👋🏾 Hi friends!

I’m back in London and the sun has been shining which makes coming home from a month in Tuscany a tad easier.

It’s good to be home though and I’m excited for what’s to come in Q4, not least introducing you to some amazing pod guests that we’ve got lined up 👀

3 questions I’m answering in this weeks Off Balance:

💭 What bad faith actors can harm the ecosystem?
🙏 How can M&A help founders when times are tough?
🔍 What are some of the most common economic terms in a term sheet?

I’ve also got some important news about the future of Off Balance and Nothing Ventured 👀

Join my free webinar today with SeedLegals:
I’m looking forward to talking to Anthony Rose, CEO of SeedLegals at 2pm BST today about everything CFO related! If you’d like to understand more about the who, what, when and why of getting a CFO involved in your business, sign up here 💪🏾

Also if you have any feedback or if there’s something you’re desperate to see me include, just reply to this mail or ping me online - I’m very open to conversations.

Give me a follow on LinkedIn or Twitter (do I really have to start calling it ‘X’ soon?) and drop me a note :)

If you are trying to connect with me on LinkedIn, maybe read this post I wrote. Make sure to start your request with “Off Balance” and, more importantly, tell me why you’d like to connect 💪🏾

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing!

Now let’s get into it.

Do your research

I remain quite speechless when I see people cropping up on social media with hot takes that really do little more than highlight their own lack of understanding.

There was a recent example of this which I called out in this post on LinkedIn which, to my surprise, got a fair amount of attention.

Essentially someone appeared on Michael Jackson - a pretty well known VC’s - timeline and told him he couldn’t do maths because he had supposedly miscalculated fees based on a standard 2 and 20 structure.

As I have talked about in a previous post, this refers to the fact that VCs take 2% as a management fee and 20% as carried interest (a success fee) once the fund is returned.

I won’t rehash the maths, but the key point was that the 2% is (and this can also vary) taken every year across the life of the fund (or the investment period or higher upfront and then tapering down etc.) which means that a $100m fund generates 2% x 10 x $100m = $20m assuming a 10 year life.

Cue a lot of people (including founders) telling Michael he had screwed up the maths and were essentially doing the equivalent of Nelson from The Simpsons.

Given the amount of information that is out there, it is disappointing to see people coming out with uninformed positions. It doesn’t do the ecosystem any good to have these sorts of bad faith actors in it.

Why, you might ask, am I defending a VC - surely they have a tonne of power already?

Well the truth is I am not defending the VC, I am asking all of us to do better.

The sort of people that came on his timeline and gloated over a supposed error which in reality only showcased their own ignorance, are also more likely the ones to be out there complaining that they were not able to raise any money either.

This is a tough market to be operating in, you have to know everything that may be conceivably of value for you to know. And that includes how different funders operate and are incentivised.

It will only help you get to where you’re trying to go quicker.

And, if in doubt, this newsletter is probably the quickest route to bringing yourself up to speed 😉

How can did I add value?

We’re getting to the pointy end of the market right now.

I’ve got a lot of folk in various channels looking at how they can stay default alive.

But sadly for a few this is just not feasible.

And on occasion, as hard a bullet as it might be to bite, it may be time to look for an acquirer.

I’ve had a couple of digital conversations with people recently trying to help them navigate how to think about Mergers and Acquisitions (M&A) when you’re not doing the M&Aing.

Now you might ask me what qualifies me to do this, and I’m definitely no specialist.

But over the course of my time in PNG and here in the UK, I’ve been involved in sourcing, analysing, negotiating and executing deals of various sizes, complexities and outcomes.

And not always from a position of strength.

So, if you have found yourself approaching the end of your runway with no real prospect of raising capital and want the best chance of securing a decent outcome for the business, here are some of the things I would think about.

• Get to EBITDA +ve as quickly as you can. If you want (decent) value paid for your business then it needs to be, or close to, generating surpluses. Not only that, but it gives you breathing room.

• Your shareholders may prefer no sale. If you have S/EIS investors, they may prefer for the company to wind up so they can get their tax reliefs.

• Build out an adjusted income statement. You need to present the business in a way that is attractive to a potential buyer. Re-present your financials for the last 12 months stripping out any one offs or extraordinary items (e.g. redundancy costs) and show them as separate line items after your net profit.

• Get a data room ready. Much like a financing round, you will want to have all your documents in order. A buyer isn’t going to want to have to deal with messy cap tables and missing documents. Make sure everything is in place.

• Have more than one option. It is always better to have more than one offer on the table. Not only does that give you a range, it allows you to hopefully leverage one offer against the other. But you have to be careful not to annoy either potential acquirer such that they walk away altogether.

• Point to your processes. If your startup relies on you to get things done, then it’s less valuable than if you have a bunch of processes mapped out and, preferably, automated.

• Acquire or Acquihire. A straight acquisition likely means the business is being bought, an acquihire means someone things your team if the most valuable asset of the business and are buying on that basis. When you’re assessing potential acquirers, make sure you understand what they’re likely to be trying to buy.

• Avoid a firesale. This is obvious but a difficult line to tread when you know that the business is out of runway (hence the drive to get to EBITDA +ve a.s.a.p.). But if a potential acquirer smells blood in the water, they will exploit it to extract the best possible outcome for themselves (aka a minimal price). The closer you get to cash out, the more likely you are going to have to sell your business for parts.

Whenever I have these conversations with a founder, my first piece of advice is for them to hire a professional, potentially a broker and certainly a lawyer.

It’s a complex process, with lots of steps and tonnes of moving parts - there’s a whole post about how to even go about identifying potential buyers.

As times remain tough, we are going to see a spate of M&A happening in the ecosystem.

If you’re a founder finding yourself in this situation, I’m rooting for you and if you ever want to bounce anything off of me, just reach out. 💪🏾