The art of negotiating the sale of your startup

“Israelis are incredible negotiators. There’s something to learn in that too; it’s part of your growth journey to participate in this type of transaction,” says Bridgit Hawkins, the founder of agritech firm Regen, which she successfully sold to CropX in 2020.

Regen’s cloud-based effluent and irrigation decision tools provide daily recommendations to farmers based on farm-specific data collected automatically from in-field sensors.

Three years on from the sale, the company has expanded from helping Kiwi farmers to being sold in Australia and the US, with some interest from Latin America.

“We just wouldn’t have been able to do that,” says Hawkins. “It has genuinely been an incredibly positive step to have taken, and I don’t look back and think ‘jeepers, I wish I had taken a bit more time to think about that’. It was the right decision and it has been better than I thought it would be.”

She was raised on a Reporoa sheep and beef farm and founded Regen in 2010 after a career as an agricultural business specialist. Her vision was a world where farming was synonymous with sustainable environmental stewardship. She wanted farmers to be able to quote their water-use efficiency as easily as they do their farmgate milk or meat prices.

But after starting the company in her forties and nearly a decade of hard work, Hawkins says Regen had got to the point where it had solid, modest growth in New Zealand and could have just kept ticking over as a small business with limited capital to fund further growth or expand offshore. It had already raised around $2 million at that point.

She sat down with her board to assess options for growth and, more importantly, delivering the impact that was the purpose behind the business. Those options included asking shareholders to do another capital raise, getting in a strategic investor who would bring a channel to market rather than just money,  or an exit and get taken into something that was much bigger.

“I had a footprint in New Zealand but I was not able to scale, and for all that effort how much impact had we achieved and how much could we achieve by exiting to a global agtech company that is growing and expanding? The ability for what we had built to be integrated into that and suddenly become global compared to just trying to do more yourself or by yourself – I thought I really want my efforts to come to something,” says Hawkins.

Her committed investors, including Angel HQ, Pacific Channel, and NZ Growth Capital Partners’ Aspire fund, left the ultimate decision on those options up to her as CEO and founder. She went out to the market to test the choices just as Covid was beginning to appear on the horizon. That’s when CropX – a VC-backed company whose agronomic farm management system helps farmers worldwide optimise irrigation, reduce water and chemical usage, and increase crop yields – entered the picture. 

One of Regen’s shareholders was well-known Kiwi angel investor Marcel van den Assum. He was also a shareholder in CropX, which started out with technology licensed from New Zealand Crown Research Institute, Manaaki Whenua – Landcare Research. 

Hawkins had asked him, as an experienced investor that has helped negotiate exits for Kiwi companies Green Button, Flick Electric and Merlot Aero, to join the board to help navigate a way through Regen’s options. He introduced the two parties, thinking they would be a good fit.

Van den Assum says his involvement with both companies was not so much a conflict, which was managed, as a confluence, where it was useful to know the key people and bring them to the table.

The best way for Regen and its founder to realise its vision was to become part of a bigger entity, he says.

“It’s one of those case studies where to go alone would require more capital and capability than you are likely to achieve, particularly in the current market. The primary focus of the process was not to flesh out a plan B, but to max out plan A.”

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The negotiation

It’s one thing wanting to sell; quite another getting a good price.

Regen’s sale price has not been disclosed but it involved cash and equity in CropX. Hawkins had to agree to continuing in her role for six months. She says the shares in CropX are held in a new company, Sparkling Rivers, of which she holds a 15 percent stake, and are likely to be held until CropX does an exit.

She says the negotiation wasn’t easy, particularly because much of it took place during the Covid lockdowns and had to be done over Zoom. “I ended up selling the business to people I had never met in person.”

Van den Assum says CropX CEO Tomar Tzach is a “very diligent negotiator – let’s put it that way”.

“I’d say tough comes from having a thorough understanding of the facts and an analytical approach and a lot of knowledge about other companies around the world in this space. I admire that because you’re not making things up.”

He says Hawkins had to trade off some short-term concessions on the basis there was a path to offset those with future gains on CropX’s growth, given the deal was heavily equity weighted.  

He describes the exit as a “huge success”. 

“It’s a risk/reward conversation. Agtech is fragmented so some key players need to lead from the front, and as a result of the Regen and other acquisitions, CropX has increased in value and that’s great for Bridgit and the other shareholders.”

