How to prepare a company for a venture capital fund exit

Preparing the company itself for a transaction can start well over a year before conversations with buyers begin.

The value realised at exit depends not only on financial results, but also on the quality of the organisation, how well IP rights are in order, the shareholding structure, the founders’ position, and how attractive the company is to potential buyers.

A fund exit and a founder exit are not the same thing

This is one of the most important issues. A fund may want to sell its stake while the founder wants to keep running the company. The reverse is also possible: a strategic investor wants to buy 100% and expects both the fund and the founders to exit.

Middle-ground options exist too:

Shareholder interests need to be identified before the sale process starts.

Investment documentation matters for a future exit

Mechanisms that can matter enormously later are already set when the fund invests:

These aren’t an abstract part of the shareholders’ agreement. They can decide whether a specific deal can happen at all, and on what terms.

Exit readiness

Before starting a sale, it’s worth assessing whether the company is genuinely ready for the process. A buyer will look at:

• ownership structure
• financial results
• revenue predictability
• customer concentration
• key contracts
• IP ownership
• founder and management agreements
• liabilities
• disputes
• tax settlements

Problems found only during due diligence weaken the seller’s negotiating position.

Management independent of the founder

In many companies, the founder remains for years the main salesperson, the person responsible for the product, the owner of client relationships, and the key decision-maker. To an investor, this is a risk.

The more the organisation can function independently of one person, the easier it is to sell as a standalone business rather than as a job for its founder.

Getting IP in order

In technology companies, it’s especially important to confirm that rights to the technology genuinely belong to the company. This covers:

Gaps in the IP rights chain can become a very significant problem during due diligence.

Preparing the financial data

A buyer wants to know not just how much EBITDA the company reports, but the quality of that result. Worth getting in order before the process:

• management accounting
• revenue segmentation
• margins
• customer data
• recurring / non-recurring revenue
• working capital
• debt-like liabilities
• EBITDA adjustments

The more of these issues a seller resolves in advance, the less room is left for price cuts during due diligence.

When to start?

The worst time to start preparing is the moment a fund already needs to sell. A lack of time limits the ability to pick the best buyer, resolve legal issues, improve results, prepare management, and build competition among investors.

Dual-track

At the right scale, alternative scenarios can also run in parallel. Dual-track – preparing both an investor sale and an IPO – is one example. In other cases the alternatives might be a full sale, a further funding round, or a partial secondary.

The goal isn’t necessarily to execute several scenarios, but to preserve optionality.

An exit is a process, not a moment

The best exit is usually the result of several years of building value and a year or so of deliberate preparation. A well-prepared company:

Only then can competition among investors be used effectively, negotiating not just price but the structure of the whole deal.