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Chapter. 19. The Harvest and Beyond. Planning to Harvest?. 80% of tech business in 1980s had an “informal” harvest strategy, 15% had a harvest strategy in their business plan, and 5% had written a formal harvest plan after their business plan

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slide1

Chapter

19

The Harvest and Beyond

planning to harvest
Planning to Harvest?
  • 80% of tech business in 1980s had an “informal” harvest strategy, 15% had a harvest strategy in their business plan, and 5% had written a formal harvest plan after their business plan
    • Often founders don’t consider selling until experiencing some sort of panic about losing the business
    • This often leads to selling out at low valuations
    • Wiser to sell as a strategic window is opening rather than closing
      • Bernard Baruch “I made all my money by selling too early”
harvest strategy guidelines
Harvest Strategy Guidelines
  • Patience
    • Ventures take at least 3 to 5 and as long as 7 to 10 years to build
    • Don’t panic and sell under duress
  • Realistic valuation
    • Don’t imagine your company is worth more than it is
    • Easy to delude yourself and hold out for the ‘better’ deal
  • Outside advice
    • Beware! Investment bankers and business brokers are like realtors – they want their commission
    • Often, a long term advisor is better placed to identify and time exits
harvest options
Harvest Options
  • Six principle avenues
    • “Capital cow”
      • One highly successful venture throws out enough cash to start some new ventures for a serial entrepreneur
    • Employee stock ownership plan
      • The ESOP buys out the owner
    • Management buyout
      • Management buys out the founders (LBO or MBO)
      • In an LBO, debt has averaged about 60-70% of the purchase price
      • Why would someone lend you money to buy a business?
harvest options ctd
Harvest Options ctd.
  • Merger, acquisition, and strategic alliance
    • Strategic rationales for acquisitions
    • Issue of stock swaps versus cash
  • Outright sale
    • Seller financed transactions and earn outs may make it more attractive for buyers
  • Public offering
    • What’s so great about going public?
    • What actually happens?
    • How much does it cost?
      • About 7% of proceeds + fees and expenses
slide7

IPO Performance 1990-2009

1990 110 10.8% 8.1% $0.34 billion $4.27 billion

1991 287 11.9% 9.7% $1.50 billion $15.36 billion

1992 412 10.3% 8.1% $1.82 billion $22.61 billion

1993 509 12.7% 11.3% $3.52 billion $31.28 billion

1994 404 9.8% 8.5% $1.47 billion $17.36 billion

1995 458 21.2% 14.5% $4.38 billion $30.16 billion

1996 675 17.2% 16.1% $6.80 billion $42.25 billion

1997 473 14.1% 14.4% $4.54 billion $31.58 billion

1998 284 21.7% 15.5% $5.25 billion $33.80 billion

1999 477 70.9% 57.0% $36.94 billion $64.79 billion

2000 381 56.3% 45.6% $29.69 billion $65.07 billion

2001 79 14.2% 8.7% $2.97 billion $34.24 billion

2002 66 9.1% 5.1% $1.13 billion $22.03 billion

2003 62 12.1% 10.5% $1.00 billion $9.53 billion

2004 174 12.3% 12.2% $3.86 billion $31.53 billion

2005 160 10.2% 9.3% $2.64 billion $28.27 billion

2006 157 12.1% 13.0% $3.95 billion $30.48 billion

2007 160 13.9% 13.9% $4.95 billion $35.69 billion

2008 21 6.4% 24.8% $5.65 billion $22.76 billion

2009 41 9.8% 11.1% $1.46 billion $13.17 billion

Source: http://bear.warrington.ufl.edu/ritter/IPOs2009Factoids.pdf

Year No. 1st Day Return Left on Table Amount Raised

equalweighted

resistance block
Resistance (Block)
  • Resistance is inherent in the consulting process (Why?)
  • To deal with it, you need to:
    • Identify when it is taking place
    • View resistance as a natural process
    • Support the client in expressing the resistance directly
    • Not take it personally
handling resistance
Handling resistance
  • The steps:
    • Identify the form the resistance is taking
    • Name the resistance in a neutral non-punishing way
    • Be quiet, let the client respond
  • Give two good faith responses to every question
    • The third time a question is asked, interpret it as a form of resistance
forms of resistance
Forms of resistance
  • Details – give me more, or flood you with details
  • Time – no time to meet, interruptions, delaying implementation
  • Impracticality:
    • Your solution is impractical, they live in the Realworld™
    • OR I already knew this stuff, I’m not surprised
other forms of resistance
Other forms of resistance
  • Verbal (or physical) attacks, incl. shoot the messenger
  • Ongoing confusion as to results or next step
  • Silence
  • Intellectualizing …these results suggest a theory…
  • Moralizing…this wouldn’t be a problem if “those people” were doing their job
  • Vicious compliance
  • Flight into health – things are better, we don’t need this solution anymore
  • NOTE – everything serves as a reason not to ACT.
why resist
Why resist?
  • “Resistance is discomfort that is expressed indirectly”
    • Difficult realities involve painful problems that seem to require painful solutions
  • Address the two underlying causes:
    • Control
      • Control is valued very highly in organizations, people dislike losing control/authority
    • Vulnerability
      • The client might be scared of being hurt – personal interests – financially, politically
  • Sometimes it is not resistance
    • “Sometimes a cigar is just a cigar” – Freud
weiss on change resistance
Weiss on Change/Resistance
  • Define the current state
  • Define the future state
  • Determine key sponsors and implementers
  • Adjust feedback and rewards to support desired change
  • Review progress against metrics with management
    • Establishing accountabilities in the most critical step
    • Change comes from enlightened self interest
    • Key people must be actively engaged on behalf of your plans
    • The more time you take with critical sponsors the better
overcoming resistance
Overcoming Resistance
  • Once accountabilities are in place (in writing), you can call someone out if they don’t deliver
    • use specific facts – “he missed his system implementation deadline by 30 days”, not “he’s sabotaging the implementation”
    • If they are not critical to implementation, bypass them
  • Conflicting priorities – get the buyer to clarify priorities in a meeting, bide your time if something is more serious
  • Something goes wrong – see if it is real or perceived, don’t find blame find cause so people will help you find a solution