Backup plans: How you can help your portcos prepare for M&A

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The market will always have its ups and downs, but venture capital and investment banking play essential roles in helping their companies safely and steadily navigate the chaos. The past year has brought a noticeable shift in the investment space—from a growth-at-all-cost approach to one focused more on stable profitability.

Founders considering soft landings or ways out amid the economic downturn will likely turn to their investors for insights into strategies that best align with their vision and offer them the best chance at success. Here are some tips for building better relationships with your banking counterparts, and how you can share the value of those relationships with your portfolio companies.


Building strong investment partnerships

VCs and bankers have a mutually beneficial relationship that helps the two sides support all of the companies they work with. Building relationships with business partners in the M&A side of the investment world is that when an opportunity arises to partner up, you're the first VC they think of (and vice versa). Bankers can turn to you to understand early-stage growth trends and how to build strategies for future buyers as more companies become available.

You can also learn a lot about the buyer landscape through your M&A partners, and take that information back to your portcos to advise on exit strategies and the current selling climate. One way this might show up could include sharing insights into the industries or company types that acquisitions are focused at the time.

Some strategic buyers may prioritize an engineering team developing a solid product, financial buyers may focus more on a competitive go-to-market team. Keeping relationships and connections your company has with different firms up-to-date means you’ll also know what those firms specialize in and who you can call. You can also leverage your banking partners' relationships with strategic buyers and look for ways to build relationships with Corp Dev teams to offer more options.

Telling a selling story, not a fundraising story

The story that your portcos need to tell to potential buyers may be different from the story they tell to potential VCs. Investors may focus on the strengths of the team and people behind a company, where buyers will be more interested in product fit, financial results, or how easily the company’s value can integrate into their current processes and teams.

If you are looking for fundraising stories and what it's like from the founder side, check out our Inside the portfolio interview with FOSSA founder and CEO, Kevin Wang.

Stellar companies may be confident in covering product-market fit and marketing their product, but they may fall short on company-buyer fit and marketing themselves. Make sure your founders know how to tell both versions of the same story. You can also lean on your banking partners to better understand the gap(s) in that story that potential buyers would need to hear to further shape the pitch.


Laying the foundation for an exit sooner than later

Considering an exit as an alternative to raising additional funds isn't the only (or right) option for every company, but laying the groundwork for it earlier rather than later can better prepare your portcos for different scenarios.

Many founders are "waiting out this market" in hopes of valuations returning to the somewhat unrealistic numbers of the past two years. Unfortunately, there’s no telling if or when those numbers will return, and some companies may not make it to that promised land. Plus, M&A processes can take six to twelve months to finalize, and a company’s value may continue to drop while they wait.

Supporting your founders at this stage may involve connecting with some bankers in your network to get a sense of other companies in the same industry. You can also figure out whether or not selling would be viable based on buyer availability. This can get the word out to potential buyers about their company and even come full circle to trigger interest from VCs seeing new buzz. Have regular conversations with your portcos about exit plans, and revisit them regularly so everyone knows what options are available.

Being proactive can prepare you for the worst

Because valuations of private companies have been colossal for years, the idea of keeping buyers updated felt unnecessary. Now, the M&A market is on track for one of its strongest years yet, and it's coming right alongside volatility for the early-stage investment world.

Partnerships between VC firms and investment banks should clarify as the investment landscape stabilizes over the next six, twelve, or eighteen months. Until it does, it's everyone’s responsibility to have hard conversations that can prepare your portfolio for whatever comes next.

Get more insight into the current investment market with our latest Relationship Intelligence Benchmark Report. Download now:


Dyllan Thweatt
Content Marketing Manager
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