SeedBlink Blog

We recently hosted a webinar on “EXITS— Power plays & maximizing returns.”

Our guests were Radu Georgescu, Chairman of the Board at SeedBlink; Wolfgang Neubert, Partner at Apex Ventures; while Ronald Rapberger, DACH Regional Manager at SeedBlink moderated the talk.

During the webinar, they covered:

• understanding the key players in an exit and their influence
• exploring diverse exit strategies from an investor's perspective
• recognizing when investors have a say in the process.

Radu and Wolfgang shared real-life stories from their experience, offering a deep dive into what makes an exit successful and the various strategies that can be employed to achieve the best outcomes.

The players at the startup’s table during an exit

Exits in startup investing are the most desired goal in every investor’s portfolio because when you start investing in a company, you don’t know the final outcome since there are many variables and many alternatives to take. It can be a good exit. It can be a bad exit. It can go bankrupt. It can go into a long-life relationship with dividends paying profits.

Additionally, there is a whole process around what happens to a company through fundraising and how you prepare for its evolution as an investor. There are different players sitting at the startup’s table in an exit situation: the buyer, multiple sellers, and advisors.

The buyers and sellers are the key players.

The buyer is typically cautious and wary, while the sellers, who can be multiple, are focused on the outcome. If the exit is successful and everyone profits significantly, things go smoothly. However, in a less favorable situation, like a fire sale where the company is sold for much less, tensions rise, and everyone tries to maximize their share.

“The buyer has the riskiest position at the table because, at the end of the day, the buyer doesn't necessarily know what they're buying, no matter how strong the due diligence is.”

mentions Radu Georgescu, Chairman of the Board at SeedBlink.

Among the sellers, we have the following categories: the founder, the CEO, and investors, who can be represented by VCs, angel investors, or early members of the employee stock option plan.

The founder can exert significant control, sometimes even challenging investors, because those typically don't want to run the company themselves.

Then, you have the big investors, such as VCs, who also have a substantial say in the exit. However, their influence is still secondary to the founder’s. Following them are the early angels—those who invested in the very early stages of the company—and employees who hold equity.

While these groups are important, they generally have less power than the founder and the big investors.

These three types are slightly different from each other, but the founder has the most power, as he has the keys to the company. The dynamics between the founders and investors are key factors influencing how negotiations take place and how successful they are.

Advisors don’t necessarily have a direct impact, but they can facilitate some events and actions that lead to an exit. They help navigate the complexities of legal aspects, handle financial taxes, and play a vital role in understanding the interests of all parties involved and finding common ground.

In cases where there’s only one buyer and one seller, finding this middle ground might be simpler. But when multiple sellers are involved, the situation becomes more complicated. Investors and advisors become the players who informally assess the situation, determine where interests align, and guide the parties toward a compromise. They aim to ensure that all parties feel they’ve gotten a fair deal, even if it means each side has to make some sacrifices.

Types of exit events in a startup’s journey

When a startup reaches a certain stage of maturity or success, it often faces the decision of how to exit—essentially, how the founders and investors will realize the value they’ve built. Exits in business can take many forms.

The most celebrated exit is an IPO, where a company goes public and sells shares on the stock exchange. However, this is not the only one.

5 most common types of exit events:

• The IPO event is when a company goes public by offering its shares on the stock market. It allows the company to raise significant capital while allowing early investors and employees to cash out.
• The acquisition event is when the startup is sold to another company and is often pursued when a larger company sees value in integrating its products, services, or technologies into its operations.
• The merger event involves combining the startup with another company to create a new, larger entity, often to achieve greater market power or operational synergies.
• The secondary sale takes place when the shares of the company are sold to another investor, providing liquidity to early investors without the need for a full company exit.
• The Management Buyout (MBO) happens when the current management team purchases the company from existing shareholders, often to gain more control over the company’s direction.

IPOs are the most difficult exit event to achieve and are relatively rare. The most common ones are mergers & acquisitions, where another company buys the startup. An M&A can involve the acquirer purchasing 100% of the shares or retaining key founders as co-shareholders to incentivize them.

