We find ourselves at that time of year where people are in more of a reflective mood than usual – myself included.
Beyond this season’s whirlwind of awards ceremonies, industry events and office parties, people are busy trying to clear their desks and make a clean break for the holidays. Goodness knows this is probably the only time of year where people can properly decompress and where email traffic slows if only or a day or two.
I often take this time to reflect on my performance and try and establish personal and professional goals for the coming year and in so doing am trying to learn from the lessons from another year in the fundraising and M&A trenches.
Last week, I was lucky enough to attend a Christmas Carol Concert where the choir were drawn from military wives and their spirit, cohesion and teamwork all working towards a common goal gave me an idea about how to frame some of the most important learnings from 2023, and if you will grant me some artistic licence, I thought I would tell you a story that is pertinent to both the state of the venture capital market and the season………(Disclaimer: any similarities to other known works is purely coincidental)
Scene: A City Office in the Middle of a Bitingly Cold Fundraising Climate
Once upon a time in a bustling technology accelerator unit in a City that may or may not bear a passing resemblance to London, there lived a young tech entrepreneur named Evan Geezer Stooge (hereinafter “Stooge” (sorry professional habit)).
Stooge was an ambitious and driven CEO, determined to grow his startup into a successful business. However, he was also notorious for prioritizing the tech and profits at the expense of his employees and the community, showing little regard for sustainability or social impact (let alone any SaaS metrics!). His leadership team lacked diversity and the least said about his management style the better – for he managed everything alone, and he alone made all the decisions – right down to the antiquated and undersized fossil fuel-based heating system.
One chilly venture-funding winter’s night, as Stooge drifted into slumber after a long day of pitching to investors, he was visited by three ghostly figures. The Ghosts of Venture Capital Past, Present, and Future appeared to him, each with a valuable lesson to impart.
The Ghost of Venture Capital Past showed Stooge scenes from last three or four years of venture capital. He witnessed the importance of resilience and adaptability among entrepreneurs facing economic downturns, market volatility and global pandemics. The ghost stressed the need for Stooge to be flexible in his approach to fundraising, to adapt to changing circumstances and market conditions, to plan well in advance and to focus on core metrics and KPIs as well as optimising customer satisfaction and retention rates in order to succeed.
Next, the Ghost of Venture Capital Present guided Stooge through the current landscape of fundraising. Emphasizing the growing significance of sustainable and impact-driven investment opportunities, the ghost highlighted the heightened importance bestowed by investors upon startups committed to environmental, social, and governance (ESG) principles. Stooge recognized the value of aligning his business model with sustainability goals and embracing a wider purpose and KPI measurement set beyond mere profits.
Lastly, the Ghost of Venture Capital Future led Stooge through a realm where a diverse and inclusive leadership were paramount. The ghost highlighted the transformative power of developing and incentivising diverse teams, revealing how this approach could unlock doors to venture investment otherwise closed to him. Stooge began to understand the strategic advantage of assembling a team with a broad range of perspectives and experiences.
He vowed to make changes in his leadership style, bring in a more experienced management team while overhauling business practices to reflect a new set of values and create a more sustainable and equitable future for all with an appropriate, tax-efficient equity incentivisation structure for key staff (subject to normal vesting provisions).
Stooge awoke with newfound clarity and determination. The lessons from the ghostly apparitions held profound implications for his venture capital fundraising efforts and he was determined to embrace the lessons shown to him and he vowed to change.
Newly enlightened, Stooge set out on a new path. He engaged with potential investors and articulated a clear commitment to sustainability and social impact. He actively sought diverse voices for his leadership team, acknowledging the strength and creativity such collaborations would bring.
Stooge became more adaptable in his approach to fundraising, seeking the wise counsel of others (such as Henley-based award-winning corporate finance advisers) and readjusted his valuation expectations in line with market. He forged strong relationships and networks, prioritizing transparency and clear communication with investors, openly discussing expectations and potential risks even where follow-on funding may be at a down round.
