Effective Exit Strategiesfor Angel Investors

(personal perspective)

SEX

1080

2.2x

80% - 9%

56%22%

40%19%

The Good (6 1/2)1x (USA)

2.3 x – in 53 weeks (French)

13x (AIM)

11.5x (Main London Market)

3x on dividends + paper 8x capital

2.3 x (24 months - Apple)

0.75 x (existing investor)

In Play

Novartis

ConocoPhillipsStatoil

Sofinnova $54m

2009

Negative Profit Exits• House of Hamilton - £10,000

• Eroburo - £10,000

• Gencell - £12,000

• Waterside Television - £15,000

• Survey Development Services - £30,000

• The Internet Car Company - £15,0000

• Intertrader - £15,0000

• Excell Biotech - £35,000 – Paper profit at sale £175k (5x looking for 25x)

• Eleksen plc - £12,250 • IDS - £10,000 • QFT - £15,000 & £8,400 • F4G - £25,000• Scapa - £20,000 - Zombie• Total complete losses - £224,250

Genabler November 2013 Fund raising£ No of shares %

Pre money valuation 1,000,000 20,000 57.14%New money November 13 750,000 15,000 42.86%Post money valuation 1,750,000 35,000 100.00%

Amount to be invested £

New shares allocated

% post November

fundingGavin Gemmell 16,700 334 0.95%Eric Young 25,000 500 1.43%Mike Rutterford 25,000 500 1.43%Alistair Salvesen 25,000 500 1.43%Geoff Ball 16,700 334 0.95%Stuart Paul 16,700 334 0.95%SE Co Investment Fund 127,900 2,558 7.31%OCC 115,000 2,300 6.57%Paul Fieldsend 10,000 200 0.57%Dick Jenkins 10,000 200 0.57%James Ferguson 30,000 600 1.71%Nick Walduck 5,000 100 0.29%David Johnston 20,000 400 1.14%Michael Barron 10,000 200 0.57%Simon Frame 10,000 200 0.57%Ian Kunkler 5,000 100 0.29%Mike Wilcox 10,000 200 0.57%Andrew Gammell 5,000 100 0.29%Nigel Morecroft 25,000 500 1.43%David Barrowman 10,000 200 0.57%John Waddell 5,000 100 0.29%Mark McCafferty 5,000 100 0.29%Geoff Gillies 5,000 100 0.29%Camilla Leslie 10,000 200 0.57%Murray Thomson 22,000 440 1.26%Allan McKenzie 25,000 500 1.43%Harry Draffan 10,000 200 0.57%Prof William McElvey 20,000 400 1.14%Barry Sealey 20,000 400 1.14%Nelson Gray 10,000 200 0.57%Leslie Robb 25,000 500 1.43%Martin Eckersall 10,000 200 0.57%Alison Elliot 20,000 400 1.14%James Browning 25,000 500 1.43%Ian Graham 5,000 100 0.29%Colin Nisbet 10,000 200 0.57%Alan Johnston 5,000 100 0.29%Total new investment 750,000 15,000 42.86%

Tim Gallagher 10,000 28.57%Alan Hale 10,000 28.57%Total founders shares 20,000 57.14%Total shares 35,000 100.00%Option pool 10% 3,889 Shares post Nov 13 funding 90% 35,000

38,889

Initial Screening

Detailed Screening

Term Sheet

Exit

Finding Deal Flow

Legal’s

Due Diligence

Valuation

Post Investment

Monitoring & Mentoring

Types of Exit

• Financial Value Exit – EBITDA– future profit generating power of the entity being

sold.

• Strategic Value Exit – future profit generated by the acquirer exploiting

the technology.

Realities of Angels, VC’s & IPO’s (2013 US Data)

• 70,730 angel deals ($24.8 billion)– University of New Hampshire, Centre for Venture Research, Angel Market Analysis, Full

Year 2013.

• 3,995 VC deals ($29.4 billion)– 40% in Silicon Valley, 15% New York, 10% Boston– Seed / Early stage = $944m, 218 Companies ($4.3M

each)– www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=historical

• 222 IPO’s (highest number since 2000)

–56 had had VC backing– http://www.renaissancecapital.com/ipohome/news/renaissance-capitals-2013-us-ipo-

annual-review-17213.html

“Early Exits, The First Book on Exits for Entrepreneurs and Angel Investors", Basil Peters, Meteor Bytes Data Management Corp, Canada, 2009.

“If you think your company might be a candidate for an exit in three or four years, in the most common valuation range of under $30 million, you just can’t let a VC invest.”

European Exits – Q1 2014http://www.cbinsights.com/blog/european-tech-exits-q1-2014 (May 2014)

• Two Unicorns –– Ireland-based King Digital (IPO in March at a $7B )– Spain’s Grupo Corporativo Ono (acquired for $10B by

Vodafone)

• 11 Tech exits with disclosed exits > $100 m.• 139 other exits

– 38 in UK (27% in London)• CVC Capital Partners’ $800M acquisition of Skrill Group• Zynga’s $527M acquisition of NaturalMotion.

– 25 in Germany (40% in Berlin).

• Only 14% of the exited companies had had VC cash

US Exit values, as presented by Rob Wiltbank to ACA conference 2014

46% <$10M

European Tech Exits Q1 2014 by country

“Start the process by thinking of your business as a product you are going to package for a very selective customer…..the buyer who will pay the highest price.”

Dr. Tom McKaskill, Ultimate Exits

Build “Acquirer Value”, not

Shareholder Value

Initial Funding

2nd

Funding

Exit

Generate Cash

Exit

Exit

Generate Cash

Generate Cash3rd

Funding

4th Funding

Creating Choices

Maximising Return

Reducing Risk

Doing The Deal• Ask for detailed exit analysis:

• Five most likely strategic cash bidders• What actually needed to attract them• Range of possible time and money needed to exit”

• DD this –• Have any money?• Have the ever actually bought anyone else?• Have they done so in this geographic area?

Post Investment• Track your strategic targets• Work at keeping all parties aligned to Exit• Written Exit Strategy • Board Agenda Item• Ask “exit orientated” questions• Put transaction experience onto board• Measure against exit (acquirer) value • Make exit easy: share structures / process• Build & Understand exit options

Existing Portfolio• Take an inventory of the venture’s current strategic

assets and competencies which represent the highest value in the minds of Targeted Strategic Bidders .

• Identify immediately threatened or highly motivated bidders.

• Identify potential strategic bidders.• Prioritize the top five Targeted Strategic Bidders.• Design and implement Targeted Strategic Customer

sales and marketing plans.• Track the Targeted Strategic Bidders. • Review the checklists in the Ultimate Exits Workbook.• Build your Exit Transaction Team.

The Perfect Loss“I merely lose 100% of my investment,

take the tax deduction, suffer no on-going tail of litigation, no wind down expenses, no media coverage, no damage to my reputation or my relationships with co-investors……

and it’s a ‘productive failure’ because the entrepreneur, management team and investors all learned lessons which will increase our likelihood of success in our next venture.”

An Investment Strategy• Establish Angels capacity / capabilities.

– Knowledge, Cash.

• Select deals that fit with your philosophy.– To VC or not to VC / risk & return.

• Before proceeding with a deal – confirm alignment with entrepreneur.

• Structure Deal to facilitate exit.• Drive the exit from within post investment.• Build acquirer value, not shareholder value.