This is the second of many blogposts in a series that I’m calling the Investor Pitch Deck Series. I am creating a post about each investor pitch slide, why it is important, the common errors, and how to communicate that you have what it takes to achieve your goals for this company.
Posts in this series
- #1 – The Market Slide
- #2 – Exit Strategy Slide
The Exit Strategy Slide
The exit strategy is one of the top three things that a potential investor wants to know about your business. There are two facets to an exit strategy – human and economic. The human element is simply whether the founders are interested in selling the business in a few years. The economic element is whether the business can be sold to a buyer in a few years. Your exit strategy slide must convey your desire to use this business to make money for yourself and investors. It also must directly describe the path that you are taking to create value in your company and to secure one or more potential buyers. Remember, the majority of your company’s value is gained at the exit.
- For a great slide show about exit strategy nuts and bolts, check out “Startup Exit Strategy Thought Piece V7.6” by Venture Archetypes.
- To help you wrap your head about the human element of selling your company, turn to Jason Cohen who writes a blog A Smart Bear and has a great post about his reasons for selling his company.
Cringe Factor #1 – You describe your exit strategy as an acquisition by a large company like Google, Amazon, or Facebook.
Why this makes us cringe – Acquisition, IPOs, and mergers are goals, not strategies. If you are banking your time and your investors’ money on a lucky break, then everyone should be nervous for the future of this deal.
How to do it right – Research the recent acquisitions for at least three companies similar to yours in the last three years. Have the details of these exits in your back pocket to be used for follow up Q&A if you don’t mention these comparables directly in the pitch. Another great step toward a solid exit strategy is to have conversations with potential acquiring companies prior to the pitch. Savvy entrepreneurs will put out feelers in conversations with multiple companies months or years in advance of an exit.
Cringe Factor #2 – You don’t want to exit for 10+ years.
Why this makes us cringe – Venture investors are primarily interested in making their money grow quickly. If you think that an early exit for a few million is a sellout move, then your company might not be suited for venture (or angel) capital. Perfectly good companies make a lot of money for the owners without ever taking investor capital or exiting.
How to do it right – Research your options. If you are seeking seed stage capital to grow your company, then check out the other ways to grow your company even if you are pretty sure investor capital is for you. Determine whether your goals are aligned with those of investors. Approach investors only after you are certain than you see a quick exit as a success and not a sell-out. Some people would rather be King than be rich and those people should really consider whether they should be seeking investment capital at all.
The Controversial Exit Slide
The exit strategy slide is rarely discussed in VC blogs, online forums, and other centers of intelligence on venture capital fundraising. Art of the Start Guru, Guy Kawasaki doesn’t include it in his 10 VC slides. ReOverthinking’s example pitch deck, while really good, neglects the exit slide completely. So, why is Rockies Venture Club pushing for an Exit Slide?
In our community, entrepreneurs can find themselves face to face with an interested investor at any moment – in the bathroom during an RVC event, in a class, over appetizers and drinks, or in a mastermind meeting where entrepreneurs discuss strategy. Many of our investors are entrepreneurs who exited well in their last venture and now they jump the fence on a daily basis back and forth from entrepreneur role to investor role. Entrepreneurs rarely know when they are surrounded by investors. When we accept a new RVC company, we want them to be ready to pitch at a moment’s notice anywhere, with slides or without, in 30 seconds or 30 minutes.
The exit slide is simply an embodiment of real research on acquisition partners and shows the future goals of the founders. If you’ve done the work and made the slide, you never have to show it to anyone. Investors can tell that you know what you want and you are capable of doing the work to get there.
Bijan Sabet from Boston VC firm Spark Capital argues that there is no way to predict the ultimate buyer of your company, so don’t even worry about the exit when you are seeking seed stage capital. This to me is like saying you can’t predict your exact career trajectory so don’t even worry about your college major. I’m apparently not alone in my disapproval of this perspective. The point is, don’t spend all your time planning the exit. However, you DO need to have given it enough time that you don’t get that deer-in-the-headlights look when the investor asks about it.
Article by Nicole Gravagna, PhD, Director of Operations for the Rockies Venture Club as part of a series on the elements of an investor pitch deck. The next post is on the Team Slide.