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Know Your Acquirors
- InSound founders Adnan Shennib and Robert Schindler built the world's first invisible hearing aid Lyric, which addressed the adoption-limiting perception of hearing-impaired patients as old or infirm.
- The company raised capital from angel investors, scaling valuations with each round, even when pushback may have been warranted, and struggled to access subsequent institutional financings that were costly and overly dilutive.
- The venture capital syndicate led by Psilos Ventures, CMEA, De Novo Ventures and Johnson & Johnson’s venture arm predicted an opportunity to disrupt the hearing industry and an exit strategy via the sale to a strategic buyer.
- The company's CEO bring-in David Thrower overcame product performance challenges and led the company to a successful product launch, after which it had a $10m annual revenue run rate.
- In 2009, the board advised Thrower to launch a process to sell the company, and the investment banking firm Gravitas Healthcare was hired to assist.
- Phonak and Oticon, two industry leaders, expressed serious interest, but the lack of a bidding frenzy allowed Phonak to offer a price that was a fraction of what would end up as the final transaction price.
- InSound realised the complexity of the deal documents meant that they knew little about their buyer. This lack of understanding later meant that, for example, InSound lost control over its earnout, meaning they could not reap the full share of the rewards for their successful product, Lyric.
- In retrospect, InSound failed to understand its potential buyers well enough.
- A growth company’s leadership, executives and board must think about exit partners early and often, and investors must determine if the entrepreneur knows the potential buyers well, as knowing potential buyers is critical for a successful financial return.
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