The exit analysis in the Due Diligence process

Compared to other Investors I paid a lot of consideration in the exit analysis in the due diligence process of a new potential investment.

Several investors are happy with the standard Exit chart in the Investment Pitch, where are outlined the 4/5 potential strategic buyers. In the chart is usually added a paragraph stating something as: “Also an IPO will be considered”.

Now we all know how difficult is to exit. In the US, there is 1 exit for every 9 companies subject to Venture Investments. In Europe, there is 1 exit for every 13 companies that receive investments.

The best VCs have around 2 exits for every 10 investments.

Those data underline again the relevance to find “exitable companies”.

Another misconception is that Google, Amazon, FB, Microsoft… are serial buyers, investing in dozens of tech companies every year.

In reality in the last 7 years on average FB, Apple and Microsoft bought just 8 companies each per year.

So, who are the exitable companies? Impossible to say, but we can have some indications from the past:

• They are software and e-commerce companies. 80% of exits are in this space;

• They are not in the hardware sector. Just 3% of the exits are in this sector. As a Syndicate, we never invest in Capital Expensive business.

• They should have at least 50-100 companies (both local players and global companies) as potential Buyers;

• They should attract high exit multiples.