He was good to his word and because of his newfound understanding, Stooge’s startup flourished. He secured venture capital funding on favourable terms from investors who saw the value in his visionary approach. His commitment to sustainability, diversity, and transparency set him apart in the competitive fundraising landscape of 2024, and his journey served as an example to other entrepreneurs seeking to navigate the changing world of venture capital fundraising.
From that day forward, Stooge led his business with purpose and compassion, understanding that the lessons he had learned were as invaluable as any fortune. And in his success, he also found fulfilment, knowing that his efforts were making a positive impact on his team and wider society and soon his start-up became a scale-up which in turn became the envy of many a potential acquirer.
“And it was always said of Stooge, that he knew how to fundraise well, if any man alive possessed the knowledge. May that be truly said of us, and all of us!”
We find ourselves at that time of year where people are in more of a reflective mood than usual – myself included.
Beyond this season’s whirlwind of awards ceremonies, industry events and office parties, people are busy trying to clear their desks and make a clean break for the holidays. Goodness knows this is probably the only time of year where people can properly decompress and where email traffic slows if only or a day or two.
I often take this time to reflect on my performance and try and establish personal and professional goals for the coming year and in so doing am trying to learn from the lessons from another year in the fundraising and M&A trenches.
Last week, I was lucky enough to attend a Christmas Carol Concert where the choir were drawn from military wives and their spirit, cohesion and teamwork all working towards a common goal gave me an idea about how to frame some of the most important learnings from 2023, and if you will grant me some artistic licence, I thought I would tell you a story that is pertinent to both the state of the venture capital market and the season………(Disclaimer: any similarities to other known works is purely coincidental)
Scene: A City Office in the Middle of a Bitingly Cold Fundraising Climate
Once upon a time in a bustling technology accelerator unit in a City that may or may not bear a passing resemblance to London, there lived a young tech entrepreneur named Evan Geezer Stooge (hereinafter “Stooge” (sorry professional habit)).
Stooge was an ambitious and driven CEO, determined to grow his startup into a successful business. However, he was also notorious for prioritizing the tech and profits at the expense of his employees and the community, showing little regard for sustainability or social impact (let alone any SaaS metrics!). His leadership team lacked diversity and the least said about his management style the better – for he managed everything alone, and he alone made all the decisions – right down to the antiquated and undersized fossil fuel-based heating system.
One chilly venture-funding winter’s night, as Stooge drifted into slumber after a long day of pitching to investors, he was visited by three ghostly figures. The Ghosts of Venture Capital Past, Present, and Future appeared to him, each with a valuable lesson to impart.
The Ghost of Venture Capital Past showed Stooge scenes from last three or four years of venture capital. He witnessed the importance of resilience and adaptability among entrepreneurs facing economic downturns, market volatility and global pandemics. The ghost stressed the need for Stooge to be flexible in his approach to fundraising, to adapt to changing circumstances and market conditions, to plan well in advance and to focus on core metrics and KPIs as well as optimising customer satisfaction and retention rates in order to succeed.
Next, the Ghost of Venture Capital Present guided Stooge through the current landscape of fundraising. Emphasizing the growing significance of sustainable and impact-driven investment opportunities, the ghost highlighted the heightened importance bestowed by investors upon startups committed to environmental, social, and governance (ESG) principles. Stooge recognized the value of aligning his business model with sustainability goals and embracing a wider purpose and KPI measurement set beyond mere profits.
Lastly, the Ghost of Venture Capital Future led Stooge through a realm where a diverse and inclusive leadership were paramount. The ghost highlighted the transformative power of developing and incentivising diverse teams, revealing how this approach could unlock doors to venture investment otherwise closed to him. Stooge began to understand the strategic advantage of assembling a team with a broad range of perspectives and experiences.
He vowed to make changes in his leadership style, bring in a more experienced management team while overhauling business practices to reflect a new set of values and create a more sustainable and equitable future for all with an appropriate, tax-efficient equity incentivisation structure for key staff (subject to normal vesting provisions).
