Signs which suggest you should be considering an exit

What you’ll learn from reading this article:  

1. Why external investment might not make sense for your business  
2. Stages you should tick off before you start to consider an exit  
3. Why persistence outweighs clever ideas 

We first started working with Flexperto — a leading platform for digital sales and customer communication — back in the heady days of 2014. To call Flexperto a success is to dabble in understatement: they made an exit in April 2022, but founder Felix Anthonj is still heading up the company as CEO.

Given Felix’s wealth of experience, we thought he was particularly well placed to speak on issues of investment, hiring and considering an exit. For a second expert voice, we asked Florian Steger, a venture capital investor and managing director at hubraum to join the conversation. So how do you secure funding? And what do you do when you have it?  

Florian: Speaking more theoretically than Felix will, what I think founders need to be aware of is that the investor has a business, he’s not doing this to be charitable or to help your startup, so make sure you’re familiar with each investor’s business model and check that your vision of where you want your company to be is aligned with what the investor expects.  

Felix: I would argue the first thing you have to decide is if you actually want to have an external investor or not, and even then, you need to think about your business model — if you run a real estate company then maybe that could pose a very interesting business case, but maybe it’s not the right thing for a venture capital firm, even if Adam Neumann’s example suggests otherwise.   

But you also need to look at your financing options. Do you want to do crowd-investing as a consumer goods company? Would you want to work with a traditional venture capital? How about working with a venture capital firm who is very focused on helping you, very hands on when it comes to ramping up the company? There are different investors in the market who specialize in helping you in different ways, some who only help with cash and some who are very hands on and that’s one question that you have to settle first.    

This said, you also need to obviously check out all the possibilities you have. Even though over the last few years it has been a bit easier to raise money, this hasn’t always been the case. When we carried out our first funding round, we had to go with those who believed in us, we didn’t have 100 investors to choose from. As a serial entrepreneur it’s a bit easier but sometimes you need to go with what you get, you know?  

Felix: You typically have the pre-seed stage and seed stage where you try to prove the unit economics. These are the most important figures that your business runs on. These vary depending on the business model but, in essence, you want to see what the revenue per customer is that you can achieve. You should also ascertain the churn rate, how many people cancel their contract. So you should be able to show these kinds of things within the pre-seed and seed stage before you raise significant amounts of money because money is not just for free but costs shares.  

Once you have proof of that, you should raise series A funding and typically hire a broader team. Maybe you’d also hire a management team as you ramp up and at some point it’s about scaling your company and making it big, introducing processes and partnerships that will bring you to the next level as an enterprise. At some point, not too late on, you’ll need to think about exit routes.   

Eventually, you’ll need to either hire an M&A consultant or people will come to you already because they’re interested in your business. By thinking about this early on, you’ll also have a chance to evaluate the options that you and your investors have.

At some point they will want to sell their shares, usually after around five to seven years, so this may be the first time that you will have to deal with the topic. Ask yourself, do you want to sell the company? Do you want to restructure it and change the shareholders? You’ve got a whole range of possibilities, that’s how I would think of it.    

Florian: Exactly. If you are successful with your product, if you’ve found your product market fit and know what you’re doing is interesting to customers, you need to decide what the best way to grow is. Not every startup is in a position to grow independently, sometimes it would be better to look for a strong partner and then maybe out of that partnership you’ll realize that it makes most sense to sell your company to that partner because it has better access to customers or existing infrastructure that you can use.

It’s quite normal, especially for successful startups who offer something of value to customers then they become really interesting for a lot of existing players, who then say hey, can we add this to our product line.  

Felix: One thing that makes you more attractive for a strategic buyer is that you’re profitable. Lots of buyers won’t do an M&A and due diligence process for a company that has a revenue of around 500,000 euros. Usually, the bigger firms look for companies with a revenue of five million — and that’s at the lower end of the scale. So if you look at companies who make below five million euro in revenue, it seemed to a lot of potential buyers that we spoke to when we were smaller, it’s difficult to convince them because it’s too much effort for them to buy this company for such little revenue.    

The other thing to consider is whether or not your shareholders and your management team are ready to move on. You’re a team, you need to think about if that’s what you want or not and that’s a feeling which is there or not. It’s a life decision.   

Florian: I don’t think this is something you should plan as a founder and entrepreneur. I think you should really be fully focused on building the best possible business to attract investors to help you grow the business, because if you have an attractive business, sooner or later someone will approach you and ask you about the future of the company and if there’s a possibility of buying that company. Some will be strategic investors, some will be financial investors.    

But this is something you cannot plan and should not be focused on, but if you have an attractive company, both possibilities will be offered to you. Most founders only found one or two companies and only sell one or two companies, while investors do this all the time and have a good overview of what is a good offer, what is the right point in time to sell and as such, it can be useful to discuss this with investors. Is this now the right point in time and the right offer to take?  

Felix: It’s not an obvious choice because it depends on the product you’re building, if it’s a high tech product then you’re probably focusing more on building the R&D first, I think in general, you need leads first before you can secure customers, so you need to work on your top funnel.

You can do this in different ways, you can invest in event management, which is what we did a lot and create your own event to bring brand awareness and build relationships with key decision makers or you go into an outbound sales scale up game and do mass emails, LinkedIn, social selling.

I think there isn’t just one route, so it’s important that you try different channels and track the KPIs (the customer decision costs and costs per lead and so on). It’s important that you’re clever about it rather than trying to do everything at once. At the beginning, you don’t need people who manage. You need people who sell. Be clever about when you hire your first manager.  

Florian: I agree, absolutely. There are only two jobs that are essential: the founder and the CEO because they’re responsible for hiring and firing, making sure the company has enough cash to grow, and making sure they are hiring the best people the company can possibly get. This is something that you as a founder should always be highly involved in and should make an absolute priority. Anything else can be outsourced or delegated to others as the company grows.   

Felix: My only piece of advice is to stay persistent. You can have a lot of clever ideas but at the end of the day you probably will have to change your business model a few times, go through a lot of pain, speak to a lot of people who tell you your idea won’t work, go through a lot of people who say you’re not a good manager and you need to stay persistent and follow your dreams. In a nutshell, energy will always bring output. Whether or not it’s the initial idea you started working on, it doesn’t matter, it’s more that you’re working on your dream and on creating something as an entrepreneur and if you stay committed and persistent, you’ll succeed.  

Florian: I like that a lot, and it bears repeating. I also have the feeling that as a founder, you need to be a little bit schizophrenic. You can spend some time talking about day-to-day tasks that you need to take care of and then the next day you need to explain the investor of the costing and the big vision of your company where you want to be in five years, most people can’t actually do that. That’s a unique thing you should learn as a founder, to live in both worlds, because those who can only think in a visionary way won’t be able to cover the day-to-day, but on the other hand, you can’t just stick to solving the day problems or you won’t solve the really big problems.   

Want to work with hubraum and Founders Factory? Check out our Venture Studio collaboration — we’re looking for the most passionate, driven entrepreneurs around and are taking applications now.