INVEST to EXIT is a highly pragmatic strategy for Angel and Venture Capital investors which focuses the investment, business development and harvest activities on strategic value.
Investment decisions are targeted towards those ventures which can create a strategic buyer exit.
The period of investment is often shorter, operational execution risks are lower and return on investment is higher.
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i“ Every entrepreneur seeking to work with outside investors should first stop, read Invest to Exit, and then proceed. Angel investors and venture capitalists want a partnership, a spousal relationship while they grow scalable companies – but there must be an exit, a separation agreement at some point of the investment relationship. Tom McKaskill provides the blueprint for discussing and analyzing those exit options and I recommend both parties use Invest to Exit as a guide.”
John May Chair Emeritus, Angel Capital Association, USA Co-author, “Every Business Needs an Angel” Crown Business:2001
“Tom McKaskill’s insights into the ‘art of the exit’ provide a great roadmap for all Angel and Venture Capital investors. In a misguided investment world that relies too heavily on IPOs, mega-exits and too much quantitative analysis, McKaskill has taken an enlightened and straightforward approach to a topic that should be foremost on startup investors’ minds.”
Joe Platnick, Pasadena Angels, USA“After reading Tom’s latest E book, Invest to Exit, I not only have a deeper understanding of what an angel investor should be looking for in an investment but it has given me a mind shift on how I think about an exit strategy for my current business and any businesses I might invest in..”
Michael Valitutti, Angel Investor, Gold Coast, Australia“Tom provides explanations of how to connect the fundamental drive for an exit to strategy in each phase of investment, management and exit. His easy to read, conver- sational style leads the reader to challenge cherished preconceptions, consider new approaches and develop better strategies. This is a valuable read for the first time entrepreneur or investor, as well as for those of us with more experience.”
Jordan Green Founder/Chairman Melbourne Angels, Co-Founder/Deputy Chairman Australian Association of Angel Investors
ii“ Invest to Exit is a must read for the Investor looking to maximize their returns from their private equity investments. Tom McKaskill’s latest book concisely distills the merits of Investors focusing on strategic exit from inception. This book provides a solid foundation from which to understand the difference between a financial and a strategic sale for a company and how to build a plan to maximize the returns for both. Understanding the significant value in focusing business resources towards the execu- tion of the strategic sale will enable earlier and higher exit returns for Investors and Entrepreneurs alike. A successful exit may be achievable much sooner than originally anticipated and with significantly less capital requirement.”
Andrew Loch Chair Gold Coast Angels Angel Investor & CEO of the Gold Coast Innovation Centre
“The high-growth model has claimed many casualties, especially in smaller economies such as New Zealand where companies pursue growth from a very limited human and financial resource base. While there is nothing wrong with high-growth strategies, they are often inappropriately applied as the only strategy. The world has changed, its time to take a fresh look at investable assets and investable exits before committing.
While working with several hundred technology companies I noticed that patterns began to emerge. Tom McKaskill not only reads these patterns, he connects these themes to offer new insight and he creates pragmatic linkages through to investor returns. If you can’t get him in person, I suggest you get across McKaskill’s body of knowledge in this self-contained book. It is a `must read’ for investors, advisors, founders, managers –anyone charged with the creation of value. I have introduced Tom to more than 50 local firms and advisors and will continue to do so because of the amazing feedback he generates.
There is a huge opportunity cost in failing to apply these patterns. There are limited investment candidates with the true hallmarks of success and while we might start with the right material, it can go horribly wrong from there. This book emphasizes tactics-backed strategy and focuses the reader on drawing the narrowest line between an investable exit and the present.”
Matt Yallop, Repertoire Management, New Zealand“Goal setting is part of life. Athletes set themselves goals – say, winning the triathlon at the next Olympics. Companies set themselves goals – say, doubling revenue by introducing a new product line. However, setting goals is a meaningless fantasy unless you also devise a methodical approach to achieving that goal.
Yet surprisingly, goal setting and planning are often missing from venture capital investing where investors often become intrigued by the initial concept to the point that they completely overlook the endgame. Investors have an obvious goal – to make money via a highly profitable exit. So why is it unusual to find investors focusing on exits from the very beginning. If done properly, mapping out a methodical plan to achieve a profitable exit, brings a host of benefits as well as removing much of the risk from venture capital.
