Exit Execution Workshop (Philadelphia) Part 1: Only 25% have successful exits.
Strategic Exits Partner Emeritus, Dr. J. Basil Peters, developed and implemented several new concepts in selling technology companies. His seminal publication: Early Exits demonstrated that entrepreneurs and their angel investors could earn better returns by selling their technology companies earlier in their business development. He also promoted the concept that the company exit was a key business process and should drive the company’s strategic and operational plans.
In this series of nine posts on Exits Execution, Basil explains the key considerations in executing an optimal exit for your technology company. The Exit Execution series follows the Exit Preparation presentation and Exit Strategies – The Waterloo Series available on the exits.partners blog.
This Exit Execution workshop was first presented at the Angel Capital Association Annual Summit in Philadelphia on May 9, 2016. It has since then been presented many times to tech entrepreneurs and angel groups.
EXIT Execution – The Philadelphia series
PART 1 – Only 25% of tech companies have successful exits
It is difficult to draw definitive conclusions about the success rate of exits in the technology industry. Most companies are private, and only rarely are the particulars of an exit transaction made public. Virtually all of the observations in this chapter are based on anecdotal evidence gathered in informal conversations at tech industry conferences or in discussions among mergers and acquisitions advisors serving the industry.
So hard data is lacking. Few researchers have attempted to do a retrospective analysis because the lack of hard data would cast doubt on the statistical significance of any conclusions. The current dearth of hard exits data is hiding our belief that the vast majority of private tech company exits are not successful: only 25% of exits achieve their goals in terms of valuation and structure; 50% of exits don’t close, and a depressing 25% of companies starting an exit actually fail and go out of business. If true, this may partially explain why hard data on exits is so hard to find.
However, this may begin to change in the decade of the 2020s. Our boutique investment bank, Strategic Exits Partners, has begin to examine the exit history of thousands of private technology companies in support of research into the business models that lead to successful exits. We can anticipate generating hard data on tech company exits as part of this research. Perhaps our pioneering research will encourage other exit advisors and academics to do further research.
Academics should research one element in particular: the impact of the general financial environment. The finance industry goes through cycles where M&A is hot (as in the 2010s and early 2020s) or stone cold (late 2000s after the financial crisis). Other cycles see more exits through public offerings (IPOs and SPACs) than through acquisitions, or the reverse.
In the meantime, we will share our thoughts on how to execute a successful exit in the following chapters in this series.