How seeded entrepreneurs prepare for exit and what we can learn from their journey

How seeded entrepreneurs prepare for exit and what we can learn from their journey

When we talk about tech entrepreneurship, it’s natural to turn to the high-profile, sexy world of venture capital-backed startups.

And yet, startup – where the business is funded by its operations – is often a better business strategy. This gives founders more control over their destiny and more reward for their efforts when they finally decide to step down. Yet these companies are often built out of the public eye, so it’s rare for other founders to learn from their successes.

That’s why I thought it would be helpful to share some information about the work I’ve done with founders and bootstrapped teams working toward an exit.

So how should these founders think about and prepare for the exit process? How should they tell their story to potential buyers and sell the output to employees?

Many thanks to Janosch Kühn, co-founder of Berlin-based Kolibri Games, who kindly shared his release story as part of this article.

The reason: Why go out? Why now?

Startup requires an enormous amount of heavy work for entrepreneurs to grow and sustain their business to the point where an exit becomes viable.

Unlike VC-backed contractors, who typically operate on a predefined time horizon of seven to ten years, the end of the seed journey is not always clearly marked.

Through my coaching work, I’ve identified five main motivations for primed founders to consider exiting:

  • Growth partner wanted. There are significant growth opportunities that they cannot seize without more resources or investment.
  • Capitalize on incoming interest. People are banging on doors to buy the business.
  • Relationship breakdown. The co-founders no longer agree on the future of the company and these differences prove to be irreconcilable.
  • Recognize your limits. They pushed the business as far as they could and recognize they don’t have the right skills to take it to the next level.
  • It’s time. Whether it’s due to burnout, discomfort, a desire to spend more time with family, or to pursue other opportunities, they know the time is right to move on.

But whatever the motivation, things ultimately come down to one question: Does a date make sense right now?

Later, the founders will be responsible for telling the exit story to their teams, customers, partners, and potential buyers or investors. If they can’t convince themselves it’s the right decision, they’ll have a hard time winning over those audiences.

The path: What are the exit routes?

Once a founder has committed to exit, the next step is to evaluate the various options.

After a five-year rollercoaster ride, Kühn and co-founders Daniel Stammler and Oliver Löffler left Kolibri Games in 2020, after selling the studio to gaming giant Ubisoft for over $100 million.

When thinking about exit strategies, he explains, “It’s always a trade-off between financial investors and strategic partners, so it’s important to be clear about your ultimate goal. We needed strategic support, above all, and Ubisoft was the ideal partner for this.

Most of the exits initiated take the form of a commercial sale/acquisition, either by a strategic acquirer – as was the case with Kolibri Games – or by a private investor, such as a private equity fund. Bootstrapped companies box list publicly, but – as with any business – the likelihood is slim. As Kühn notes, in most cases, an exit will involve finding the right balance between strategic and financial support.

The time taken to complete this operation will vary greatly depending on the appetite of the buyers. We often hear the boilerplate estimate that VC rounds take about six months; for founders I’ve worked with, the exit process has taken upwards of 12-18 months. A longer delay is not necessarily a bad thing. This gives the Founder a chance to strategically manage the exit and prepare everyone for the disruption that will likely follow.

The deal: How can we create co-founder alignment and a shared commitment to release?

All entrepreneurs have different reasons for considering an exit, and in the case of co-founded businesses, those reasons don’t always align.

In my experience, the best way to achieve alignment is for co-founders to look at different exit scenarios and explore all possibilities. For example, is the strategy to sell, or could outside investment be another way forward? Could a founder be bought out by the remaining partners? Founders need to be aligned before making any further decisions.

A company I worked with had three founders: two had been in the business longer than the other and had more personal investment at stake. They were willing to take some of their table chips and spend more time with their young families. The other founder joined the group a little later and was in a different phase of her life. She really wanted to stick around and see where the success story could go.

Kühn of Kolibri Games explains: “Although we were pushed by our friends and families, my co-founders and I have never disagreed on the release time. Our goal has always been to reach a level where a release would be both interesting for us and strategically meaningful for the company. Thanks to this alignment, we were all able to pull ourselves together during the trip.

The Story: How do we shape the narrative around the release?

An important part of preparing for a release is getting the story right. Founders need to be able to explain why it’s time to sell and shape that story for both teams and potential buyers. If you’re crossing a river, you need to be able to show people what the bank looks like on the other side and convince them that it’s worth going.

Remember that an exit can lead to job losses or role replacements, so internal communications are just as important as external ones. This creates great uncertainty, and founders shouldn’t tiptoe around this reality, but neither should they go too far, too soon, with their communications. In the case of one company I worked with, they built their entire internal communications strategy around listening to the concerns of the team, just to make sure everyone felt heard.

Of course, sometimes the person who needs convincing the most is the founder himself. They’re emotionally invested in their businesses, and while they know it’s the right time to leave, letting go isn’t easy.

I always ask the founders, if they saw the company as a stranger in five or ten years, what would they want to see? Some respond in terms of revenue or profit. Others talk about maintaining corporate culture at scale, improving product quality by leveraging the acquirer’s R&D capabilities, or increasing customer satisfaction by giving them access to a broader ecosystem. .

Only once the vision is clear can founders determine what a successful transition looks like — in terms of customers, employees, products, and financially — and begin crafting the story around the exit. .

The dilemma: Optimize for profitability or growth?

A compelling exit story should be backed up with facts about the company’s performance. It’s a great time for founders to focus on optimizing the business, but it’s important that they stay true to their playbook when putting their exit strategy into action.

Bootstrap companies have been optimized for profitability from the start, and while it may be tempting to pivot to an all-out growth strategy in an effort to maximize business interest, this approach may backfire if it goes against organizational culture and DNA. .

Kühn says: “Having been repeatedly rejected by investors, we have worked in the spirit of profitability throughout our journey. We were very hesitant to spend money – even on things like marketing – until we were confident about the kind of return we could expect. So as we ramped up our marketing efforts as we searched for an exit, we continued to optimize profitability, for example by demanding ROI [return on investment] within three months for any marketing investment.

Uncertainty: who am I once I no longer run my business?

After closing the deal with Ubisoft, Kühn and his co-founders have committed to stay for 18 months to help the organization adjust to its new environment. “We were always involved in the business and invested a lot of time in developing new games to take it to the next level,” he says. “It feels good to continue to contribute our ideas and to support the company’s major developments.”

What Kühn describes is not easy. For many founders, it can be difficult to adapt to a world where they are no longer in charge. Some continue to call the shots from the touchline, creating confusion for their former teams. Others feel trapped and helpless, regretting their commitment to stay.

The lesson here is twofold. First, founders need to think carefully about the length of their post-exit period. Remember that most acquirers want to retain the knowledge and ideas of the founders for several years, in an executive or non-executive capacity. Disappearing too quickly could expose the new management team. However, a long tenure in a leadership position could become a prison sentence, preventing the founder from moving on with his life.

Second, founders need to figure out what life is like after exit. Many seeded entrepreneurs cannot distinguish themselves from their business and really have no idea what they will do with themselves after exit.

Thinking of going out? Look for a Primed Founder

Much of this recent work with primed founders reminded me of “working from first principles”: outside of the spotlight, they take nothing for granted and pretend to know nothing. It’s interesting for founders with or without VC support to connect with their bootstrapped peers to understand their perspective on releases.

Julius Bachmann is a Berlin-based executive coach who focuses on working with entrepreneurs. He is also co-founder of JRNY.

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