Sparkline CEO on exit strategy: Valuation is simply what someone is willing to pay for your startup

In June, Japan-based digital marketing and measurement consulting agency Ayudante announced its acquisition of Sparkline, an independent digital marketing company headquartered in Singapore with an established presence in the Philippines. With this acquisition, Sparkline will become a wholly-owned subsidiary of Ayudante.

Sparkline is known as one of the first certified partners and resellers of Google Marketing Platform (GMP) in Asia, establishing a reputation for its industry-leading expertise in data utilisation consulting.

In this interview with e27, Aleetza Senn, CEO and Founder of Sparkline, speaks about her experience in leading her team through the company’s exit and the lessons that she gains from it. This includes the factors that founders must consider when planning their exit strategy and how to prepare their team for the process.

This is an edited excerpt of the conversation.

How should a tech company analyse current market trends and conditions to determine the optimal timing for an exit strategy in 2024?

Analysing trends to determine exit strategies and approaches is a complex process. It involves considering numerous factors, such as market growth rates—whether they are trending upward or downward—and potential technological advancements that could disrupt your business.

Regulation also plays a critical role in shaping opportunities for tech companies. Additionally, assessing the competitive landscape and investor sentiment is crucial in gauging the right timing for an exit, as well as estimating potential valuations and acquisition interest.

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What are the key factors a tech company should consider when determining its valuation, and how can it prepare for due diligence processes during an acquisition or IPO?

Someone once told me that your valuation is simply what someone is willing to pay, and that could not be more accurate. Companies only achieve high multiples when people believe in the business model and are willing to invest accordingly.

Valuing a business can be complex, with many different approaches and perspectives, which can be confusing for business owners. Different business models attract different types of valuations. For instance, a product company with a strong ARR might command a better multiple than a product still in its MVP stages. Most valuation factors tend to be financial, including revenue and profit growth year over year, as well as market positioning and reputation.

People and culture also play a significant role, particularly the talents and strengths of the leadership team. Lesser-known considerations might include growth potential—perhaps investors see substantial future growth—or unique aspects of your products or services that could be valuable in other markets. The net is wide because different companies prioritise different aspects when evaluating acquisition targets.

Due diligence can be extremely stressful, so I strongly recommend preparing well in advance. I learned this the hard way, losing most of the Christmas period last year to stress over an acquisition that was finally completed a few months ago. Beyond maintaining clean financial records—which can feel like the easy part, especially with the right software—it is crucial to set up data rooms that include all contracts, employee agreements, IP and trademarks, relevant disputes, business processes, and operations.

It is far easier to keep these updated over time than to scramble to put everything together when interest arises. That would be my key piece of advice.

What are the different exit options available for tech companies in 2024, such as mergers, acquisitions, or IPOs, and how can a company choose the best strategy?

Mergers and acquisitions are perhaps the most talked-about strategic moves in the business world. Acquisitions involve a complete buyout, typically of a smaller company, to be integrated into a larger one. Mergers, on the other hand, occur when two companies join forces to create a new entity, leveraging their combined strengths and enhancing competitive positioning.

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These strategies offer several advantages, including opportunities for founders and teams to take on larger roles within a bigger organisation, immediate liquidity for shareholders, and the potential for competitive bidding if multiple parties are interested. However, a significant downside is the loss of control, along with the potential for talent layoffs.

IPOs represent another route, where a company offers its shares to the public on a stock exchange. While IPOs carry risks (we have all heard of challenging IPO stories), they provide access to a larger pool of capital, which can accelerate growth and boost the company’s visibility and profile. However, going public invites intense regulatory scrutiny and pressure to meet quarterly earnings targets, which can divert focus from long-term business strategy.

Other options include joint ventures (JVs), where two companies collaborate and pool resources for a specific project or market entry, and private equity sales, where shares are sold to private equity firms, either as a minority or majority stake.

JVs can be a great way to scale and benefit both companies before an eventual sale, but they may face cultural clashes and don’t provide immediate liquidity.

Private equity can offer significant growth potential through cash infusion, but it also often comes with a loss of control.

Each option has its own set of advantages and disadvantages. The right choice depends on the company’s vision, objectives, and specific circumstances, with business owners carefully navigating these factors to determine the best outcome.

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What are the critical legal and regulatory challenges tech companies may face when planning an exit, and how can they ensure compliance and mitigate risks?

Tech companies are navigating an increasingly complex landscape of regulatory challenges, particularly as laws evolve rapidly across the globe. Issues such as data privacy and security can be especially tricky, depending on your product or service.

Beyond these, there are more universal legal challenges, such as taxation, employment laws, contractual obligations, and risk mitigation, all of which hinge on the specific terms of your agreements.

Investing in expert legal counsel is crucial for addressing these challenges and safeguarding your business. Additionally, having a strong CFO or financial advisor can ensure your company remains compliant and well-prepared to understand and communicate any potential risks to stakeholders with confidence.

How can a tech company effectively communicate its exit strategy to stakeholders, including employees, investors, and customers, to maintain trust and support?

It all comes down to trust, transparency, and clear, concise communication.

Involving your team in the strategy and planning process early on is crucial—not just for your benefit but so that they understand the goals and feel confident that a solid plan is in place, even if all the details aren’t finalised yet.

Transparency is equally important for your customers, allowing them to understand any potential changes and how these may affect them. This requires thoughtful preparation to address their questions and concerns with confidence.

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Lastly, honest and concise communication ensures that your team is aligned with the plan and helps ease any fears or misconceptions customers may have.

What are the best practices for managing the post-exit transition, including integration with the acquiring company or managing the shift to a public company structure?

The approach varies depending on the type of partnership or deal structure, but some key elements are essential across the board. First and foremost, aligning on a shared vision and ensuring the leadership team embraces a unified narrative is crucial. It is important to understand how the partnership will benefit your existing business while also ensuring that your offering enhances the other party’s business. This mutual benefit prevents one side from dominating and helps teams recognise their interdependent strengths.

Additionally, maintaining open dialogue and clear communication with staff and teams is vital. They should feel supported and have a direct line for questions or concerns.

Finally, cultural alignment is critical. We prioritized ensuring our team could thrive and see the potential for their own career growth through the partnership, all while preserving the elements that make working for us enjoyable
and fulfilling.

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Image Credit: Sparkline

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