How the sausage is made. Part 4: Selling

Hello friends, and welcome to The Unsophisticated Investor! Brought to you by Scott & Rob, the founders of PitchedIt!

If you want to be one of the first to get access to some of the most exclusive private market investment opportunities in Europe, join our limited waitlist now.

Now, let’s get into it 👇

This week we’ll be diving into venture investing again for the season finale of “How the Sausage is Made”. This week we’ll be covering the fourth pillar of venture capital: Selling. You can find part 1 here, part 2 here and part 3 here.

So… You’ve sourced some promising companies, run through a rigorous due diligence process in order to select only the very best and now you’re helping to shape the companies you’re invested in. That’s fantastic, but there’s one more critical step in the investment lifecycle: Selling. Now, when I say “selling”, I imagine you might interpret that as selling the company outright to an incumbent. While you’d be right in thinking that, selling is about far more than the eventual exit you hope to achieve. It's actually a multifaceted journey that involves various strategies, from mergers and acquisitions to exploring potential synergies with other companies in your portfolio, raising future rounds of funding and even attracting top talent. Below we’ll explore each of these.

Finding potential exit opportunities

Beyond an IPO (which is actually very, very rare), the primary way venture investors realise returns is through mergers and acquisitions (M&A). In this scenario, a portfolio company is sold to a larger company that can leverage its assets, technology, or market position. The process of finding a suitable M&A candidate generally involves several steps:

• Identifying potential buyers: This usually includes competitors looking to quickly increase their customer base or companies seeking innovative technology that can help them quickly expand into adjacent markets. There’s a plethora of other reasons too that we don’t have time to go into here. As an investor, having a deep knowledge of the competitive landscape and maintaining a network of potential suitors is crucial for spotting M&A opportunities.

• Positioning the company: We touched on this is episode three: Shaping. To make your portfolio company attractive, support it however you can to ensure it’s in the best possible shape. This might involve board advisory, hiring top talent, solidifying market position or ensuring financial health through additional funding. Your ability to clearly articulate a company’s unique value proposition and potential synergies with prospective buyers is crucial.

• Negotiating terms: Once a potential buyer is interested, negotiations begin. This involves agreeing on the valuation, terms of the sale, a long and painful due diligence process and future roles of the founders and key employees. Venture investors will usually have experience here that can be very helpful, whereas founders, unless serial entrepreneurs with previous exits, will be deer in headlights. Having world-class (and incredibly expensive) legal and financial advisors during this stage could be the difference between a terrible deal and a phenomenal deal.

Selling before the exit

As we mentioned earlier, selling isn't just about an exit. It’s also about leveraging relationships to drive growth and (hopefully) profitability, with the hope it eventually leads to a more lucrative exit. Sometimes the partnering of companies within the portfolio can create lasting mutual benefits.

For example, imagine a fintech startup offering a payment platform partners with a cybersecurity startup specialising in fraud prevention. By integrating the cybersecurity startups product into the payment platform, the fintech company gains increased trust and market differentiation due to its new and enhanced security features. Meanwhile, the cybersecurity startup expands its market reach by accessing the fintech startups customer base. This partnership opens up new revenue streams for both companies.

Beyond exits and partnerships, selling in venture capital also involves selling the vision and potential of a company to other investors or prospective employees. This is critical for raising additional rounds of funding or attracting top-tier talent. Investors should be able to articulate a clear and compelling vision of the company’s future. Selling is as much about relationships as it is about numbers. Investors should always try to continuously build and maintain relationships with prospective employees, partners, other investors and potential buyers.

Well, there you have it. Selling is the culmination of years of hard work, mostly from the founders but also their investors. The smart money anyway, at least. We hope you enjoyed our take on how the venture capital sausage is made folks. Stay tuned for more insights and strategies in venture investing and more. Happy investing!

What we’ve been working on at PitchedIt

• Finalised documentation of our go-to-market strategy 🚀

• Pitched to a great group of angel investors 🎤

• Started testing potential payment flow issues ⚠️

• Working on improvements to KYB compliance flows 🛡️

The Unsophisticated Investor is brought to you by Scott & Rob, the founders of PitchedIt. We’re both sick of private markets being a playground exclusive to the ultra-wealthy so we started a company to challenge the status-quo. PitchedIt’s singular focus is to unlock private markets for Millennial and Gen Z retail investors and help them build wealth through the highest performing private market opportunities.

Scott & Rob
PitchedIt Co-Founders