Exit planning for high-growth tech. How can CFOs prepare for the right exit event?

Last month, we partnered with our friends at Eurazeo, on their latest portfolio CFO dinner in Paris. Altima CEO, John Watkins, was joined by the superb Melissa Nussbaum, CFO and COO of WeTransfer and Michael Bannon, President and CFO of Typeform, to dig into the hot topic of alternative exit routes for high-growth tech companies.

Ringing that bell has always been viewed as the pinnacle of a CFO’s career. Becoming “IPO ready” is an aspiration we hear time and time again at Altima, especially among Series C+ founders and CFOs. But given how challenging the equity landscape has been over the last couple of years, we are starting to see the market, founders and their teams, explore other viable exit options. Michael and Melissa broke down this minefield of a topic into straightforward, practical advice, which really resonated with our audience.

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It was a fantastic evening of lively discussion and great energy from the CFOs in attendance from Eurazeo’s portfolio. Read below for our key takeaways from the session.

To IPO or not to IPO?

Whilst IPOs are still the holy grail for most tech execs, the reality is that a small number of successful technology companies will reach this major milestone. In parallel, the IPO market could take several years to bounce back to pre-pandemic levels, making it an unviable exit path for the majority of founders for some time yet.

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Our speakers challenged the long-term financial benefits of an IPO, especially as the IPO discounts remain so large and reaching liquidity is taking far longer in today’s market. For European-based companies, the path to IPO is longer still, without a $1 billion + valuation, in comparison to the US market.

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Should a C-suite choose to start its journey to IPO, Michael and Melissa were emphatic in their advice that it takes years not months to prepare properly, and CFOs need to be well-versed in the unintended consequences of publicly listing.

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Whilst galvanising your team behind this big, boast-worthy goal, could prove productive,  sometimes it can become a big distraction. Eventually, you might risk demotivating the broader team, who are in the business to deliver on a mission, rather than a sale.

The balancing act of growth vs profitability.

Companies who have their eye on future potential exits are facing a Catch-22 scenario, where the immediate priority is conserving cash (and potentially achieving profitability), whilst also growing sustainably. We discussed the possibility that when the markets hopefully turn in our favour once more, investors could begin to favour impressive growth trajectories again. As a CFO it’s a hard job to toe this line effectively.

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The role of the CFO had become far more futuristic, in this sense. They are expected to improve the bottom line, but not at the expense of all growth. In previous periods a CFO might plan up to a year ahead but the current climate means that finance leaders are contending with many different conflicting scenarios, which they need to be prepared for. Our speakers suggested that it’s incumbent on CFOs now to have a well-rounded opinion on where the business is headed, and how they can get there.

Down markets are the prime time to build investor relationships.

Recapitalisation can be an attractive alternative to an IPO or a strategic sale. And as anyone who has raised capital knows, it takes more than a few Zoom meetings to secure your next round of funding. Investors might be sitting on their dry powder for the moment, but that doesn’t mean that CFOs can’t start building those relationships now.

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Founders and CFOs should take the time to craft compelling equity stories. But more importantly, find the holes in those stories and possibly even their business models. Having friendly, regular conversations with the types of investors you’d like on your cap table in the future is only going to help business leaders hone their pitch, putting them in a stronger position when capital becomes more readily available.

Go out and meet investors right now at a time where maybe they're not looking to put money to work because they're a little bit risk averse, or maybe you're not willing to raise, but so that when that time comes, you're ready to go. Think about what the investor wants to say to their investment committee. They are either going to say, “Hey, we just met this company a week ago, they seem great.” Or  do you want them to be able to say, “Hey, we've known this company for the last year or two, we've gotten to know them. They've told us what they're doing and they're delivering on it.” Michael Bannon - President and CFO of Typeform.

A CFO wears many hats in any exit scenario.

Throughout our panel, it became clear that the CFO plays two important roles during any type of exit planning. The first is to educate the stakeholders around them so that everyone has a clear understanding of any potential new obligations, restrictions and deliverables attached to a specific exit route. With IPOs and potential strategic sales, stakeholders can get excited, which is why it’s even more important for the CFO to get into the details to avoid any surprises during the process.

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On an operational level, a CFO has to consider the impact that progressing a deal might have on the day-to-day running of the business. Building a team around the CFO with the right blend of skills and ability, who can do both simultaneously is key to keeping both on track.

When working on an IPO or a strategic sale previously, I’ve separated who's running the company and who's running the deal. And then when it gets to the top team who have to do both, we’ve implemented daily stand-ups with the Chief of Staff to the CEO who is running the operations and the person leading Investor Relations, who's running the deal. In those standups, we decide who's doing what over the next few days. But the whole company needs to keep the train moving because there's no destination if that goes down. Melissa Nussbaum - CFO and COO of WeTransfer

Just how strategic can one be about exit planning?

Whilst both our speakers stressed the importance of discipline and forward thinking around exit planning, it’s important to note that sometimes, the best exits can happen organically, be that through interesting partnerships or meeting like-minded entrepreneurs and investors who know your space well. CFOs and founders can start to shape this into a longer-term strategy, by picking companies of interest over a quarter and cultivating relationships with those organisations. Forced exit opportunities, that come from outside of the organisation rarely work well.

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When it comes to exiting a founder-led organisation, there is a complicated emotional layer to consider too. Understanding what a specific type of exit means for a founder and their team, in terms of control, narrative and overall impact, is crucial. And often why, organic opportunities with the right synergies can be the best options available. Given the complexity of the market today and the multitude of paths to exit available to founders, it’s never been more important to ensure you have the right CFO at the helm, driving the business forward to achieve the right outcome.

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A big thanks once again to our fantastic speakers for joining us and to our friends at Eurazeo (Marietta Combot and Déborah Loye) for helping bring this event together!

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For more information about what we do at Altima, head to our website www.wearealtima.com.