Other exit strategies include asset deals, where only specific assets are purchased, and secondary sales, where smaller shareholders are bought out to simplify the cap table or optimize governance.

Liquidity events before an actual sale or IPO are quite a viable exit route that is often overlooked.

These liquidity events allow investors to realize returns mid-way through a company's growth phases. Although not publicized like IPOs, they offer significant returns.

mentions Ronald Rapberger, DACH Regional Manager at SeedBlink.

Additionally, there are management buyouts, where founders or managers buy out investors. Each exit scenario involves different timing, structures, and interests, making the process complex and unique to each situation.

Early investors and exits

Small investors can play a decisive role in significant exits, too.

Early-stage investors tend to develop more personal relationships with the founders, and their early involvement fosters a unique bond with the founders.

A strong relationship based on value-adding can potentially influence exit negotiations, and there are cases when angel investors become cofounders later on.

“The idea that you, as a first-time pre-seed or seed investor with a small investment, will remain on the cap table until the company is sold is more the exception than the rule."

mentions Wolfgang Neubert, Partner at Apex Ventures

Pooling small investors into a syndicate can consolidate their influence, making it easier for acquirers to negotiate. A syndicate mitigates the challenges of dealing with numerous small shareholders, who may have differing opinions and availability.

Assigning a spokesperson to represent the group can streamline negotiations, ensuring that the collective interest is well-represented and reducing the likelihood of an acquirer abandoning the deal due to complications.

VCs and exits

“We still have some influence over who joins the cap table. Ideally, we can choose growth investors or private equity funds we trust, often based on past successful exits or established relationships.

private equity funds we trust, often based on previous successful exits or established relationships.”

mentions Wolfgang Neubert, Partner at Apex Ventures

When selecting investors for future fundraising rounds, you want to bring in partners who align with your goals and values while maintaining some degree of control over the company's future.

Unlike business angels, whose influence is often based on personal relationships or specific expertise, VCs like APEX Ventures leverage their industrial experience and knowledge of financial structures to guide and support founders effectively.

Given VC funds' typical ten-year lifespan, they often need an earlier exit, typically through secondary sales. These sales allow them to realize returns before the company's final exit, accommodating the longer development cycles of deep-tech investments.

"Secondary sales offer specialized investors the opportunity to focus on these deals, providing liquidity to early investors while maintaining the potential for substantial returns."

mentions Wolfgang Neubert, Partner at Apex Ventures

Exits through the eyes of investors

Radu Georgescu's first exit, selling his antivirus security company, RAV Antivirus, to Microsoft in 2003, stands out as his happiest and most significant.

At that time, Microsoft did not have a security business, and the acquisition began what would become a substantial part of their operations. The deal was particularly notable because it involved Microsoft acquiring a primarily Linux-based antivirus product, leading them to offer customer support for Linux, a rare move for the company.

Negotiating the deal was relatively straightforward due to the simple cap table. Radu was the majority owner, and no venture capitalists or other financial investors were involved, only an employee stock ownership plan (ESOP).

Negotiations were easier since the ESOP participants were entitled to financial gains but did not have decision-making power in the deal.

"Microsoft described this exit as their best in the past 10 to 15 years and used it as a case study in their internal M&A training."

mentions Radu Georgescu, Chairman of the Board at SeedBlink.

Wolfgang Neubert shared two examples of exits that, despite their differences, shared some important similarities.

In both cases, strategic investors aimed to take over the companies while keeping the founders on board. The founders retained some shares and had the opportunity for a future exit based on the company's value increase.

"Financial investors want to exit with a strong return, while founders aim to optimize their future compensation package and ensure that the acquirer doesn't overspend initially, preserving funds for their eventual exit. This often leads to misaligned interests."

mentions Wolfgang Neubert, Partner at Apex Ventures

The founders ultimately hold significant power because they drive the company. If they become dissatisfied, it can jeopardize the deal. As an investor, trying to control things from the co-pilot seat is risky.

Stay connected!

For more insights, watch the whole SeedBlink webinar on EXITS—The returns of startup investing: Power plays & maximizing returns.

Subscribe to our newsletter and stay tuned for similar updates and insights into European startup news, equity trends, VCs, and investment opportunities.