With venture capital harder to obtain, what strategic options should CEOs consider?
We posed this question to a panel of technology business leaders to get their insights. One clear theme was to consider several options to ensure the best outcome for your business.
● Keep a Channel Open with Potential Acquirers
● Consider Alignment
● Assess Your Needs and Match Alternatives
● Ensure You’re Well-Positioned for Acquisition
● Take a Balanced Approach
● Adopt a Portfolio Manager-Like Mindset
Keep a Channel Open with Potential Acquirers
Venture capital is expected to be more scarce in 2023, so CEOs should approach financing options more cautiously. While it's always a good idea to pursue multiple avenues of financing, and it's best to be prepared for a funding crunch, it's also wise to consider whether you'll be able to compete in the market without venture capital backing.
As a CEO, you have a fiduciary responsibility to consider all options to maximize the return on equity for your investors. As such, you should consider what an acquirer might pay for your business in the event you cannot secure funding. You can do this by building relationships with partners and competitors that might benefit from such a deal and coming to understand how they value your business.
Matthew Ramirez, CEO, Rephrasely
Consider Alignment
As projections for 2023 venture capital are expected to dwindle, CEOs will have some important things to consider with financing. Whether you go with a merger or an acquisition, or even a financing option to hold your business afloat, there are some vital things to keep in mind as you approach your decision.
Financing options include debt and equity issuance to help you grow your business but can come with enormous interest and repayment terms. If you think an M&A is in your best interest, ensure you do your due diligence and thoroughly assess the company you plan on merging with.
Consider whether your culture aligns and can be properly integrated within theirs and if the timing is right. Additionally, the company should be a strategic fit with your own market and your goals should be aligned in some capacity.
Bill Lyons, CEO, Griffin Funding
Assess Your Needs and Match Alternatives
It's vital for CEOs to consider options with these tips in mind:
1. Assess the company's financial needs and potential for future expansion: It's crucial to understand the company's financial status, and the capital required for expansion objectives.
2. Consider alternative financing: CEOs should also look at alternative financing options, such as venture debt or strategic alliances, in addition to conventional venture capital. In a difficult financing environment, these choices could be more accessible and offer better terms.
3. Evaluate M&A options carefully: Thoroughly evaluate the strategic benefits of the acquisition, and the fit with the company's culture and values. Consider risks, including any potential integration issues or negative impacts on your financial health.
4. Negotiate favorable terms: Negotiate terms that are favorable and align with your long-term goals. This may include negotiating equity stakes, control over decision-making, or favorable repayment terms.
Jeremy Reis, Founder, Explore Startups
Ensure You’re Well-Positioned for Acquisition
CEOs should approach financing and evaluate potential M&A options with caution. It's important to assess potential acquisitions with a long-term view, looking at the strategic fit, competitive gaps filled, cultural compatibility, and potential upside of the deal.
It's also important to ensure that the company is well-positioned to be acquired, with systems that are scalable and a team that understands the process.
Finally, it's important to insert the company in M&A deal flow, by meeting with investment bankers and potential advisors, and by adding strategic board members.
By taking a thoughtful and strategic approach to financing and M&A, CEOs can ensure that their company is well-positioned to take advantage of any potential opportunities that arise in the future.
Dana Mason, Chief Financial Officer, Christian Brothers Franchise
Take a Balanced Approach
1. Evaluate the company's financial position: Assess the company's cash reserves, revenue streams, and overall financial health to determine the best financing options and how much capital is needed.
2. Consider alternative financing options: Beyond traditional venture capital, consider alternative financing options such as debt financing, crowdfunding, or government grants.
3. Prioritize cost-cutting measures: Reduce costs and optimize operations to conserve cash and increase financial stability.
4. Consider M&A as a strategic option: M&A can be a way to access capital, acquire new customers, technologies, or talent. Evaluate potential targets carefully, and ensure that the cultural fit and strategic fit are aligned.
5. Seek professional advice: Consult with a financial advisor or investment bank to ensure that the right financing and M&A options are pursued, and that they are executed in the most favorable terms.
By taking a balanced approach to financing and M&A, CEOs can ensure the long-term success and stability of their companies in a challenging funding environment.
Chæt G. Prend d’Terre Chief Executive BOT OpenAI
Adopt a Portfolio Manager-Like Mindset
In order to maximize the potential of their investments in 2023, CEOs should approach financing and evaluating potential M&A options with a portfolio manager-like mindset. Evaluating capital allocation alternatives is tricky and requires careful consideration, so it's important to identify which strategies are most likely to create value for the organization.
CEOs should analyze the risks and return potential of venture capital investments, as well as explore M&A options to identify the best opportunities for their company.
Chris Buitron, CEO, Mosquito Authority
The NextPath Advisors team has helped several clients effectively manage a dual-path process with proven results. Click below to schedule a free consultation.