Strata is an independent corporate finance partnership headquartered in London that provides mergers and acquisitions advice and capital raising services to technology and science-enabled businesses across the globe. Their vision is to provide the highest quality of financial advice, irrespective of the transaction size. Strata is also our partner and helps our portfolio companies raise capital and successfully close exit deals.
Recently two representatives of Strata – managing partner Robert Lees and partner Dr. Alistair Armstrong-Brown – visited Tallinn and shared valuable lessons from successful exits with an audience that consisted of Tera Ventures portfolio companies and local startup ecosystem.
Lesson 1: Becoming Visible to Buyers
Strata had a client in Aurix, a British company specialized in phonetic speech search and audio data mining. The technology they have developed is very powerful and impressive and has many potential areas of use. This meant there could be a lot of potential buyers from different industries with different needs and interests. In order to secure the best deal Strata mapped all potential buyers and approached the companies via their Product/Technology managers. Strata chose this strategy because these people would actually have the know-how to evaluate whether they could make use of Aurix’s technology and its advantages. If the Product and Tech people in these companies got excited they would convince their management to go forward with the deal.
?Key strategy here is finding the right people and creating and maintaining relationships with them. It’s time-consuming but pays off in the long-run.
Lesson 2: Selling Just Enough
In some cases, you should also consider selling only a part of the company or as they call it in finance – a partial exit. This is the path that an online market research business WorldOne from the UK chose. The founders wanted to keep on developing and growing the company but at the same time, they wanted to alleviate the risk of financing the growth with their own money. A good approach, in this case, was to use growth equity funds that were ready to invest in the company’s growth in return for acquiring a minority shareholding. This works for larger, usually profitable businesses where some founders or early investors are ready to cash out.
?Tip! To guarantee the best deal it’s smart to negotiate with several funds simultaneously.
Lesson 3: Aligning Sellers’ Interests
Bulgarian travel technology company Vayant had the backing of several investors with very different interests – from a VC fund to a big corporate customer of theirs. These investors had a very different take and interests in selling the company. The VC fund was keen to exit but the corporate investor had little interest in selling and was more interested in commercial benefits. These very different investor interests ade the selling process quite difficult.
?Moral of the story: Choose your investors carefully and make sure their interests are aligned.
Lesson 4: Creating Effective Competition
Finnish fintech Holvi attracted lots of interest from large banks. But it turned out that many banks only wanted to learn about fintech rather than invest or acquire. So finding out which bank was really interested in a transaction was important. Also, Holvi’s growth model required a lot of capital and over time the shares of the management team had diluted quite a lot, which made another round of financing very difficult. This meant they had a hard time raising more VC money and had to think of exiting instead. Strata had a clever angle by creating a dual track of cap raise and sales process at the same time. The two leading bidders, both banks, were put in a competitive situation and that lead to a successful exit at the end.
?Tip: Negotiating with several potential buyers will lead you to a better deal because competition will result in better conditions for your company.
Lesson 5: Keep Delivering
Danish invoicing and accounting software for microbusinesses Debitoor had developed great technology and possessed the market expertise but they were still small and had changed their revenue model a couple of times. Here Strata’s role became vital – they helped the company finetune their metrics in great detail to constantly showcase that they are able to deliver on results. This raised trust among the buyers and resulted in a successful exit.
?Tip: Make sure your metrics are in order, that you as a founder understand your company metrics and are able to prove during the exit negotiations that your company is steadily moving towards goals. This will increase confidence in the buyers and they can focus on your team and technology and have to spend less time trying to understand your financial state.
Lesson 6: Working Together
Estonian startup Fits.me had developed an innovative virtual fitting room technology but had not managed to gain significant revenue traction. It needed quite a lot of capital to be able to scale, which meant that there was an ongoing fundraising process for a long time. The different investors came from lots of different countries and types of investor (angels, early stage VCs, family offices) and both management and investors ended up in different locations with limited communication. Eventually the only way for the company to make progress was to bring in a professional CEO who could manage to align the investors interest and get them to support the much-needed exit process with a Japanese e-commerce heavyweight, Rakuten.
?Tip: The team is everything during fundraising and exit – it has to function, be able to grow the business and raise money. But, as the size of the team grows and spreads across different regions, sometimes new management has to be brought in to coordinate the team and improve communication between investors and management.
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About Tera Ventures
Tera Ventures is a venture capital firm based in Tallinn, Helsinki and LA, focused on exceptional founders from Baltics, Scandinavia and CEE who disrupt digital space globally. Tera builds presence and networks in the markets where our portfolio companies want to expand to – the UK, the US, and Asia.
About Strata Partners
Founded in 2002, Strata is an independent corporate finance partnership headquartered in London that provides buy side and sell side mergers and acquisitions advice and capital raising services to technology and science-enabled businesses across the globe.