Formed in 2015, Genesis Robotics creates motors and other mechanical innovations that will fundamentally improve how robots and machines are built and move. Its innovations attracted worldwide interest from large robotics companies. When it exited in 2018, the company had not yet earned any revenue and was still developing its technology, yet it set a world record for the largest exit for a pre-revenue hardware company.
This introductory video outlines the inception of Genesis Robotics and its path to earning the honour of the “Exit of the Year” awarded by the National Angel Capital Organization in 2018.
Prior to exit, Genesis raised $30 Million over four investment rounds. The company produced a 32x return on investment for their Angel investors.
Strategic Exits, a boutique investment banking firm that focuses solely in developing optimum exits strategies for technology entrepreneurs, was key to Genesis’ success. Exits developed a unique startup exit strategy to position Genesis for a lucrative early exit.
A key element of Genesis’ success was Strategic Exits’ strategy of designing this startup company to execute an early exit, that is, selling the company prior to generating any revenue. This particular type of early exit is termed the “IP Company Exit,” as this type of exit relies not on financial performance, but on the strength of the company’s IP portfolio. It is the first of four categories of startup exits evolving from new research by Strategic Exits Partners into the business models of early exits which we have termed Early Exits 2.0.
Finding the right advisor was critical to formulating Genesis’ exit strategy. Strategic Exits Partners’ ground-breaking research on the necessary and sufficient conditions for an early exit informed the key decision: should the company exit early, and why? The evaluation of risk, reward and market timing were all in favour of an early exit. Once that decision was made, Exits facilitated discussions on how those conditions would be achieved. These discussions led to a business plan that embodied the IP Company Exit strategy.
Moving quickly from a startup company to a startup acquisition required careful planning. The keys to success of this business exit plan were two-fold:
- the first was to obtain credible third-party validation
- the second was to secure ownership of the IP within Genesis with the available capital
To convince investors that this was doable, Exits began with the end in mind. What actions did the company deliberately decide to take and importantly, not take, and in what order?
Strategic Exits used its experience in operations, sales and marketing, business development and corporate finance to focus on a narrow range of activities across the spectrum. Its track record of success was critical to identify what needed to be done and by when. How fast to file patents, and should they be on the fast-track program? How should they approach the Patent Cooperation Treaty pathway? Which jurisdictions should be invested in? How do you get third party validation without NDA’s? How do you present technologies to organizations that are sometimes both competitors and potential acquirors? Since the company was not seeking revenue, developing a credible financing plan for investors required creative approaches. With only investor capital available, what were the best ways to apply the capital raised?
Only an advisor with deep practical operational, technological, and financial experience can facilitate the creation of this unique business model. This business model design presumes no revenue and a commercialization team that has unique business and corporate development skills. The activities are in line with ideas in the Lean Startup focusing on the Minimum Viable Product, Innovation Accounting and Build/Measure/Learn concepts.
Exit Execution requires much more than simply calling Corporate Development of potential acquirors. Other influencers in the automation ecosystem needed to be addressed first. Identifying champions within the development team was key to creating an environment where an early exit made sense. The acquirer’s development team had to be involved in specification of the performance parameters.
The sequence of orchestrating the activities required careful thinking and execution in the rapid iteration among the Genesis and partner development teams. The exit advisor is deeply involved in this process. The advisor is also involved with the recruitment process of entrepreneurially minded staff that can pivot quickly as the situation arises. This would also include a scientific advisory board, the outbound team and the productization resources.
The exit advisor has to have the entrepreneurial tenacity to achieve an optimal outcome within the constraints of capital and time.
The key to convincing investors was to demonstrate that there was an inflection point within the short timescales – where the development had sufficient third-party validation and IP protection – and the valuation would rapidly increase. The proposed path needed to be plausible and consistent with the available data. Again, the exit advisor had a major role in orchestrating the run up to the conventional exit process.
In summary, Strategic Exits Partners’ success in generating a world-best valuation for a pre-revenue hardware company was predicated upon developing a unique business exit strategy to base Genesis’ value not on traditional financial performance measures, but instead on procuring IP rights on key technological innovations that were attractive to enterprise acquirers and selling the company early.