CEOs are often hesitant to talk about exits because there's a stigma attached to it, says MATH Venture Partners Managing Director Mark Achler.
"There's a concern that if you start to talk about an exit, maybe your board or your investors will think you've lost interest or lost heart and you're getting tired," Achler says. "Therefore, a lot of times boards often just wait till the end. We think that's exactly the wrong way to go."
Instead, he suggests CEOs should have annual exit talks with their board, led by the CEO. It's an opportunity to look dispassionately at where the company is in its cycle, check in on its year-over-year growth, its product's position in the marketplace, its market share and the competition.
"If you take a look holistically at your landscape, not only from the point of view and perspective of the CEO, the CEO might say, There's a lot of growth ahead of us but we're going to have to lean in and invest," he says. "Hey investors, are you still with me? Do you have enough dry powder? Are you ready to fund that next round? It's also from the point of view and perspective of your investors, your board members."
In the venture capital world, he says there is a time horizon. Year one of a fund is when the pedal is to the floor and growth is the focus. But if it's year 10 of a fund and the LPs are clamoring to get their money back, then it's likely time to start talking about an exit.
Whatever the position in the lifecycle, alignment in such relationships are key, he says.
"And part of alignment is make sure that your board of directors, not only with the CEO but with each other, that everybody is aligned," Achler says. "So, VCs, we don't often talk to other venture funds about, where are you in your lifecycle? Is it time? Are you ready? Do you have dry powder? How excited are you about this company? So, we're big believers in alignment. And the beautiful thing about alignment is it buys you time. Most companies start a process like, OK, it's time to sell, let's go find the best banker you could possibly find, and OK we're going to sell. But if you have the luxury of time, then you can get your house in order."
It's also an opportunity to think about the most likely acquire and what they're likely to care most about.
"And you think maybe they really care about top-line revenue, you can invest a little bit money in sales and marketing, juice it up and really focus on the top line and build that up," he says. "If you think they care about your intellectual property, you can make sure that your data room is clean and that all your IP is filed for, all the IP assignments are there, you can make all sure that all the financials are really cleaned.
"If you're going to sell to a financial buyer, maybe a PE firm, maybe they care a little bit more about EBITDA. Well, then you can turn the dial that way and you can focus on EBITDA and focus on profitability. Get those numbers in line. Having an annual exit talk — a strategic talk that is planned that takes the stigma out of it — creates value."
