By Randal Charlton
August 20, 2009
I was very early for the closing of a deal to finance the new company that I was starting with the backing from two wealthy investors. It was my first start-up and the investors had asked me to meet them in the offices of their accountant which turned out to be a pokey Dickensian office in London’s financial district. The accountant and I passed the time of day while we waited for the men with the money to arrive and write the checks to fund my new business.
“So have you given any thought to your exit?” the accountant asked innocently. “Exit?” I repeated to be sure I had heard right. “That’s the last thing I am thinking of.”
I remember the accountant smiling at my naiveté, shaking his head and advising me that excited though I was at the prospects of my new venture, I should start thinking right away about how and when to get out. “My clients are not putting their money in forever. They hope to exit at some point, hopefully at a profit.”
Many years and several start-ups later I learned the wisdom of that accountant’s advice. It helped me attract investors for my most recent start-up and when the opportunity came it helped to make it possible to take the company public. In my experience you never know when an exit opportunity is going to arise so it makes sense to be prepared from day one to negotiate and close a deal at short notice. That means keeping good records that you begin to assemble right at the start and add to over time so that any investor or buyer can do their due diligence rapidly and efficiently. The faster they can inspect the books, the more likely they are to retain confidence in the detail and close the deal.
A good attorney that specializes in business law and business transactions will provide you with the list of records you should assemble, but many of these records are common sense. They include corporate documents, shareholding records, accounts and tax filings as well as commercial information such as patents, lists of customers, samples of contracts and corporate obligations such as bank loans and leases. It is one thing to know that you have all this information somewhere - it is quite another matter to have it all available in ring binders in date order or available on a disc for inspection electronically.
Before the investors in my first start-up arrived their old accountant did his best to educate me. Many investors have short attention spans, he warned. When they decide to buy your company or invest some more money make sure you are ready to take it. Everybody has to have an exit at some point, he admonished me. Even you …
Randal Charlton is executive director of TechTown in Detroit. He can be reached at [email protected].