Stooge awoke with newfound clarity and determination. The lessons from the ghostly apparitions held profound implications for his venture capital fundraising efforts and he was determined to embrace the lessons shown to him and he vowed to change.
Newly enlightened, Stooge set out on a new path. He engaged with potential investors and articulated a clear commitment to sustainability and social impact. He actively sought diverse voices for his leadership team, acknowledging the strength and creativity such collaborations would bring.
Stooge became more adaptable in his approach to fundraising, seeking the wise counsel of others (such as Henley-based award-winning corporate finance advisers) and readjusted his valuation expectations in line with market. He forged strong relationships and networks, prioritizing transparency and clear communication with investors, openly discussing expectations and potential risks even where follow-on funding may be at a down round.
He was good to his word and because of his newfound understanding, Stooge’s startup flourished. He secured venture capital funding on favourable terms from investors who saw the value in his visionary approach. His commitment to sustainability, diversity, and transparency set him apart in the competitive fundraising landscape of 2024, and his journey served as an example to other entrepreneurs seeking to navigate the changing world of venture capital fundraising.
From that day forward, Stooge led his business with purpose and compassion, understanding that the lessons he had learned were as invaluable as any fortune. And in his success, he also found fulfilment, knowing that his efforts were making a positive impact on his team and wider society and soon his start-up became a scale-up which in turn became the envy of many a potential acquirer.
“And it was always said of Stooge, that he knew how to fundraise well, if any man alive possessed the knowledge. May that be truly said of us, and all of us!”
When we start to talk to shareholders about the process of selling their business, we always explain to them how long the process can be and how physically and emotionally wearing it is for vendors.
To some extent the impact can be mitigated by diligent planning and preparation but even the best prepared shareholders going through the process for the first time are shocked and horrified by the depth, detail, and repetition inherent in a financial and legal due diligence exercise. It doesn’t matter how much I warn them, they are always shocked and horrified!
They are often also surprised by the emotional toll that the process takes on them over the period of a deal. Towards the end of a transaction process my role is frequently as much one of counsellor as adviser, and I thought it was worth a few moments reflection on what elements of selling their business create the pressure and stress that particularly impacts vendors.
1. Uncertainty
The process of selling a business is inherently uncertain. At the outset you cannot know that someone will be interested in it, what they might be prepared to pay for it and what they might want it for. Even once a buyer has been identified and a price agreed, the deal is not “done” until the legal agreements are signed, and the money is in the bank. The whole process can easily take between 6 months and a year and for the whole of that time there is no certainty about the outcome. More than most people, successful entrepreneurs with established businesses have become used to being in control of their environment. The uncertainty of the early days have evaporated and they are very much masters or mistresses of their own destiny. Far from being comfortable with the uncertainty of the process, they find it profoundly uncomfortable and the longer a process goes on, the more difficult they typically find it.
2. Control
This is a corollary of the uncertainty. A successful deal is the outcome of willing buyer meeting willing seller and free will on both sides resulting in a deal which is mutually acceptable. Vendors are not in control of the “other side” and the frustration which often arises from a perception that acquirers or investors are being unreasonable, slow, dense, focussed on the wrong things, unable to “take a view” and unduly influenced by their advisers can be intense and prolonged. There is often a strong desire to bring things to a head by issuing ultimatums or threatening to walk away but these simply don’t work in context, and can have the converse effect of forcing a vendor to back down or to lose a deal which they (really) wanted to do. Accordingly, vendors are obliged to trust their advisers and bite their tongues which is neither natural nor easy and can be very stressful.
