SkyLab Ventures thinks founders should exit in three years
Jesse Silva and Benson Metcalf, founders of SkyLab Ventures, a Utah-based venture capital firm have experienced the good, the bad, and the ugly of various types of exit strategies. They’ve seen IPOs, strategic acquisitions, and private equity buyouts. Regardless of strategy, the time frame for those company exits has been slowly getting longer and longer.
Typically, the average time to exit is 6.3 years and the 90th percentile for exits is 12.4 years. In 2005, the average time was just 4.6 years and the 90th percentile was 7.4 years. Exits through IPO have similarly increased in the time frame. The average in 2005 was 4.8 years, while today the average is 6.6 years. It’s also common to face multiple rounds of funding, which can increase the dilution of the company’s value.
But Silva and Metcalf aren’t interested in those slow exits, they’re investing in companies who share their interest in rapid growth and exiting within 2-3 years― and they founded SkyLab Ventures to help make that possible.
Silva’s experience with growing companies began with a small towing business that he started and grew to a nine-plus figure valuation at the time of exiting. The company was eventually acquired by private equity and according to Silva, “the experience was less than ideal.”
So Silva and Metcalf teamed up to make their ideal VC fund possible. Metcalf had previous experience as a strategy consultant, a private equity investor, and most recently, the COO at SaltStack, leading up to its acquisition by VMware. Ever since, the two have become a force for helping businesses and their founders scale quickly and exit in the right way.
“We founded this VC fund to be different from all the other stereotypical funds out there,” explains Silva. “We are a team of former operators looking to be the partner we never had and help founders get to a great exit in 2-3 years.”
And what is the right way to exit?
Metcalf explains that the goal for the company is to negotiate from a position of strength. He says, “A less-than-ideal exit is one in which the company is negotiating from a position of weakness due to low cash levels, below-market performance, poor timing, or other factors.”
To avoid that position of weakness for each of its portfolio companies, SkyLab creates an exit strategy at the outset of the partnership. From the beginning, strategy and resource allocation are aligned to help the business scale and grow to encourage a situation with multiple potential buyers or investors.
So why the 2-3 year timeline?
According to Metcalf, “In venture capital, most companies fail. They fail because they take on way too much capital and lack discipline, lose their focus on what matters most, or because the hurdle for performance becomes too high. We believe companies should only take on the necessary capital to maximize growth toward an exit in the 2-3 year range. Exit windows don’t stay open forever. Maximizing on the nearest window can create tremendous outcomes for all stakeholders.”
But there are some requirements when it comes to scoring funding from the group. To get an investment from SkyLab, you must be in direct-to-consumer (D2C) or software technology, and you must have a strong strategic position. But most importantly, you must already be on your way toward rapid growth and ready to work with a partner who can amplify that growth toward an exit.
Silva explains, “By the time SkyLab invests in a company, they are generating strong revenue (typically between $1M and $10M), have a good understanding of their customer and the sales process, as well as their market positioning. The timetable for a potential exit is not 2-3 years from founding the company, but 2-3 years from the time of our investment in them. 2-3 years of partnership with SkyLab can potentially triple or quadruple revenue as well as enterprise value. With that kind of growth, companies can become very attractive assets for larger competitors, strategic buyers, or for financial sponsors such as private equity.”
This kind of exit strategy pushes for rapid growth and scaling of businesses. “The partners at SkyLab, Benson and Jesse―they’re both super valuable. They’ve both been through it all. Their mentorship and their resources have been super valuable in a way that most other VCs wouldn’t have been,” says Jacob Berube co-founder of Pestie, one of the D2C brands that SkyLab has invested in.
Berube says that a quick exit was part of Pestie’s goals early on and made the partnership with SkyLab an obvious one. “Every business owner wants to have as many options as possible. It’s not about getting out as fast as possible, it’s more about pursuing aggressive growth, and that growth will give us lots of options. We really aligned with SkyLab in keeping growth as a goal from early on.”
With their aggressive exit strategy, SkyLab brings a unique investment fund to Utah and with it, a game-changing option for founders. As Silva and Metcalf put it, “No longer are you faced with a treadmill of four or five rounds of capital, lots of dilution, and unhelpful pressure to get to a $1B valuation or an IPO.”
Instead, they’re hoping that this new investment fund could change the norms of the VC world, allowing founders to maximize their options in a short period of time rather than spending years reaching for that elusive $1B valuation.