Tom McKaskill provides the “how to” in his usual accessible style. In fact, it must have been tempting to call the book “Exit Planning for Dummies” since the book provides a step-by-step approach which can be understood and followed by anyone investing in technology-based start-up ventures. Not only does the approach improve the risk/return for the investors, but the roadmap it provides removes much of the uncertainty and angst from the post-investment period which often sees investors become disenchanted with an investee’s progress.
In my view, the book should be compulsory reading for all entrepreneurs and inventors who should work through the book before fronting investors. Their fund-raising prospects would be greatly enhanced if their presentation began with: “Let’s talk about our technology later. I want to start by describing our exit scenario and our plans for getting there .....”.
Ergad Gold Principal and Executive Director Momentum Investment Group “For the professional Angel and Venture Capital investor, Invest to Exit is the first book to succinctly capture the importance of aligning the combined interests of inves
tor, management and shareholder when making the investment to produce an optimum result on exit regardless of underlying economic conditions. Commencing exit plan- ning much earlier in a company’s development, combined with planning and then flawless execution will always produce an outcome better than starting later and hop- ing a buyer “will be just around the corner”.
Dr. McKaskill has captured the essence of the issue, providing examples which clearly highlight the challenges and issues faced along the way.“Tom is undoubtedly one of the foremost thinkers on what it takes to achieve strategic value in a business. With the strategic end game firmly in mind right from the outset, investors can focus their money and management resources on the right activities which drive this value and lead to significant investment out-performance.
Tom’s hands on experience in this area comes through clearly in his writing, including focus on the importance of establishing strong personal relationships with the decision makers in potential buyers. I apply many of Tom’s principles on a daily basis in my investment and advisory activities – these principles are timeless and not dependent on the vagaries of short term market movements.
I strongly recommend Tom’s latest book for all investors looking to profit from a stra- tegic value mindset.”
lobal serial entrepreneur, consultant, educator and author, Dr. McKaskill has established a reputation for providing insights into how entrepreneurs start, develop and harvest their ventures. Acknowledged as the world’s leading authority on exit strategies for high growth enterprises, Dr. McKaskill provides both real world experience with a professional educator’s talent for explaining complex management problems that confront entrepreneurs. His talent for teaching executives and his pragmatic approach to management education has gained him a reputation as a popular speaker at conferences, workshops and seminars. His approaches to building sustainable profitable ventures and to selling a business at a significant premium, has gained him considerable respect within the entrepreneurial community.
Upon completing his doctorate at London Business School, Dr. McKaskill worked as a management consultant, later co-founding Pioneer Computer Systems in Northampton, UK. After being its President for 13 years it was sold to Ross Systems Inc. During his tenure at Pioneer, the company grew from 3 to 160 people with offices in England, New Zealand and USA, raised venture capital, undertook two acquisitions and acquired over 2,000 customers. Following the sale of Pioneer to Ross Systems, Dr. McKaskill stayed with Ross for three years and then left to form another company, Distinction Software Inc. In 1997 Atlanta based Distinction raised $US 2 million in venture capital and after five years, with a staff of 30, a subsidiary in New Zealand and distributors in five countries, was sold to Peoplesoft Inc. In 1994 Dr. McKaskill started a consulting business in Kansas which was successfully sold in the following year.
After a year as visiting Professor of International Business at Georgia State University, Dr. McKaskill was appointed Professor of Entrepreneurship at the Australian Graduate School of Entrepreneurship (AGSE) in June 2001. Professor McKaskill was the Academic Director of the Master of Entrepreneurship and Innovation program at AGSE for the following 5 years. In 2006 Dr. McKaskill was appointed to the Richard Pratt Chair in Entrepreneurship at AGSE. Dr. McKaskill retired from Swinburne University in February 2008.
Dr. McKaskill is the author of eight books for entrepreneurs covering such topics as new venture growth, raising venture capital, selling a business, acquisitions strategy and angel investing. He conducts workshops and seminars on these topics for entrepreneurs around the world. He has conducted workshops and seminars for educational institutions, associations, private firms and public corporations, including KPMG, St George Bank, AMP, AICD and PWC. Dr. McKaskill is a successfulcolumnist and writer for popular business magazines and entrepreneur portals.
To assist Angel and Venture Capital investors create strategic exits for their investee firms, Dr. McKaskill conducts seminars, workshops and individual strategy sessions for the investor and their investee management teams.
Dr. McKaskill completed a number of e-books for worldwide, royalty free distribution. He has also produced over 150 YouTube videos to assist entrepreneurs develop and exit their ventures.
