Melanie Goldey is the COO & CFO at TMRW Life Sciences, Inc. She was previously CFO at Refinery 29, where she was instrumental in the company’s merger with VICE Media Group. Prior to that, she worked for digital health company Everyday Health Group, which she joined when it was an early-stage startup. While there, she helped grow the company’s capabilities through eight acquisitions, a $100 million IPO and ultimately a $465 million acquisition. Jemma Wolfe is the Global Co-Head of Strategy, Consumer and Wealth Management at Goldman Sachs. Previously, Jemma was head of Launch with GS, an investment strategy that aims to increase access to capital and facilitate connections for diverse entrepreneurs and investors. Together they discuss various exit strategies for founders and why the focus should always be on creating value in your business.
Can you outline some of the different exit strategy options?
An exit gives validation, credibility, and a sense that someone else believes in your vision too. The two most typical exits are an IPO and an acquisition. An IPO is essentially taking your company from a private company to a public company, listing it on an exchange and selling stock in your company to the public allowing individuals like you and me or institutional investors, who are often the majority shareholders in that type of transaction, to purchase stock. It could also be a stock that trades on the open market. IPOs and provide companies and founders an opportunity to take their mission or their vision and share it on a public platform before a captive audience.
On the acquisition side, you could have somebody come along and take an interest in your company so much so that they want to purchase it from you. A private equity firm might purchase because the firm has a certain strategy in a particular industry that they believe the company would fit into. A company would pursue that type of marriage if they could benefit from being part of a bigger ship or they can help you accelerate your growth by providing resources you don’t have. On the acquisition side, it's really important to think about culture. Are you putting your company in a culture that syncs with yours? How will the team fare? Will your employees feel good about this and will they have a new home? There’s a lot to consider.
At what point in your business cycle is it time to consider your potential exit?
It’s never too soon to be thinking about where you want to take your company. There are a few ways that you, as a founder, can get liquidity. It depends on the type of business, what industry you’re in, the current market environment and your investors. Also to be considered is whether or not you have taken outside capital because the minute you take in outside capital, it’s not your decision alone anymore. And you need to ensure that you have that alignment with your investors and your board members.
I would say one thing to think about is always keeping an eye on the public market comps. Because at the end of the day, when it comes to valuing private market assets, all investors and potential acquirers are going to be looking at what the closest comp out in the marketplace is. So you might need to look across different types of industries and companies to formulate your own expectations. Your vision may also change over time.
As a founder, you can plan, but I wouldn’t advise having that exit in your head and just working towards the end because you don’t know what could happen. I would advise being open-minded and focusing on creating value in your company by setting up the right processes.
How do you integrate your exit strategy into your business vision, goals and strategy early on?
As you grow your business, you will continue to learn and observe the market. You’re going to learn a lot of things that might shift your decision from your original thinking. I think the one thing both an acquisition or an IPO have in common is that the planning and the preparation work that needs to happen is very similar. All the work you need to do to get yourself ready, you would probably do for your business to make it a good business anyway. That means making sure you know your financials and have a good grasp of your business model. It also means you know how to model out your financial projections and predict and forecast your numbers. Building the right culture is always key. Particularly, if somebody wants to purchase your company and retain your team, you’ll want to set up your legal infrastructure and back-office properly. Those things will help you build a great business and benefit you in either scenario.
The other thing to keep in mind is the importance of goal setting and the clarity of your vision. Set KPIs that either measure your progress against those goals, or show your growth in the company. For example, the ability to talk about those KPIs and your story to either a potential investor or someone looking to partner with you is helpful. I like to say that some of the best companies are bought, not sold. As a founder, you can plan, but I wouldn’t advise having that exit in your head and just working towards the end because you don’t know what could happen. That may not be what’s right for you or your business. I would advise being open-minded and focusing on creating value in your company by setting up the right processes. Something great will come of that.
Bumble, Stitch Fix and The Real Real have all gone public recently. What are some of your outside observations on their approach to growth that got them to that point?
I’d start off by echoing something Melanie said, which is focusing on creating value in your company. Bumble, The Real Real, Stitch Fix and other successful IPOs, were consistently building for their end customer. They knew their customer better than anybody, and they listened to them. Then they expanded and added new offerings in a way that grew and scaled the business. If you focus on building a durable business, adapting to your end customer, and continuing to grow that customer base, you are heading toward a potential IPO exit.
It’s critically important who you surround yourself with. If you decide to take on outside capital, make sure your investors are aligned with your vision. And not only that they view an IPO as the path for your company but they view it as the path for your company with you leading it.
