How to Sabotage a Liquidity Event
August 6, 2020 at 12:00 AM
by Dave Cary

For any successful liquidity event, there was always alot of quiet prep work which ocurred before it. I have been involved in a senior capacity with about $400 million in acquisitions and raised a like amount. When there is failure in this area, it is usually due to self-inflicted damage. Here is one way:

According to First Principles Economics, every investment is a balance between opportunity and risk. If the opportunity does not justify the risk, the main way to bring this back into balance is to lower valuation. If there is not enough room there, investors have to walk away.

A great way to sabotage a deal through needlessly increasing risk is to have sloppy accounting and legal processes and records. Not only does this make the historical records “spongy”, it casts significant doubt on projections and management, all critical to valuation. There is no option for a potential investor but to lower value or walk away.

Many leaders, in their zeal to grow, focus resources only on “the important things”. In their mind, this means not investing in quality back office operations. When it comes time for a liquidity event, it is too late to catch up.

Not having a good handle on what you have done, not having the proper intellectual documents in place, not having a good pipeline review process are all excellent ways to sabotage valuation. Frankly, you look like you don’t know what you are doing.

David Cary

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