1Mby1M Virtual Accelerator Investor Forum: With Steve Eskenazi, Angel Investor (Part 4)

Sramana Mitra: I was talking to Eric Benhamou two days ago. He was like, “I’m looking for a good application or use case for NFT.” What about exits? What have you seen through your investments?

Steve Eskenazi: I think there are a couple of tried and true methodologies. I think the best company gets bought and not sold. You have to build companies the right way and you have to scale them the right way. Throwing money at problems is not a solution.

We’re now going to go through a tough digestion process for the next year or two where companies just raise money and never solve the problems of institutionalizing knowledge and building processes within the companies to scale them effectively. Now it’s all coming home to roost. Some of the companies that I’ve invested in that have had exits built companies to be independent. When somebody else came along, they look at those opportunistically.

For the earlier stage market, setting up milestones for each fundraising and setting them up after you hit those milestones, doing a market check is much better than building a company to be sold. It’s important to identify those milestones that create value. As I said before, to build in the processes and the institutionalized knowledge allows you to scale. Give yourself those additional options without closing exit options.

Sramana Mitra: Interesting. We’ve done quite a bit of work in these sessions bringing on investors to talk about how they think about exits. I brought on people from the CorpDev world to talk about exits from the buy-side. I want to underscore a couple of nuggets.

In the cyber security universe, small funds are starting to think about building to sell just because cyber security is over-invested. Getting meetings with CISOs and CIOs has been difficult. They have to go through other people. The early-stage investors are starting to think about building to sell to larger companies that have that seat at the table.

On the buy-side, one of the guidance that the CorpDev people are providing is there is so much going on. They need to know the existence of the company. Even if you don’t build to sell, you need to make sure that you’re on the radar of the people who may be on your exit path.

These are my two nuances to your comment that companies get bought and not sold. You do need to create the conditions under which they can be bought.

Steve Eskenazi: I agree. Cyber security is a very interesting market. There is an important delineation between point solutions and end-to-end solutions. Point solutions are easy to buy and integrate. If we look at the hiring market, in general, I’ve seen more companies miss their hiring target than miss their revenue targets.

Companies are searching for good people. When you say can we sell a company for $10 million, that’s really an acquihire. I had invested in a company called Duo Security that sold to Cisco just for that reason. Cisco came up and said, “This is a niche area that we really like.” That works in the cyber security space. Other spaces are probably more difficult.

The tailwind is the notion that most big companies can’t find enough good people. If somebody has got an R&D team or institutional knowledge in a space that’s new and different, the value is going to be perceived a lot higher.

Sramana Mitra: It was a great conversation. Thank you for coming today.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Steve Eskenazi, Angel Investor
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