In our last opinion piece, we analysed the rapid growth in the volume of start-ups in the sport tech sector that saw more than $12.7 billion invested in sport technology firms during 2021. The sector is now worth in excess of $18 billion globally with investment and acquisition is occurring at record levels.
This development in the market means that it now feels like every start-up you meet tells you their exit strategy in the same breath as their proposition. This used to seem presumptuous but now being articulate as to who and why may want your business from the get-go can both positively influence company strategy and make you sound more backable.
Last year a 10-fold rise in the acquisition of young companies was reported, with buyouts very often being from another start-up. This can be significant element of a growth strategy as it can increase market share, diversify product range, eliminate competition, save on R&D or procure valuable talent.
Joining another business – especially a big tech brand – can offer both huge cache and cash, but start-up founders need to enter the relationship with realistic expectations, especially in regard to the new culture both they and their teams will be joining. Experienced buyers recognize the potential for culture clashes so often take a ‘softly softly’ approach to integration, less experienced ones may tread less carefully which is where tensions are more likely to emerge. In this instance, think carefully as to whether 1+1 really will equal 3.
Any wise start-up founder has a sense as to which team members, especially senior ones, can – and wish – to make the journey from spare room beanbag to a corporate boardroom. Whilst lockdown has altered some aspects of life in more formal environments, there are certain areas that will be non-negotiable. Which colleagues will embrace or resist that?
Additionally. as a founder, it’s one thing to do the deal and find yourself in a new environment, but you also have to prepare for your baby to be found ugly by your new colleagues. It isn’t unknown, for example, that the incompatibility of backend systems ultimately proves so insurmountable that it makes more sense to redirect human and financial resource elsewhere in the business. The by-product of this decision is that the proposition you worked so hard to create is side-lined for wider company aims. Ouch.
You also need to consider how the new business operates, especially if it is going to have ramifications for your earn-out. You’ve worked hard building your dream, but it may be time to face up that the next two years will be about building someone else’s. If you find being part of a dynamic, status changing juggernaut exciting, great – but you may find the way it works much more restrictive or less nimble than you are used to.
Whilst it’s prudent to be wary, there is clearly plenty of upside to working for a well-funded investment partner. Conversely, if you’ve negotiated a total exit, then you’ll be in a strong position both financially and in terms of experience, which has significant value for your next role.
With a more challenging macroeconomic climate upon us than at any point in the past 10 years, exit strategies are brought into sharper focus, placing even more pressure on any founder’s decision making.
In the sports tech space, the outlook remains positive with outside investment maintaining record levels. It’s a great sector to be in, with plenty of opportunity for those who have the vision and the ability to execute.
