New data from Carta reveals that Q2 of 2023 witnessed the highest number
of startup closures ever recorded. In tandem with this, Crunchbase data
reveals that M&A deals involving US-backed startups have experienced
their weakest period since 2013. With so few M&A and funding
opportunities on the table, Claire Trachet, M&A expert and CEO of
business advisory, Trachet [2], explains the importance of founders
proactively preparing for an exit before their business hits the red
zone, in order to have the best chance of a positive outcome amidst the
current climate.
As startups attempt to navigate a turbulent market, with continued
interest rate rises and several other macroeconomic challenges, exits
become a more attractive proposition, yet founders often find it
difficult to relinquish control or fully let go of their business.
According to data from Evelyn Partners, while 23% of business owners
have decided to sell due to the current market conditions, 36% have
opted to delay their exit strategies with the expectation they will
secure a more favourable offer for their business. Although Trachet
acknowledges the attachment founders have to their businesses, she
stresses the importance of runway awareness and acting quickly to ensure
they do not miss their opportunity to cash in on a deal.
As a result of these market conditions, the longer a founder waits to
source and complete an exit, the more difficult it becomes. According to
CBS insights, 38% of all unsuccessful startups failed due to running out
of cash or not being able to raise capital. Due to this, Trachet notes
it is essential for startups to plan for an exit in M&A to strategically
position themselves to maximise their value, mitigate risks and adapt to
the current market dynamics.
Claire Trachet, CEO/founder of Trachet, discusses the need for founders
to prepare for an exit before their business hits the red zone:
_ _
_“With funding and M&A opportunities scarce, it is not surprising to
see a surge in the closure of Series B startups. Amidst this current
climate, it’s crucial for founders to view an exit as an option, and
long before their business hits the red zone. By anticipating this well
in advance, founders can safeguard their business’s future and negotiate
from a position of strength during potential exit discussions._
_”It is understandable that founders are emotionally attached to their
businesses, however the next 6-12 months will be a key period for
founders to examine whether an M&A deal is the best outcome to carry
forward their organisational growth. There needs to be a look at what
the priorities of the company are, and then a conversation between the
board and investors about this. _
_“If you can see the end of the runway, then you shouldn’t be shy to
let go. An M&A should not be seen as the end, but rather the beginning
of a new chapter with someone bigger, more resources, and someone who
will better support and serve the business.”_
