1. Exit Strategies for Entrepreneurs: When—and How—To Harvest the Rewards
Entrepreneurship
Exit Strategies for Entrepreneurs: When—and How—To Harvest the Rewards
Ch. 14

2. “All things change…There is nothing in the whole world which is permanent. Everything flows onward…the ages themselves glide by in constant movement.”
--Ovid, 10 B.C.

3. Exit Strategies Sell or transfer ownership to insiders
Sell or transfer ownership to outsiders
Take the company public through an IPO

4. Sale or Transfer to Insiders
Succession
Leveraged buyout
Employee stock ownership plan

5. All In the Family Share power Form a limited partnership
Set up a trust

6. Leveraged Buyouts
Managers borrow money to pay the owner an agreed-upon price.
The new owners pledge their stock as collateral, or…
Lenders accept an equity position in the company to cover part or all of the funds.

7. Employee Stock Ownership
Ordinary ESOP
Leveraged plan
Transfer ownership plan

8. Selling to Outsiders Sell at the right stage
Sell when the business cycle is strong
Compensate for loss of talent
Identify and protect intellectual property
Adopt transparent and conservative accounting policies
Resolve open questions that make it difficult to estimate value

9. Factors in Terms of the Sale
Valuation of the company
Negotiation process

10. What’s It Worth?
Balance sheet methods
Earnings methods
Market method

11. Balance Sheet Methods Balance sheet method
Net worth = Assets – Liabilities
Adjusted balance sheet method
Estimates market value of assets

12. Earnings Methods Excess earnings method Capitalized earnings method
Discounted future earnings method

13. Advantages of IPOs Cash Aura of respectability
Market provides continuing valuation of worth
Ability to use stock options for employees
Ability to use stock to acquire other companies

14. Disadvantages of IPOs A tremendously expensive process
Lock-up agreements
Subject to careful scrutiny

15. Bargaining Tactics Beginning with an extreme initial offer
Using the “big lie” technique
Convincing the other side you have an “out”

16. Unethical Negotiation Tactics
False promises
Misrepresentation
Inappropriate information gathering

17. Reaching Integrative Agreements
Logrolling
Nonspecific compensation
Broadening the pie
Cost-cutting
Bridging

18. Changes Over Time Physical appearance and energy Cognition and memory
Intelligence
Creativity

19. Eras of Our Lives Age 30 transition Midlife transition
Late-adult transition
Consider your stage in life as you consider your exit strategy