3. Trust
Many vendors will have undertaken acquisitions in the past and go into a process believing that they understand how it is going to be. For larger deals however, and particularly where a private equity acquirer or investor is involved, the level of diligence and the degree of complexity can be far greater than they have ever experienced. The Vendor is forced into a situation where they have to trust others to help them evaluate whether a deal is good or bad and whether the other side is being fair or unfair, reasonable or unreasonable. For some vendors ego can be a factor at play and a fear that they are somehow being “done over” or made to look stupid can create an environment of distrust which can undo a transaction entirely. I have known vendors walk away from an excellent set of terms because of the sense that the other side was not honouring the deal they thought they were doing and because they couldn’t trust them. The occasional tendency of private equity firms to “chip” is particularly risky in context of a trust-challenged entrepreneur
4. Secrecy
My advice to any vendor is to tell as few people within the business as possible that they are in a disposal process. The reason is simple, it isn’t just vendors who hate uncertainty and if a team is worrying about what is going to happen next at a point where it is not possible to reassure them, it will make them stressed and unable to focus fully on their jobs. It is kinder for a vendor to spare individuals that uncertainty for as long as possible, ideally until immediately after the deal is done and the acquirer can step in and reassure them as to the rosiness of their futures. It is also better for the business…. To most vendors this feels like lying, often for months and months and often to people that they have worked with for years and have a personal as well as a business relationship with. It just feels wrong, even though it is right. It is stressful and difficult and requires the support of family and advisers to cope with.
5. Fear
However much a vendor wants to vend, they typically have mixed feelings about selling their business. They cannot look forward with confidence to the future yet because the deal is not done. They might start looking at brochures for boats or villas, but they cannot do anything about buying one until the money is in the bank. They cannot think themselves fully into a different future because of the uncertainty over whether the deal will deliver. For some vendors there is an almost superstitious refusal to do anything which might “jinx” a deal which means they won’t even talk to a wealth adviser in advance of completion. But this leaves them in a personal limbo. They cannot focus as they have for years, often decades, on the business and their plans for it and they cannot commit to a new, uncertain future. This leaves them with a conceptual vacuum in imagining their future which often leads to fear that they are making a mistake, won’t be able to fill their days and will have no purpose. Worse, they often cannot talk to people they usually confide in or discuss things with because the fact of the deal is still a secret. This is perhaps the most difficult aspect for an exiting shareholder of the whole process and one which requires the support of family and advisers.
Very few vendors regret doing their deal. Once the ink is dry and the money is in the bank, they quickly move on to enjoying the fruits of their labours. Teams understand that shareholders have to retire, and they quickly move on in their thinking and their loyalties; if they don’t like a new regime in the business, they will leave. Even the process, looking back from the sunlit uplands of post-completion, doesn’t seem quite so long or quite so bad. But in the same way would-be vendors are advised to prepare their businesses for exit, they should also prepare themselves for the process. Think about how it will feel to go through the process and to come out the other end. Make decisions about advisers not only based on their industry knowledge and experience, but also on your ability to trust them and their advice to you as an individual and prepare your family for a bit of a roller coaster !
When we start to talk to shareholders about the process of selling their business, we always explain to them how long the process can be and how physically and emotionally wearing it is for vendors.
To some extent the impact can be mitigated by diligent planning and preparation but even the best prepared shareholders going through the process for the first time are shocked and horrified by the depth, detail, and repetition inherent in a financial and legal due diligence exercise. It doesn’t matter how much I warn them, they are always shocked and horrified!
They are often also surprised by the emotional toll that the process takes on them over the period of a deal. Towards the end of a transaction process my role is frequently as much one of counsellor as adviser, and I thought it was worth a few moments reflection on what elements of selling their business create the pressure and stress that particularly impacts vendors.
1. Uncertainty
The process of selling a business is inherently uncertain. At the outset you cannot know that someone will be interested in it, what they might be prepared to pay for it and what they might want it for. Even once a buyer has been identified and a price agreed, the deal is not “done” until the legal agreements are signed, and the money is in the bank. The whole process can easily take between 6 months and a year and for the whole of that time there is no certainty about the outcome. More than most people, successful entrepreneurs with established businesses have become used to being in control of their environment. The uncertainty of the early days have evaporated and they are very much masters or mistresses of their own destiny. Far from being comfortable with the uncertainty of the process, they find it profoundly uncomfortable and the longer a process goes on, the more difficult they typically find it.
