Application Deadline: July 31st 2019

IPOs, Reverse Mergers and Acquisitions: Alternatives To VC Funding

HAX IX Demo Day featured the “Going Liquid” panel to compliment a day full of visits from Media, VCs, and Corporates. Moderated by Jon Bruner of O’Reilly Media, panelists included Nathan Harding of Ekso Bionics, Charles Huang of RedOctane (creators of Guitar Hero), and Jeffrey Thomas of NASDAQ.

While VCs tend to dominate the startup conversation, there are alternative financing options, which do not require you to be a unicorn, and open new doors to growth. Here are a few:

The M&A Route: Red Octane / Guitar Hero

After failing in its attempt to raise a $3M round prior to Guitar Hero’s launch, Huang and RedOctane began receiving term sheets 3 months after the game’s release, and acquisition offers. It is always hard to tell whether a company could have done better on its own, or be acquired later for a higher price, but when the offer reached the “right price”, Charles and his brother Kai opted for the M&A route with Activision where the strategic fit was best to bring their fledgling music game to scale. The franchise performed extremely well. This decision also provided them with liquidity after about seven years of effort.

The Reverse Merger Route: Ekso Bionics

VCs were not supportive of hardware – especially medical/robotic startups, while there was an identified appetite for it on public markets. The challenge was to pick the right exchange – NASDAQ is not the only option, and often more suitable to larger vendors – and the right path. Harding and Ekso Bionics chose the route of a reverse merger.

While a merger is not a financing event per se, it can be combined with one: Harding’s Ekso was able to raise $21m after the merger by emitting new stock. One of Harding’s biggest take-aways: there is much more capital available in public markets, especially in New York.

The IPO Route: Not Only For Unicorns

These days many startups are staying private much longer than before: Jeff Thomas noted that while it used to be common for companies to go public after 3-4 years, the average age of companies is now 8-10 years. This means most value is captured by private markets, but also that some private companies might now be overvalued and unfit for public markets. It has many downsides, including the fact that equity offered to employees may expire before going public, affecting retention and morale. While the public scrutiny and compliance have their own challenges, earlier liquidity can be beneficial to founders, employees and of course investors!

Get Ready NOW For All Options

A common take-away from all panelists was that it is ALWAYS important for founders to have their books organized and internal structure clearly defined. That way, companies will be ready to go when their opportunity to exit or go public comes up. Keep conversations going with suitors and investors until you decide the time is NOW.

Leave a Comment