The time to start thinking about your exit strategy is when you found the business.
That’s according to a speaker at last month’s PF WORLD 2019, where members of the investment community discussed interest in and lessons learned from investment activity around the intersection of payments and software.
Moderated by Becky Kopplin, payment strategist for Teamsnap, the panel included Eric Byunn, partner at Centana Growth Partners; Dickson Chu, EVP of fintech portfolio management for BBVA; and Paul Friday, managing director, Financial Technology, for KBW.
Asked when an organization should start thinking about an exit, Chu said that was a question he would ask of any founder.
“You need to ask that question the day you form your company,” he said. “I think you need to ask yourself two questions: are you creating a company to run, or are you creating a company to sell? And I think the direction and how you manage and how you grow that business really matters.”
The panel covered financial metrics that are important to investors, as well as potential red flags that might scare investors away from PF businesses. While discussing advice for a PF or ISV thinking about selling into a rollup, the panelists also talked metrics, but also presented a more personal angle on the potential tradeoffs that come with that decision.
“It’s also important to think about all the emotional issues around how attached one is to the business,” Byunn said. He argued that a company’s management team is typically very invested in the merchants on its platform.
“When they sell out, on one hand, you get all the benefits of being attached to a larger platform and having a thoughtful strategy around how you’re attacking payments as a whole. On the other hand, that particular management team, that particular entrepreneur, loses control of that relationship and has to be willing to give up on that,” he said.
Asked to give his opinion about the inning this wave of payments consolidation would be in if it were a baseball game, Byunn rejected the analogy. He reminded the audience that consolidation comes in waves and likened it instead to a chess tournament, where participants keep returning every weekend.
Friday argued that the answer could vary depending on the industry, with specific sectors – such as faith-based organizations, gaming and esports – having more consolidating to do than other sectors.
He also pointed out that broader economic factors such as debt markets also impact the willingness of companies to acquire others.
Chu agreed that decreased access to capital would slow down activity.
“But as long as you’re doing something that is needed everywhere,” there are opportunities globally where regions are just in the early stages of embracing electronic payments, he said. “The world is just starting to get digital.”
Chu pointed to research reporting that a large majority of payments transactions worldwide are still conducted in cash.
“As that marches along, we’ve got a long ways to go,” he said.