Getset and Go decided that they did want to sell a stake to Zing. They went back to Gyan and asked him for his advice on how they should proceed.
Gyan, "While you have Zing Group interested in your company, you need to make sure that this interest is not lost by carelessness on your side or due to lack of proper preparation. Many entrepreneurs lose out on deals or on valuation, due to issues, which could be easily addressed. In fact, at a recent workshop in Bangalore, a couple of entrepreneurs mentioned that they should have planned their sale of stake better. While one person lost out on the valuation, the other lost out on deal terms and had to give up significant control of operations.
You both, therefore, must take due care to build a good case for investment into your company. Do try to identify any issues that can come out in due diligence, and take steps to mitigate their impact or address them. I will give you an example; I met the promoters of a company yesterday. They were talking to a VC for funding and also mentioned casually that they had some history of bad debt. Now, it is expected that such issues relating to debt funding will come out in the due diligence. These can not only impact valuation of the company, but also other deal terms and conditions as well as operations of the company going ahead. These promoters had not thought through this issue and its impact on the deal and the deal value.
So, Getset and Go… do put in all efforts to build a good business case. Take external help if you wish, with regards to financial forecasting and understanding the finer points of deal structuring and negotiations. Zing Group will have experts on board to review and value your business and set out the deal terms. You can strengthen your case and extend your management board with some quality inputs from experts. They should be able to help you bridge your knowledge gaps and lack of expertise in these deal related matters. .. this will help you negotiate better with investors and get better deal terms."
Getset and Go decided that they should be prepared to take the test… i.e. prepare for the sale. Gyan then summariesd in a few lines what Getset and Go could do. He asked them to:
- Prepare for the due diligence review
- Value the business: which would be
- Linked to the projected financials (Balance Sheet, Profit and Loss Account, Cash Flow)
- Other intangibles such as customer quality, team quality etc.
- List competition
- Prepare a SWOT (Strength, weaknesses, opportunity, threats)
- Understand the strength of the management team
- Etc.. etc.. and he asked them to think of some more such points which could impact the deal.
- Finally… he suggested that they should try to identify possible deal issues, i.e. deal maker and deal breaker issues.
Dear reader, if you wanted to sell your company, or get an investor to buy a stake in your company, how do you think you should proceed?