The way to an exit.

This is the second part of my notes on Essential Mediatech 2008. The first part was about the startups, this one is about everyone else in what I call “the startup economy” VCs, journalists, M+A lawyers, Patent lawyers, accountants, angels, advisors and software suppliers. As you can guess, the startups were out numbered!

I was surprised at how upbeat people were being (at least initially), with comments like “there is still money out there” and “We did a record number of deals last month”. As the day progressed it became clear that the reality is a lot bleaker, those positive comments were retrospective, ask a forward looking question and the fear came back into their eyes. When pushed, Nic Brisbourne of DFJ basically said that they wouldn’t be investing in anything new until things settled down a bit.

The whole crowd had basically one strategy for dealing with 2009 – try and survive it – in the hope (rather than expectation) that 2010 will be better.

There was some specific advice as to how to survive: “have 18 months of cash in the bank, if you don’t – reduce costs until you do”. “Don’t attempt an exit in 2009”. (Although Doug Richard of Libraryhouse said that the leaked presentation Sequoia gave to their portfolio may be a bluff, to get everyone else to cut back while they take advantage of the situation).

There are possible liferafts in this sea of gloom:

1. The rise of the ‘purchasing classes’ in India and China was described as ‘inexorable’.
2. There was a view that in a recession more time would be spent at home, so safe, cheap home entertainment will prosper (online games in particular).
3.  The trend towards mobile consumption of internet services represents an opportunity for some.

Probably the most interesting part for me (although entirely academic at the moment)  was the panel on Exits and how to achieve them.

Doug Richard and the panel had some specific advice:

• Trade sales are the only possible exit at the moment 
• Most trade sales are to companies you already know
• So the strength of your partnership list is a good indicator
• Its all about fitting into the agenda of the purchaser
• A purchaser is looking for earnings amplification (e.g. if they buy you and introduce you to their customer base, then increase your earnings hugely)
• Sales are due to a ‘strategic pressure to buy’ on the purchaser
• Don’t underestimate the extent to which you can shape your business so that it is a better fit for a potential buyer

However statistically activity is already down – 11% in quantity and 22%  in value.

All in all an interesting and well organized day. There are hard times ahead. Indeed the only people who still seemed cheerful by the end of the day were Timo Soininen (Habbo Hotel) and Omar Hamoui (AdMob) both of whom have startups with solid business models in ‘liferaft’ markets.