14 June, 2011

Exit strategy: remember the proverb

I was chatting with the CEO of a promising technology company. My companion wondered whether to accept an unsolicited offer for his business, or to hold on and invest heavily in a major new product development which could double the value of the business in 2-3 years time, if it succeeds.

I asked for more information: the size of the development investment required (very large), the probability of it delivering a marketable and profitable product (likely but not certain), the likelihood of market success (reasonable but not certain), and the likelihood of someone being willing to buy his business in future (likely but not certain). On balance, the risk and time-weighted returns from investing versus selling were broadly similar. Given he has venture capital investors who are desperate for a successful exit sometime soon, and he himself had always planned for a trade sale about now, the answer was obvious. Sell.

 ‘A bird in the hand is worth two in the bush'.

First posted May 13th, 2008

No comments: