Exit Strategies
Kimball Atwood
General Partner
Artemis Ventures, LLC 1998
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Bio
 18 years in high tech, large companies,
entrepreneur, venture catalyst
 3 IPOs, 5 M & A, 2x entrepreneur
 Venture Catalyst specializing in Enterprise
software & Internet enabling technologies
 Partner: Christine Comaford
Artemis Ventures, LLC 1998
2
Exit Options
 Merger or Acquisition (M & A)
 Initial Public Offering (IPO)
Artemis Ventures, LLC 1998
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State of the Liquidity Market
 Lots of recent M&A activity -- 1,600 1998
YTD technology deals
 Healtheon pulled their IPO and completed a $40
mm private round instead
 theglobe.com refiled IPO range to $8 - $10 from
$11 - $13, then pulled their IPO, then went out
at $9, rose to $90, closed 1st day at $63
 VIGNETTE and Computer Literacy pulled IPOs
Artemis Ventures, LLC 1998
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Why a Sale?
 Unsolicited offer from potential suitor
 Company cannot raise additional capital or
cannot sustain additional growth!
 Principal Shareholder or Founder looking for
liquidity
 Essential to M & A team :
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get experienced board members and advisors
involved
hire intermediary: I-Bank/M & A Specialists
get experienced M&A Counsel and Tax/Accting
Artemis Ventures, LLC 1998
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M & A Activity 1997 - 1998
Artemis Ventures, LLC 1998
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M & A Far more Popular than IPO
Artemis Ventures, LLC 1998
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Targeting Buyers for an Exit
 Customers who are highly dependent on your
products/services
 Competitors who want to buy market share
 Larger players who want to accelerate Market
Entry
 Gorillas looking to buy proven R & D
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CISCO
Microsoft
Intel
Artemis Ventures, LLC 1998
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Three Keys to Success
 Right Fit
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Business and people
 Right Structure
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More important than price
 Right Price
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Valuation
Artemis Ventures, LLC 1998
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Five Forms of Payment
Cash
Debt
Private Stock
Employment Agreement
Earnout
Artemis Ventures, LLC 1998
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How much is your company worth?
A Company Is Worth
What Someone Is
Willing To Pay For It.
Artemis Ventures, LLC 1998
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9 ways to value a software
company
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Sales multiple
Earnings multiple
Cash flow model
Book value
Liquidation value
Replacement
Similar company transaction
Internal transaction price
Internal rate of return/discounted cash flow
Artemis Ventures, LLC 1998
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Issue: Purchase vs. Pooling
Accounting
 Acquirers will almost always prefer a pooling
transaction over a purchase transaction
 Must meet all 12 clearly defined FASB guidelines for
independence for 2 years to qualify for pooling
accounting. Consult with your lawyer or accountant to
learn how to not taint your company
 You may prefer an all-cash deal, however, which
necessitates purchase accounting and undesirable
goodwill on the acquirer's balance sheet
 Earn out tie-up of key executives
Artemis Ventures, LLC 1998
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Going Public!
Artemis Ventures, LLC 1998
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3rd QTR - Slower Pace for IPO’s
 19 venture backed companies went public,
raising $1.13 billion (vs 38 in Q3 97)
 1998 total of 68 with a total offering size of
$3.38 billion.
 Average offering size in 1998 increased to
$49.7 million compared to $34.2 million in
1997.

According to Venture Economics and the National Venture Capital Association
Artemis Ventures, LLC 1998
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Median Age of Companies Going
Public (Venture Backed)
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All companies Internet companies
1993:
6 yrs old
1994:
6 yrs old
1995:
6 yrs old
3 yrs old
1996:
4 yrs old
2.5 yrs old
1997:
4.5 yrs old
2.5 yrs old
Q1-3 1998: 3.5 yrs old
2 yrs old
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According to VentureOne
Artemis Ventures, LLC 1998
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Going Public!
 Determine your comparable company universe
 Underwriters will compare your Company’s growth rates and
margins to your peers’ and value your Company accordingly
 Focus on quarter to quarter growth with all financial metrics
 Fill-out holes in management team
 Experienced CFO’s are tough & expensive to find.
Artemis Ventures, LLC 1998
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Issue: Cheap Stock
 Expect to be challenged by the SEC and prepare arguments
now, in conjunction with attorneys and accountants
 Document rationale and milestones for options at the time of
the transaction, rather than after the fact (New products,
revenue, new contracts)
 Resolution of cheap stock issue with the SEC may
significantly delay an IPO
Artemis Ventures, LLC 1998
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Exit Resources on the Net
 Red Herring
 http://www.redherring.com/insider/1998/1023/ipo100.html
 Broadview Associates
 http://www.broadview.com/main_frame.html
 National Venture Capital Association
 http://www.nvca.com/
 IPO Maven
 http://www.ipomaven.com/
 Artemis Ventures LLC
 http://www.artemisventures.com/resources
Artemis Ventures, LLC 1998
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Thank You
Kimball Atwood
General Partner
Artemis Ventures, LLC 1998
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