Happy Sunday.

Today you're gonna read about your biggest liquidity event: the total exit of your company.

Sure, you can sell your business to a friend. You guys negociate the terms and the price.

But the most money and prestige you get is when you sell to an institutional investor.

Why is that?

First, this is a testimony to you as a founder. You've built something so valuable that even institutions are interested in acquiring it.

Second, the corporate finance behind a PE buyout is a lot more complex. They will use an LBO (leveraged buyout). If your business is eligible for an LBO, that means you did a really good job. Congratulations.

The PE buyout is similar to a Series A funding round for startups. Both require due diligence, but for startups things are quicker. The difference between a business and a startup is that a business has to be profitable to exist, while a startup can afford to not be profitable for months, even years. Businesses serve an existing market while startups carve out an entirely new market.

That's why startups raise funds - to finance the experiments.

Businesses can raise funds too. I actually prefer businesses. Their valuation is backed up by cold hard numbers and not trends.

1. Sell-Side Preparation. Draft a CIM (Confidential Investor Memorandum), do a 5-year forecast, normalise EBITDA, Data Room package, legal cleanup (IP, employees, contracts)
2. Full Auction Process. You contact 20-30 buyers through an investment bank or M&A. You send a teaser, sign NDAs, send CIM, have some calls, receive IOIs (indications or interest), shortlist 3-5 buyers
3. Buyer Selection. Buyers submits: final offer, synergy analysis, integration plan, employment terms. You choose based on valuation, certainty to close, cultural fit, speed.
4. Due Diligence. Buyer does a full forensic audit (legal, financial, tax, IP, HR even things like cybersecurity and environment). Buyer then drafts SPA (Shares Purchase Agreement), transition plan, closing conditions.
5. Executive Due Diligence. Final SPA with assignment of shares, resignations from founders, new board resolutions and, of course, the wire transfer and registry updates.

This is a long, excruciating process.

This is why, for startups, we have to 2-3 funding rounds in advance.

The biggest risks are a messy cap table and misplacement of IP (the value generator).

But these topics we'll discuss in another newsletter.

I am currently advising a fintech and the biggest challenge wasn't raising funds but deciding where the IP will be next year.

So How Much Is Your Biz?

Take The Quiz: