Recently, World Financial Symposiums (WFS) hosted a Growth & Exit Strategies virtual conference focused on women leaders in tech. The conference was highlighted by three panels comprised of women executives representing investors, buyers, and sellers of tech companies, respectively. The panelists shared insights and tips on a variety of topics such as what investors look for in funding strategies, what buyers want to see in companies for purchase, and how to prepare for an exit.
In Part 1 of this three part series, we highlight some of the recommendations provided by the Investors panelists. Part 2 will highlight some advice from the Buyers panelists. And Part 3 will cover some of the insights from the Sellers panelists.
The Investors Panel included the following women executives, representing investment companies from various geographies and different investment focuses:
- Elaine Kunda, Founder & Managing Partner of Disruption Ventures, a private female-founded venture capital fund based in Canada that invests in businesses led by women.
- Lu Zhang, Founder & Managing Partner of Fusion Fund, a U.S.-based venture capital fund that focuses on the industrial automation, healthcare, and enterprise spaces.
- Sarah Young, Founder & Managing Partner of Sandpiper Ventures, a seed stage venture capital fund based in Canada that invests in women-led tech companies.
- Thandeka Xaba, Managing Partner at Digital Africa Ventures, a South Africa-based and majority black-women led venture capital firm.
- Ute Mercker, Investment Director at IBB Ventures, a venture capital firm based in Berlin, Germany.
Included in their discussion was some practical advice for entrepreneurs seeking investment by their funding companies.
Readjust to current conditions
Asked what they see as the impact on investment strategies of inflation, rising interest rates, and war, the panelists agreed that those factors will result in a pullback in investing in the foreseeable future. However, they also agreed that solid companies will continue to get funded. Elaine Kunda pointed out that companies that are profitable and that have good unit economics will continue to see investment. But the investment focus will be on companies with more realistic growth potential. Her advice to founders is to readjust expectations: “If you're an early stage founder and you're out there hoping that you're going to get 20x revenue or a $10 million valuation on something that isn't in a massive market, those days are over ‒ at least for a while. But there is definitely prosperity in a down market, it's just a matter of really understanding where that prosperity is going to come from."
For Lu Zhang, being able to readjust to current conditions is part of what she called the “survival game.” She underscored the need to reallocate resources and cut costs to maintain profitability without a slowdown in growth. Zhang also stressed that the ability to survive in times of disruption can also present opportunities for the survivors because there will be less competition and more concentrated capital available for investment. In fact, Zhang noted that VCs have over $300 billion ready to deploy, and good companies ‒ the ones that readjust appropriately to current conditions ‒ will be prime investment targets for those VCs .
Strive for capital efficiency
Women founders have been able to respond to these challenging times quite well, according to Sarah Young. Because Young's company, Sandpiper Ventures, focuses on women entrepreneurs, she has seen firsthand the retrenching and other efforts at capital efficiency that the women leaders she works with have engaged in to meet the challenges of the current market. She also noted that women founders didn't necessarily see or experience the overvalued investments as significantly as others did, and ironically, that lack of inflated investment is setting up these women to be successful in the marketplace.
Be realistic about exit horizons
One outgrowth of current market forces is the need for funding to last longer. Ute Mercker concurred that valuations are going down, something that founders need to consider regarding funding and financial planning. This means that founders need to have a different, more realistic, mindset about exit horizons, which Mercker feels will take longer. And so, she says, funding needs to last longer.
Value fundamentals over just the sales pitch
Funding opportunities, especially seed funding for startups, are also available on the continent of Africa, according to Thandeka Xaba. Xaba pointed out that Africa progressed directly from the basics of industrialization to digitization, skipping a number of the phases that western economies have gone through. She said because of that, “You're seeing ample opportunity for investment and innovation on the continent." Tying into that opportunity is that fact that African VCs have a lot of dry powder available. The entrepreneurs who will get that funding are the ones who in Xaba's words, "Value fundamentals over just the sales pitch." Those, she says, are coming out to be the winners.
Be honest with yourself
Asked whether founders should seek an exit if they have a hard time raising additional funds in the current market, the panelists felt the answer depends on an honest assessment of the company's status and future outlook. Kunda advised founders to weather the storm if they see potential for significant growth after the macro shift in the market. But she cautioned, "If you don't see it, you have to be realistic. You have to recognize that you could be in it for a long time before you see any benefits. I would say at that point in time, maybe an exit does make sense."
Zhang stressed that founders have nothing to lose in starting a conversation with potential buyers because if they get multiple acquisition offers it give them lots of options.
And for Young and Mercker, the answer depends on the support structure a founder has in place. The important point according to Young is making sure that there are good advisors supporting the founder, trusted people who will help with a pragmatic, realistic look at the situation. In Merker's mind, it's simply a matter of good corporate governance.
However, all of the panelists agreed that this challenging period is eventually going to end. And if there are ways to get to the other side, it makes sense to keep going. As Zhang put it, "Do not look only at the current challenges, but make sure to keep track of the big opportunities waiting on the other side."
The next WFS Symposium
The next WFS Symposium, titled "Growth & Exit Strategies: Building for Scale, Building for Sale," will be held on May 25, 2023. Get insights from private equity, VC, angels, strategic buyers, M&A advisors, and CEOs who've had a successful exit.
- M&A Market Update & 2023 Top 10 Disruptive Tech Trends
- Investors Panel: Will your strategy get funded?
- Tech Valuation Metrics: What is your company worth & how do you get it?
- Buyers Panel: Do you have what they want?
- Special presentation: Getting Your Team on Board
- Sellers Panel: Advice from CEOs who've successfully sold
For further information, see https://www.wfs.com/upcomingconferences/growth-%26-exit-strategies%3A-building-for-scale%2C-building-for-sale