2. Control
This is a corollary of the uncertainty. A successful deal is the outcome of willing buyer meeting willing seller and free will on both sides resulting in a deal which is mutually acceptable. Vendors are not in control of the “other side” and the frustration which often arises from a perception that acquirers or investors are being unreasonable, slow, dense, focussed on the wrong things, unable to “take a view” and unduly influenced by their advisers can be intense and prolonged. There is often a strong desire to bring things to a head by issuing ultimatums or threatening to walk away but these simply don’t work in context, and can have the converse effect of forcing a vendor to back down or to lose a deal which they (really) wanted to do. Accordingly, vendors are obliged to trust their advisers and bite their tongues which is neither natural nor easy and can be very stressful.
3. Trust
Many vendors will have undertaken acquisitions in the past and go into a process believing that they understand how it is going to be. For larger deals however, and particularly where a private equity acquirer or investor is involved, the level of diligence and the degree of complexity can be far greater than they have ever experienced. The Vendor is forced into a situation where they have to trust others to help them evaluate whether a deal is good or bad and whether the other side is being fair or unfair, reasonable or unreasonable. For some vendors ego can be a factor at play and a fear that they are somehow being “done over” or made to look stupid can create an environment of distrust which can undo a transaction entirely. I have known vendors walk away from an excellent set of terms because of the sense that the other side was not honouring the deal they thought they were doing and because they couldn’t trust them. The occasional tendency of private equity firms to “chip” is particularly risky in context of a trust-challenged entrepreneur
4. Secrecy
My advice to any vendor is to tell as few people within the business as possible that they are in a disposal process. The reason is simple, it isn’t just vendors who hate uncertainty and if a team is worrying about what is going to happen next at a point where it is not possible to reassure them, it will make them stressed and unable to focus fully on their jobs. It is kinder for a vendor to spare individuals that uncertainty for as long as possible, ideally until immediately after the deal is done and the acquirer can step in and reassure them as to the rosiness of their futures. It is also better for the business…. To most vendors this feels like lying, often for months and months and often to people that they have worked with for years and have a personal as well as a business relationship with. It just feels wrong, even though it is right. It is stressful and difficult and requires the support of family and advisers to cope with.
5. Fear
However much a vendor wants to vend, they typically have mixed feelings about selling their business. They cannot look forward with confidence to the future yet because the deal is not done. They might start looking at brochures for boats or villas, but they cannot do anything about buying one until the money is in the bank. They cannot think themselves fully into a different future because of the uncertainty over whether the deal will deliver. For some vendors there is an almost superstitious refusal to do anything which might “jinx” a deal which means they won’t even talk to a wealth adviser in advance of completion. But this leaves them in a personal limbo. They cannot focus as they have for years, often decades, on the business and their plans for it and they cannot commit to a new, uncertain future. This leaves them with a conceptual vacuum in imagining their future which often leads to fear that they are making a mistake, won’t be able to fill their days and will have no purpose. Worse, they often cannot talk to people they usually confide in or discuss things with because the fact of the deal is still a secret. This is perhaps the most difficult aspect for an exiting shareholder of the whole process and one which requires the support of family and advisers.
Very few vendors regret doing their deal. Once the ink is dry and the money is in the bank, they quickly move on to enjoying the fruits of their labours. Teams understand that shareholders have to retire, and they quickly move on in their thinking and their loyalties; if they don’t like a new regime in the business, they will leave. Even the process, looking back from the sunlit uplands of post-completion, doesn’t seem quite so long or quite so bad. But in the same way would-be vendors are advised to prepare their businesses for exit, they should also prepare themselves for the process. Think about how it will feel to go through the process and to come out the other end. Make decisions about advisers not only based on their industry knowledge and experience, but also on your ability to trust them and their advice to you as an individual and prepare your family for a bit of a roller coaster !
