Insights

Should You Raise Capital or Exit Your Business in 2022?

By Steven Keeler

Inflation, supply chain and geopolitical tensions are the headlines, IPOs have disappointed and SPACs seem to have run their course, and Q4-Q1 saw a deal market pause. We’re starting to hear that familiar “return to value” and “lower valuation multiples” talk. The bulls insist there’s too much economic strength and available capital to significantly slow dealmaking. The bears are already predicting a very difficult 2023 deal market.

Keeler’s spring cocktail-party-talk-top-10 (at least for this week):

• Don’t Day-Trade Your Company. “Market timing” is more sales pitch than helpful to your decision whether to raise capital or sell now - stay focused on owner and company needs and objectives, and try to zone-out the noise of bull and bear predictions and opinions.
• Know When to Hold or Fold ‘Em. Carefully think about the opportunities and risks (for your company, not everybody else) of selling or waiting - ideally in Q2 before the summer lull and end-of-year deal traffic jam.
• Elevator Pitch. Develop your company’s executive summary or “story” to anticipate investor or buyer valuation haircuts and sub-optimal deal terms based on the deal media tea leaves.
• Open House. Stage your company (like prepping your house for sale) with sound strategic and succession planning actions regardless of whether you decide to move or sit 2022 out.
• Don’t Let ‘Em See You Sweat.  Keep an open mind (and your options open) - VC or growth PE? Strategic or financial investor or buyer? Test the waters, multi-phased or all-in deal process? Don’t commit to any turn in the road until you have to. Most important, be firm in your confidence about your company, but also be transparent with your plan to confront your business’ most obvious risks. Investors and buyers love to hear what keeps you up at night and how you intend to address external market and other risks.
• Don’t Quit Your Day Job. Strengthen your business model, operations and financial and legal housekeeping to navigate the looming clouds of inflation, supply chain, talent demand, technology and data risks or obsolescence, and capital markets and geo-political uncertainty.
• Who Can You Trust? Assess and consider right-sizing your C-Suite (capabilities, bandwidth and incentives) and outside advisory team (accounting, legal and consulting).
• Legacy or Yard Sale? Maybe you don’t take the highest “price”. Educate yourself about different buyers (VCs, family offices, PE funds, independent sponsors, debt versus equity providers, and corporate strategics) - they all bring different cultures and transaction process pros and cons.
• The Golden Rule. Do a deep dive on how a deal might impact your customers, vendors and competition. This matters to the investor or buyer, so should matter to you.
• Grace Under Fire. Don’t panic or sit still - make the capital raise or sale decision, now or later, and own it - and be prepared (by following the first 9 tips above) to pivot toward an unsolicited offer, unanticipated company events, a continuation of the strong deal market, a pause or worse.

Off the Record, if you’re already running a deal process, I would stay the course and try to get it done in 2022. There is in fact life after a failed process or busted deal, and seems unlikely that 2023 or 2024 will be any better.

Founders and CEOs are Fiduciaries. Your family, employees, stockholders, customers, vendors and community will thank you later for your visionary, proactive, flexible and patient leadership. You’ve already proven yourself and your company – don’t let the market noise change who and what you are.

Good luck with your Q2 2022 planning, for 2022 and beyond!

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