In late 2013 I sold my Australian start-up Connect2Field to Fleetmatics Group – a global leader in fleet management software listed on the New York Stock Exchange. After an initial approach on LinkedIn, followed by extensive due diligence and meetings, the sale went through seven months later.
To transform a start-up into a solid business for the long term you have to decide whether continuous capital raising is what you want to focus your energy on, or whether preparing the business for sale is a better option.
1. Have an exit strategy
When Fleetmatics first contacted me I wasn’t looking to sell – I was busy building my company. But, as I had an exit strategy in the back of my mind, I had made sure we were organised with established business processes. We had signed contracts for all staff, suppliers and partners and the company was very clean with no debts and few liabilities. All our tax affairs were up to date.
One of the best things I ever did was simply focus my energy on making the business attractive to customers. If you build a solid customer base and have a good product the right buyer will find you and see the potential.
2. Evaluate an offer price
Once we knew Fleetmatics was interested in purchasing Connect2Field, I called a meeting of shareholders and the board where we discussed if we were interested in selling and what the price would need to be for us to accept an offer.
Fleetmatics made an offer that fell within our range so it was a pretty simple decision from there. It meant no more regular capital raising – we could secure all the needed funds for growth.
3. Ensure a cultural fit
I always thought that Connect2Field would appeal to a US company or a large company with a huge customer base that could really get value out of our offering. The more I learnt about Fleetmatics the more I was convinced we had a cultural fit and that our business goals and objectives aligned.
4. Make the due diligence easier
Because we were organised it meant the due diligence process was swift – we completed it in just two months. Due diligence can take a huge amount of time and can put a huge burden on the business owner, so the more organised you are in the beginning, the easier it will be. A potential buyer will give you a price, but if things are not in order during the due diligence process they will try to negotiate down.
I also secured good legal advice. Although you may be negotiating a sale now, unless you intend to leave the business, that buyer is going to become your future employer. Let the lawyers do the hard negotiations so that you don’t jeopardise any personal relationships that will be important in the future.
5. Tell your staff the business has been sold
As soon as we signed the paperwork on the deal we informed the Connect2Field staff. Our team was very excited as the staff appreciated that this was the best way for us to expand and scale the product and meet our goals. Being honest with the staff and answering all their questions was important to alleviate any fears about the future of the company and the security of their job.
6. Let go of control
Letting go of control is often the hardest challenge of all for entrepreneurs, but it is essential if you are to take a small Australian company and grow it into a worldwide success.
I stayed on following the sale to manage both the Australian market for both Fleetmatics and the Connect2Field brands for a few months. It’s incredibly satisfying to know that businesses all over the world are using your technology to run their operations, and the acquisition certainly put Connect2Field on the world stage.
I left Fleetmatics in very capable hands earlier this year to pursue my next start-up venture, a new on-demand courier service, Zoom2u. We launched in Sydney in September; Melbourne and Brisbane quickly followed and we’ve just hit our first key milestone of more than 1000 deliveries in four weeks.
If you’ve set up a business it’s important to have an exit plan, but few people know what to expect when they’re ready to sell. Hopefully my advice will help you if you’re thinking 2015 is the year to move on and tread another path.
Steve Orenstein founded his first business at age 19 and sold his last company, Connect2Field to NYSE-listed Fleetmatics in 2013