Last year was a record year for IPOs with 442 new public companies and there are thousands of businesses publicly trading but only 20 are women founded. And 17 of those IPOs were in the last seven years. And none were black women. Rent the Runway's Jen Hyman said, “I have never been given permission or privilege to lose a billion dollars every quarter” in reference to Uber’s IPO. The Real Real's Julie Wainwright said, “women aren’t planning for outside success early enough.” Which of those statements ring true for you?
Few companies make it to the IPO stage, so that’s important to keep in mind. Jen Hyman’s quote, “I haven’t been given the permission or the privilege,” is interesting. We all know that there’s a gender gap in terms of women leading companies and certainly women getting a company through to an IPO. It’s particularly interesting given that women control something like 80% of the global economy. We should be running companies. We should also be involved in the design of products and services to reflect our experiences. What’s inspiring to me is that recently, an increasing number of women entrepreneurs are starting their own companies and have found the confidence to pursue their passion, relative to the past. That gives me a lot of hope. But I do think that women have been overlooked and underfunded. And that is something that needs to change.
You may or may not go the route of an acquisition, but founders should leave all options open. It helps to build a network and build relationships.
Stacy Brown was the CEO of TaskRabbit, which IKEA eventually acquired. She noted that it came about very organically. The data showed that people were buying IKEA furniture and then looking to TaskRabbit to help them put it together. That was data IKEA wasn’t aware of. The data was brought up in a potential marketing partnership meeting and it piqued their interest and turned into a sale. How do founders start building those sorts of relationships and positioning themselves for a potential sale or merger?
I love that TaskRabbit story because I think the key message there is just take the meeting. As a founder, you have a million things to think about, juggle and manage every day. You may or may not go the route of an acquisition, but founders should leave all options open. It helps to build a network and build relationships.
Through relationship building and strong data, what started as a marketing partnership discussion ultimately led to an acquisition. I’d say from a Goldman Sachs perspective, we’ve been the acquirer, the investor, and the advisor - we’ve played a lot of different roles. We take meetings all the time just to build relationships and explore what might be possible.
Where should you be looking for acquisition partners?
An acquisition partner or a merger partner could come from different places, and sometimes, places that you may not even expect. You can certainly look at the competitive set. You probably have something they want. You can also look at adjacencies and say, who else might be a valuable product or service? There could be wacky combinations that make a lot of sense. Sometimes when you’re looking at a partnership, either a marketing partnership or some other commercial partnership, that can very easily turn into an acquisition conversation or vice versa. I would look at the competition, look at other people in your industry, and look at adjacent products and services. I would be really open-minded about it.
How do you factor in taking care of your team and avoiding layoffs when you exit?
When you start entering conversations with a potential acquirer, it’s important to talk about the strength of your team early on and keep reiterating it. The more you can drop in team members, the more apparent it is that it’s not just you but a whole team behind your company’s success. That positions people very well. Think through what’s right for each person on an individual level. Some people who join a smaller startup or a fast-growing company won’t actually thrive in a larger organization. It’ll be essential to figure out your communication plan and how you’re going to handle everything on a case-by-case basis.
What is the difference in approach/skillset between founders who reach unicorn status and the ones who don’t?
I look at the leaders who inspire me and people who’ve taken companies public, and they have been unapologetically themselves. That moment Whitney Wolfe Herd had her child and took her company public sent such a signal to many women worldwide who were thinking about starting their companies. If anyone’s heard Katrina Lake speak, she is just so authentically herself. For years, women have been told that we needed to be a certain way or do a certain thing - trust your gut, stay true to you and go back to the whole. Recognize where your shortcomings are and what you don’t know. And then surround yourself with a killer team that can help you take the company where you want to go.
I think it comes down to personality type and the environment in which you thrive. At a large public company, there is structure with more rules and regulations. Every quarter, you have this delicate dance of having to meet your publicly shared quarterly goals for the stock market, but also manage that balance of not losing sight of the long-term vision. There’s no wrong or right about it, but sometimes people can’t think that way. It’s just not the environment in which they thrive. It’s different at a smaller company. You can experiment and do things that are a little bit different without the same level of scrutiny. If you’re the type of person who likes to wear multiple hats, that’s sometimes easier to do in that type of environment. It depends on what gets you motivated.
Women, and I don’t know why, are sometimes more hesitant to position themselves for their own personal wealth creation opportunities.
Given the few IPOs and exits we’ve seen by women founders, are they fairly priced and compensated compared to men?
I do think that public markets tend to be quite efficient. There’s a lot of data showing that the earlier stages can differ at different stages of capital. So there can be bias there. Women, and I don’t know why, are sometimes more hesitant to position themselves for their own personal wealth creation opportunities. I think men like to take the meeting, but I would advise everyone to take that meeting. There are a lot of things you can put in place from the moment you create a company, that will benefit you financially further down the line. I have seen more hesitation with women than with men about taking those meetings and thinking about those things early.