Coming out of a tumultuous couple of years, many startups and entrepreneurs are evaluating their next moves. Those who continued to innovate to be able to survive and even profit from the pandemic may want to consider selling to take advantage of the current market and sky-high valuations. Below we dig into what factors are making it a good time to sell and how to prepare for a transition to your next adventure.
What makes it a good time to sell?
Buyers are ready: We’ve seen an increase in investor funding for startups who are successfully navigating the pandemic, but while investors are ready for opportunities, buyers are as well. According to Deloitte’s M&A Trends Survey, 60% of organizations surveyed have more appetite for M&A activities since March 2020. Some buyers are ready to start new acquisitions, while others are eager to reconvene deals that were put on pause due to pandemic uncertainty.
There has been an increase in cash offers, primarily from private equity firms. Another segment of buyers is comprised of first-time business owners who left their previous job during the pandemic to gain more control of their career.
Locally in the St. Louis market, in Q3 of 2021 we saw the highest total of startup funding in a single quarter since Q3 2018. While there is a lot of buyer demand right now, the seller inventory hasn’t kept up, with many startup owners focused on recovering from the pandemic instead of preparing their business to sell. This is leading to higher valuations and sale prices, which we’ll discuss below.
Valuations are up: Due to pent up consumer demand, many startups and business owners are seeing a resurgence in business value this year. There were more new startups valued at or above $10 billion than any prior year, and double that of 2020.
While these huge “decacorn” deals are on the rise, early-stage startups that survived COVID-19 uncertainty and pivoted to keep their businesses functioning have proved their value and staying power. U.S. deal volume and value overall are up from 2020, with 2021 deal volume expected to outpace last year. Many industries have seen higher median sale prices, including restaurants, service businesses and retailers.
Startups have an advantage: Startups lead the way in innovation, and most of the time that includes embracing the latest technology and digital trends to conduct business more efficiently. The pandemic quickly sped up the digital revolution for businesses, and those who were able to embrace technology and adapt quickly had a huge advantage.
Startups who already figured out how to thrive in a remote environment using online platforms and cutting-edge technology could benefit from selling as they already proved themselves as more valuable than those who lagged behind.
How should I prepare to sell?
If you’ve decided now is the time to sell or exit your company, make sure to have a plan and adequately prepare. Below we’ll discuss how to make sure you’re ready.
Get your financials in order: Potential buyers will take a deep dive into your financial statements to help determine the value of your business. Before entertaining offers, make sure your books and financials are in order so you understand and can explain how your startup is earning and spending money, how much equity you and other investors have, and specifics of funding received.
Don’t do it alone: When making such a big decision, you need experts to help make sure you’re considering the best deals for your goals, getting the right valuation and comfortable with the terms of the transaction. Work with a team of experienced startup advisors who take the time to understand your business, the market you’re in and where you want to go next and help craft a well-thought out exit plan. They should understand your individual goals, whether that be retirement or a new business venture, and incorporate those into the strategy when selling.
Are you contemplating selling your startup? Anders CPAs + Advisors works with startups and entrepreneurs on their financial needs so they can focus on what they do best. Contact an Anders advisor to discuss your goals and plan your exit strategy.
Every day at Anders, we serve as a catalyst for those striving to achieve their highest potential and carry this mentality on to our clients and community. Through a collaborative approach and a combination of tax, audit and advisory services, we help our clients achieve their goals.
As a principal and director of the outsourced CFO practice at Anders, Beth Schulte helps businesses gain a deeper understanding of their current and projected financial condition. She has over 30 years of experience providing high-level accounting and financial analysis to businesses from early-stage startups to large, publicly-traded companies
