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Entrepreneurial Harvest: Strategies for Exit Rewards

Learn key exit strategies for entrepreneurs. Explore options like selling to insiders or outsiders, IPO, succession, leverage buyout, and more. Discover negotiation tactics, valuation methods, and tips for reaching integrative agreements.

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Entrepreneurial Harvest: Strategies for Exit Rewards

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

  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

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