Tom McKaskill is a member of the Apollo 13 Angel Group on the Gold Coast and of the Australian Association of Angel Investors.
The Ultimate Deal 1
Selling your business
This book is aimed at those businesses which need to maximise their profit and growth opportunities for a sale to a financial buyer to leverage the best sales price. It sets out a breakthrough process which includes reducing risk, improving sustainable profits and building growth potential in the business to maximise the sales price. This world first process can increase the value of the business between two and ten times the conventional sales value of a firm.
The Ultimate Deal 2 Get an unbelievable priceThis book uncovers the secret of how to leverage strategic value in the business to create a large revenue opportunity for a strategic buyer. Dr. McKaskill’s is the world’s leading authority on selling a business to a strategic buyer and sets out a comprehensive and systematic process for selling a business to a large corporation. Sales values of 40 times EBIT and/or many times revenue are highly probable using his Strategic Sale Strategy for a business with underlying strategic assets or capabilities.
Angel Investing Wealth creation through investments in entrepreneurial venturesDesigned to help high net worth individuals become successful Angel Investors. Angel investing involves active mentoring and coaching of an early stage management team towards sustainable profitability or additional funding, probably from a venture capital firm. This book sets out a comprehensive and rigorous process that will help the Angel generate deal flow, evaluate investment proposals and manage the investment and subsequent harvest. The book also provides a useful guide to managing operational risks in the venture.
Get A Life! An inside view of the life ofThis book is a collection of stories from entrepreneurs around the world where they describe their work and their lives. They explain what it is like to be an entrepreneur, how they got started, the successes and failures of their ventures and the highs and lows of their personal and business lives. The stories are rich in content and provide deep insights into how entrepreneurs think. If you are an entrepreneur this will resonate with your inner being. If you are not, this will provide you with a great understanding of entrepreneurs.
viii
Finding the Money
How to raise venture capital
The purpose of this book is to educate the entrepreneur on how Venture Capital firms work, what they seek in an investment and how they manage that investment through to an exit transaction. It helps the entrepreneur judge whether they have a venture suitable for VC investment and whether they wish to be part of such an activity. It lays out a comprehensive process that the entrepreneur can follow which will assist them in raising VC funding.
Winning Ventures 14 principles of high growth businessesExplains the major contributors to high growth success. Includes a comprehensive Growth Check list for each principle as well as a robust Growth Potential Index to help the reader judge the growth potential of their venture. Based on established theories of growth, venture capital selection criteria and the author’s personal experience, this is a must for entrepreneurs.
Masterclass for EntrepreneursThis book is a collection of published articles by Dr. Tom McKaskill. This volume expands on 30 of those articles to provide a wide-ranging guide for entrepreneurs on how they can manage their businesses more effectively.
Fast Forward Acquisition strategies for entrepreneursIn this book, Dr. McKaskill sets out a systematic and pragmatic process for identifying, evaluating, valuing and integrating financial and strategic acquisitions. He draws extensively on his own experiences as a CPA, entrepreneur and academic, as well as his experience with acquiring and selling his own businesses. He brings a systematic and comprehensive approach to growing business through acquisitions.
This book is aimed at those entrepreneurs who have high growth potential ventures and seek to raise finance to assist them to develop their business. To secure the finance, the entrepreneur will have to demonstrate that their business is capable of achieving a premium on exit, usually through a strategic sale. The book provides a checklist for the entrepreneur to assist in developing a strategy to raise finance.
An Introduction to Angel Investing
A guide to investing in early stage entrepreneurial ventures
Designed to help high net worth individuals become successful Angel Investors. Angel investing involves active mentoring and coaching of an early stage management team towards sustainable profitability or additional funding, probably from a venture capital firm. This book sets out a comprehensive and rigorous process that will help the Angel generate deal flow, evaluate investment proposals and manage the investment and subsequent harvest. The book also provides a useful guide to managing operational risks in the venture.
Invest to ExitInvestors in early stage ventures need to focus on strategic exits if they are to achieve a high return on their investments. This book explains the characteristics of strategic value, how the investor should negotiate the investment and how they should manage the process to a strategic trade sale. The book includes a very detailed discussion of the problems of high growth ventures, the unrealistic expectations associated with IPOs and the advantages of investing in strategic value ventures.
xPublished by:
Breakthrough Publications RBN B2173298N
Level 1, 75A Chapel St.,
Windsor, Melbourne, Vic 3181
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Every effort has been made to ensure that this book is free from error or omissions. However, the Publisher, the Author, the Editor or their respective employees or agents, shall not accept responsibility for injury, loss or damage occasioned to any person acting or refraining from action as a result of material in this book whether or not such injury, loss or damage is in any way due to any negligent act or omission, breach of duty or default on the part of the Publisher, the Author, the Editor, or their respective employees or agents.
