Manager, Fundamental Technologies II (Part 5);  Jul 7, 2010;  http://www.sramanamitra.com/2010/07/07/seed-capital-from-angel-investors-basil-peters-ceo-and-fund-manager-fundamental-technologies-ii-part-5/ 

Why VC's Block an Exit

Basil Peters angel investor and Principal Strategic Exits Corporation

“Most entrepreneurs don’t even know that a VC is likely to block an exit when they accept the VC’s money. [] VCs design their investment agreements to give them the power to block exits.”

“[] VCs will almost always block a sale where they only make a 3-4X return on their investment.  This could have easily been a 10X return for the angels and a 100X return for the entrepreneurs.

[] The winners [must] produce at least 10-30X return for the [VC] fund to perform respectably.

[] This propensity to block exits is one of the reasons that every company needs a clear exit strategy before [it approaches its] first investor.”  Basil Peters, How VCs Block Exits, August 28, 2010, http://www.exits.com/blog/how-vcs-block-exits/; Why VCs Will Block Good Exits;  http://www.angelblog.net/Why_VCs_Block_Good_Exits.html

The Exit Strategy is the Most Important Business Plan Element

Basil Peters angel investor and Principal Strategic Exits Corporation

The exit strategy is “the most important element in the business plan. [] It affects many daily business decisions. [] The chances of success increase dramatically [with] a good plan.  [It] is the plan for [] the entire business. 

[The] plan should start at the end (the goal).  An exit strategy could be as simple as: “Our exit strategy is to [sell the company] in about _ years for around $ _million.[]”

[] [With a well-designed and executed exit], [it’s] often possible to increase the exit valuation by 50 to 100%”, especially with early exits in inefficient markets. Basil Peters, Maximizing Exit Value Angel Capital Assn Annual Summit Workshop Apr. 15, 2009;  http://www.basilpeters.com/Presentations/Maximizing_Exit_Value_20090415_Part_2.pdf