Rule 6: Nurture partners from the beginning
You must prepare for all outcomes and have a plan for every contingency.
Never get overly attached to your startup.
The best way to do this is by adopting the perspective that your startup is always for sale. Although difficult, this enables you to release your white-knuckle grip on your business and effectively prepare for any eventual outcome.
For me, I always saw Loopd as a quick journey from idea, to product, to ultimate exit.
At 21 years old, I was inspired by the idea of people creating friendships and sharing contact information naturally. I pursued this idea with all of the ignorance and excitement of a startup rookie, but never dreamed of making millions. Optimistic friends and family liked to prophesy the lucrative future of my hypothetical IPO, but I preferred to camp out in the reality of the 99% of startups that never make it there.
I was focused on the immediate present and the challenges at hand.
Looking back, I wish I had spent time anticipating the potential outcome. I wish the future could have sent a missile back in time, foretelling the total acquisition of our company (technology, sales database, branding and marketing, employees, and research and development roadmap). Knowledge of the future would have drastically altered my actions back then.
With that kind of foresight, I would have strategically enlisted senior product executives at leading technology and consulting companies from the beginning. These product executives are tasked with finding new technology to complement or supplement their existing efforts. By opening the lines of communication, you can stumble into potential partnerships almost by chance.
By failing to do this, we felt the painful sting of lost opportunity in April 2016. As Loopd was preparing for a major Series A round with venture capital firms, Silicon Valley was in the midst of the “startup winter” for investment.
Fundraising went from difficult to almost impossible.
Slow returns on existing investments and growing demands for more funding from highly celebrated startups like Uber and Airbnb caused venture capitalists and other institutional investors to become more risk averse and less open to funding younger, smaller startups. Along with minimal investment, investors also started demanding more active control, including leadership on boards and involvement in daily management and operations.
Needless to say, the climate was less than ideal for startups like Loopd to be entering the game. Like other startup CEOs, I went scrambling for alternative investors and strategic corporate partners. The work of funding took on the additional effort of gaining introductions and setting up meetings.
Although I had developed some relationships, I was hesitant to approach them for investment, especially with so much negative press about overinflated valuations. Even though I was bailing water to keep my startup boat from sinking, I did not want to appear desperate for an exit. Strategic partnerships are not charity cases; they work best when each party is useful to the other and valued because of size, customer base, technology, or prior joint ventures.
Our second-generation Loopd badge was slated to be released that fall, and I had big plans. Instead of a niche product, I started to rewrite our story in a more general way for major international players like Walmart and LinkedIn. In my dream scenario, these giants would immediately find value in our technology and help launch us into a broader arena.
My misguided dreams did not come true.
While companies like Walmart, LinkedIn, Qualcomm, Samsung, and half a dozen other companies did agree to meet with us, the results were less than inspiring. We discussed our smart badge and cloud-based marketing analytics, but these conversations happened with lower-level business development managers. These people were gatekeepers to the real decision makers, who we never saw.
My attempt to broaden and generalize the appeal of Loopd beyond event marketing did major damage. Prospective investors for our upcoming Series A frowned upon this identity-crisis and got skittish in the uncertainty.
We immediately halted our attempts to partner with technology companies and worked to regain our credibility as an event marketing tool. Prospective investors did their best to help us make productive connections in the event space, and we crossed our fingers in hopes that the Series A investment was still a possibility.
In the startup world, nothing is certain or by the book. If I had nurtured relationships with senior product executives at technology companies when Loopd was only a concept, I could have acted on a merger, acquisition, or strategic investment at any time. Instead, I hesitated and made the rookie mistake of being too married to my idea to release control in the early stages. I failed to engage personally with product executives who knew more than me and could have seen the larger, long-term value of Loopd for their companies from the beginning.
The Strategic Investor Exit
● In order to maximize your time and efforts, define your exit strategy before you establish your company structure.
● Create a target list of companies you want to be acquired by and prioritize that list by location, size, and mission statement for best alignment.
● Establish strategic relationships with decision makers at target companies.
● Demonstrate your value through proof-of-concept demos. Be sure to include how your technology fills a product gap and build internal advocates who can help you position yourself and your product.
I hope you enjoyed this preview to my new book Takeaways: Secret Truths from Leading a Startup. Don’t forget to subscribe to OWN IT to access the first ten rules.
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