The biggest change in the exit game for practical SaaS founders in the last five years is the rise of the partial exit.
Partial exits are so common today that we forget that software founders almost never did this ten years ago, and when they did, it wasn’t obvious.
A partial exit is selling part of your company for cash now and keeping some equity in the new entity.
It’s a “two-bites” exit. The first bite of the apple is cash, and the second bite is equity in the new entity, which is expected to grow in value and be sold in a few years.
Private equity and growth equity acquirers almost always acquire a piece of the company for cash. Founders get cash liquidity and roll their remaining equity into the remaining company to sell later.
It’s not common for VC-funded software companies to acquire companies for partial cash plus equity, but it happens. VC-funded companies are much riskier, which makes that future equity bet questionable.
Ian Manners and his cofounder created Vivor in 2014 to connect patients to available financial assistance funding through US-based healthcare providers like hospitals, medical offices, and healthcare networks.
Their bootstrapped software startup grew slowly but eventually became profitable as it scaled up.
Since its inception, Vivor has helped over 100,000 patients receive over $2 billion in financial assistance to offset the high costs of critical prescriptions.
During the COVID crisis that disrupted the US healthcare industry, Ian merged Vivor with TailorMed, a VC-funded competitor, in a cash and stock acquisition deal.
“The idea of merging our companies and having stock and some cash in our acquisition structure made sense to both parties. Combining the two companies and including equity in the deal really made sense. I think that part was absolutely a win-win, even when we were going through that process and negotiating all the details.
“But it’s a huge bet for us to take equity as part of our deal. We became a big investor in the company that bought us.
“For anyone facing something similar, my advice would be to just slow down that part of it and really think about and digest the fact that you’re becoming a major investor in the combined company.“
Ian sold Vivor in a cash and stock deal in 2021 when the US healthcare industry was in turmoil and their VC-funded competitors were coming on strong.
On the day of their acquisition, Vivor went from being bootstrapped to VC-funded. Ian saw the benefits and challenges of each approach.
He stayed on for two years during the transition and is now looking for his next entrepreneurial adventure in healthcare software.
Ian mentors and advises healthcare SaaS founders every week. If you’d like his thoughts on your startup, DM him on LinkedIn.
Would Ian have made the same decision if he had known what he knows now about his market and competitors?
Listen to this Practical Founders Podcast interview with Ian Manners to find out.
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