One of the challenging things for Hawkins during the six-month negotiation was wearing the different hats of founder, shareholder, director and CEO.

“Each one of them has a view around the deal and yet the perspective of the deal changes depending on which hat you’re wearing,” she says.

She also wanted to do her due diligence on CropX to ensure that it meant what it said – that it saw Regen as something complementary to be integrated into its product as opposed to something it would just shut down or let dust gather on.

“You’d appreciate New Zealand is such a small place that so much of me was associated with Regen and my personal reputation is associated with that too. I had to have the confidence that I was not putting those things at risk through the transaction or what happened afterwards.”

She says for other founders negotiating an exit, it’s important to consider what your alternative is during the negotiation and “is this better or worse than that?”.

They haggled over the price and determining a fair value for the business. 

“You have to be ready to be pragmatic but not to the point where you think that this is what has been offered, I’m just going to go with it and roll over. It’s finding that balance between not being unrealistic but not being completely compliant. To know where that balance is, you need to understand what your options are at that point in time.”

She also advises other founders to be purposeful if they are looking to sell.

“That’s how you avoid it being done to you and make sure it is you leading the process and you are active in it. If you think they’re so much bigger than me or I’m going to run out of money next month you have immediately completely eroded any value you might have to that person interested in acquiring you because you haven’t even recognised it. There are always two sides and understand what yours is bringing.”

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The aftermath

Hawkins says the exit process is a challenging one for a founder. 

“As a founder a really big chunk of your identity is inextricably linked to this business that you have bled for so realise that at some point you have to process that and be ready to do that.”

You have to separate your emotions from the value of the deal, she says.

And for those staying on in the organisation after it is sold, Hawkins says the first year was the hardest for her.

“For so many things the decision is no longer yours or how you respond to something is not necessarily your way. Being comfortable with that took me a while to get to that point but again, it comes back to I was happy with the decision I had made and understood that these types of things would come up. You have to move on.”

According to CropX’s first-ever Sustainability Report: Planet, People and Prosperity, which Hawkins was responsible for, it made four acquisitions in three years (Regen was the third). All four founders remain within the company.

Hawkins remains based in New Zealand and says her on-going role with the Israeli company is unrelated to the deal. 

She has no desire to do another startup but is still heavily involved in the local startup scene, including being a mentor on the Sprout Agritech accelerator and chair of agtech startups Cropsy and Bovonic. 

“I’m more into supporting others to maybe shortcut some of that journey or just help grow these young founders to be the people they need to be to really grow their businesses,” she says. “I believe my knowledge and skills and approach can make a different to the challenges in front of the food production system and so it’s your responsibility if you’ve got those things, to do your best.”

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Six tips for founders wanting to exit: Marcel van den Assum

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1. Have your documentation ready: It is one of the things that gets overlooked. Maintain company documentation and have a repository of that material kept with a high level of integrity from the start before you have even think about investment. Companies that are well-organised and have documentation in good order get acquired much faster.
2. Engage with potential acquirors: That can be really demanding when you’re still leading a business but it is not something you can abdicate to an investment banker or third party though they may add value. People do business with people.
3. Have alternative options: It’s a bit of a dance because you’ve already shared the books with potential buyers and they can see your cash and projections. You have to have a plan B and plan C, have irons in the fire to mobilise if the sale doesn’t work out.
4. Deals don’t happen overnight: The relationships you build and the connections you make matter because nine times out of 10 any acquisition is done with a known party. Be conscious of what success will look like for you, align with investors on that, and start to express that with folks within the ecosystem including potential buyers. It can take two or three years for an overnight success of this nature.
5. The place for investment bankers: As part of their capital strategy, founders should pick the brains of investment bankers well ahead of a sale, including who’s buying what for what prices, what’s hot, and how long is it taking to sell.  In my experience, investment bankers deliver on three areas – their reach to potential acquirors or investors in the market, bringing project management and process discipline to any deal, and they can be the bad cop in any negotiation so the founder can enjoy an on-going good relationship with the purchaser. Investment bankers that are good at negotiating earn their fee and you end up with a better outcome. 
6. The board: Many startups may not be able to afford professional help such as investment bankers so then the board members need to step up. Where deals are equity weighted rather than cash the investment banker won’t put in the effort for the prize so you need someone on the board to play that role. 

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