In April 1995, Sequoia Capital made a Series A investment of $1M in a small company named Yahoo. Soon after, November of 1995, OpenText, Sequoia Capital, SoftBank Group and Thomson Reutors invested a combined $4.8M in a company whose valuation had raised to $40M. With this fast growth, it was not hugely surprising when the company went public in April 01996. At this point, the company was valued at $848M with stock costing $13. By December 1999 Yahoo’s stock doubled, with a share costing $108. Their valuation at that time was $113bn. For all involved, things seemed to be going well.
And then there was Google.
In 2002 Yahoo tried to buy Google, but wanted to pay only $3bn while Google’s cofounders wanted $5bn. What would have happened if they had paid the $5bn? The internet world would likely look a whole lot different. There was an option to sell to Microsoft for $44.6bn back in 2008, but felt that was undervaluing the company and chose to continue on their own.
In all fairness, Yahoo made the most of a difficult situation. The executives will be well compensated for their time and efforts at revival, and as a company Yahoo developed a killer strategy for acquiring talent. Acqui-hire was made popular by Yahoo, and became common in Silicon Valley for a while. This was not enough to save the company, however it did move the company’s cash to startup teams and ensured that investors got their x’s.
The key point of this blog is that Yahoo had multiple options for a good exit, but now that time has passed and the core of the company will be bought for $4.83bn by Verizon.
How do you know when to exit? How do you make sure you aren’t exiting too early, or hanging on too late?
Exits are an important factor that need to be considered early on in the process. It is just as important as any potential business strategy, and may even help develop that business strategy further. Look at potential acquirers and identify why they would be interested in acquisition. Will it expand their services, is it to decrease the competition, or maybe it is for the technology. Knowing this will help to create an understanding of how to appeal to any potential acquirer. An exit strategy is just that, a strategy. Having it in the back of your mind is important in making sure you and the company stay on track.
The longer you stay in, the more risk there is of losing.
Yahoo is a perfect example of this. Had they sold in 2000, they would be receiving much more money than they are now. But realize that IPO or MNA are not real strategies. You have to do extensive research into companies of similar, or even different, industries in order to see where your appeal lies. It takes a long time to develop a realistic strategy because so much of it is dependent on what similar companies have been able to do in recent years.
An exit strategy is needed from the get go to avoid being a Yahoo.
And an exit is not the end. It is a key part of companies developing and moving on to more success and it gives you the resources and the capacity to execute all the goals you have for your company.