National Library of Australia Cataloguing-in-Publication data: McKaskill, Tom.Over the last few years I have advised countless entrepreneurs, Angels and Venture Capital fund executives on exit strategies. Almost without exception, I have found that they have a poor understanding of strategic value or how to set up a strategic trade sale. Far too many are consumed with the goal of an IPO even though this is rarely achieved by an early stage venture.
I have taken the opportunity in the book to set out what I believe is the best way for an Angel or Venture Capital investor to approach an investment opportunity. Basically, don’t invest unless there is a clear path to a strategic sale. A focus on a highly probable premium exit aligns investor and venture management interests, provides a very clear path to a harvest for all parties, significantly reduces the business development hurdles and usually results in a much shorter investment period.
I hope you find this book of great value in your investment program and look forward to receiving your feedback on its implementation.A very large number of people have contributed to my knowledge of this topic. This includes hundreds of entrepreneurs who have been through my classes and workshops, Angels who have attended my training sessions and discussed their investee firms with me and VC executives who I have worked with on exit strategies for their investee firms. Each conversation, question and problem has helped me refine the strategic sale model.
My life partner, Katalin Johnson, has been with me every step of the way, participated inthe seminars, workshops and most of the conversations. She has assisted me greatly by asking the hard questions, reviewing the material and making her own contribution to the content.
xivt seems very obvious that an Angel or VC investor will ultimately seek an exit, whether that be a trade sale or an IPO. It therefore makes sense to keep this objective in mind as the investment is progressed as this would hopefully improve the outcome and thus the return on the investment. While that might seem obvious, few Angels or VCs actually approach their investments this way. Most seem content to build the company with the expectation that, when they are ready, a buyer will be found or an IPO achieved. In reality, the outcomes are poor and few deals achieve high returns.
But lets go a little further. What about planning the exit from the outset. That way the manner in which the business is developed continually keeps the exit in mind and this ensures that we don’t veer off track in terms of meeting our major objective. Some Angels and VC investors do this but they are in the minority.
Now lets get even more radical. Why don’t we change our investment criteria to only focus on investments where we have a high probability of a premium exit. In order to do this, we have to have a very good idea of what creates premium exit conditions, that is, what do we have to do to set up the conditions where a premium exit is highly likely, whether this be an IPO or a trade sale? What would we have to do to make this happen?
At the same time, we want to reduce our risks of failure, ensure that we can extract maximum value if the business gets into trouble and be ready to take advantage of an opportunistic exit.
A tall order – actually no. My personal experience and my research into strategic exit strategies over the last several years has shown me that you can set out to create the conditions for a premium exit. This book will show you how to do it.
You have no doubt heard of highly successful exits, the stuff legends are made of. There are enough examples of trade sales of 10 times revenue or better, 100 times EBIT or 50 times investment to know that such deals happen. We also know of IPOs which gave staggering returns to the early investors. Was it just luck? Was it simply a matter of ‘right time – right place’? Probably. But there is enough evidence around to show the underlying patterns for why these results occur and under what conditions.
If that is the case, can we turn luck into a systematic process for achieving a high return on exit? I will show you how.My own experience has shown me that the process isobvious and that it can be applied with a high probability of success. But there are some pre-conditions. You have to start at the right place if you are to get the result you want. You can’t turn lead into gold and you can’t create a premium exit unless you have the right material to work with. Thus getting into the right investment at the outset is a precondition to achieving an outstanding return on the investment.
You would be right at this point to ask the question – if this is so obvious, why don’t I know about this already? I have asked myself this same question many times over the last few years.
What we first need to accept is that the VC investment model of the 1970s through the millennium is a flawed process. It was built during the periods of boom markets, focused wholly on IPOs and had a fallback plan of a trade sale. All this happenedin large population markets which made it easier. Our investment environment is radically different now. That is not to say that we won’t see these conditions again as they do tend to repeat themselves with each new breakthrough innovation, but you can’t bet the farm on that happening. We need a different approach which will work in the current economic environment with greater resilience t