Most VC’s, angels and entrepreneurs have seen dozens or hundreds of pitches, but I’m willing to guess that most have never seen an “Exit Pitch”
RVC is hosting a Sharkless Tank event at Denver Startup Week (http://www.denverstartupweek.org/schedule/1129-sharkless-tank-turning-red-oceans-blue) and the winners of the first round of pitches will move on to a second round in which they will present their three minute exit strategy pitch.
What’s an exit pitch?
Many decks have an Exit slide describing the potential for acquisition and/or IPO, perhaps including some comparable transactions and strategy. That’s a great addition to any pitch, but exits are complex and the strategies are important to help the company maximize returns to shareholders. Thirty seconds is all most companies can spare in a typical five minute pitch, so what would go into a three minute exit pitch?
Remember “Either M&A or IPO” is NOT an exit strategy! Those are just the two main exit options and to list them as a strategy misses the point. Here’s what a good exit pitch might include:
1) Value proposition that the company would make to potential acquirers. How does the company position itself so that in 3-5 years they solve a major problem for a leader in their market segment? Will they offer new products, technology, market share, geographic impact, patents or people? Strong exit strategies follow Wayne Gretsky’s advice (the hockey player) to go where the puck is going, not where it is. Where will strategic advantage exist in five years?
2) Comps. Researching comparable transactions is critical to a good exit strategy. While VCs know the comps in their industries, angels may work in many different areas and need some help in understanding the comps. Things to show here include the “sweet spot” for acquisitions. Are M&A teams in this industry acquiring at $25 million or $250 million or more? Where do most acquisitions occur? This is where the strategy should focus. The other thing is multiples. What multiple of revenue (typically) do the comparable transactions have? Many people have difficulty with this because the multiples may range from 3x to 10x or more. You need to describe what the strategic advantages were that drove the higher multiples. Usually this will include a steep growth curve and/or game changing technology.
3) Timing. When will the exit happen? This is a big variable and it’s ok to describe scenarios for three years, five years or other timelines. Your timeline stories should correlate with your Proforma in order to make sense.
4) Proforma. Your projections for financial growth and profitability are critical. Your proforma should be well researched and believable since it is the cornerstone of your pitch. You’ll show rapid growth, reaching a sweet spot within as short a period as possible.
5) Exit valuations. You will want to discuss exit valuations which will be based on your proforma and research of comparable multiples. E.g. if you have $25 million in revenues projected and a 4x multiple, then your exit valuation would be in the $100 million range.
6) Scenarios. Your exit plan may have contingencies and by all means, it’s not set in stone. You should describe several scenarios which your team is prepared to work towards, depending on opportunities and threats that present themselves. You could have M&A vs. IPO scenarios or early exit vs. five year models.
Like any good pitch, a good exit pitch will focus on a great story without getting tied up in the weeds.
To see live Exit Pitches from three strong Colorado companies, be sure to attend the Sharkless Tank event hosted by Rockies Venture Club at Denver Startup Week, September 29, 2015. http://www.denverstartupweek.org/schedule/1129-sharkless-tank-turning-red-oceans-blue