Aleksey Krylov M&A 101 Pitch Deck Teardown

Introduction and Context

The presentation titled "VC Exit: M&A 101," authored by Aleksey Krylov and dated September 20, 2023, is a structured guide for navigating the sale of a venture-backed company. Unlike a standard pitch deck used to raise capital, this document is designed for internal strategic sessions or educational workshops. It utilizes a hypothetical (or anonymized) company, Arete Labs, to ground theoretical M&A concepts in practical financial data. The deck is divided into clear sections: a case study, exit options, board duties, Letter of Intent (LOI) mechanics, and valuation modeling.

Slide 1-3: The Framework

The deck opens with a minimalist title slide featuring an open door, symbolizing an exit. Slide 3 establishes the Table of Contents (TOC), which serves as the roadmap for the presentation. The inclusion of a TOC is a professional standard for long-form strategic decks, ensuring the audience understands the progression from the business case to the final valuation and recommendation.

Slide 5-7: Case Study: Arete Labs (AL) Business

Slide 5 introduces Arete Labs, described as an at-home blood-testing company with a focus on preventative care and chronic disease monitoring. The business model is explicitly stated as subscription-driven. Slide 7 provides the "Financial Snapshot," which is crucial for the subsequent valuation slides. The chart shows a company that was historically profitable but small in 2020, scaling rapidly. Revenue is projected to grow from approximately $13,000,000 in 2022 to $35,000,000 by 2026. A key operational note on this slide mentions that gross profit is currently ~30%, but with "investments in cost-down," it could reach ~60%. This distinction is vital for M&A because buyers pay for future margin potential, not just historical performance.

Slide 9-13: Exit Options and M&A Mechanics

Slide 11 contrasts M&A with an IPO. It notes that in an IPO, all preferred shares typically convert to common stock, and while there is upside if the stock runs post-IPO, there is significant execution risk. Slide 13 pivots to M&A, using an "All Sales Final" graphic to emphasize the definitive nature of these deals. Krylov highlights that M&A is often a private, non-transparent process that triggers liquidation preferences. This is a critical warning for founders: a high headline price doesn't always mean a high payout for common shareholders if the preference stack is deep.

Slide 15-19: The Complexity of the Deal

Slide 15 uses a diamond graphic to illustrate the "Complex Ecosystem" of M&A, including Diligence, Structuring, Financial Valuation, and Post-deal Integration. Slide 17 lists various valuation analyses, such as Discounted Cash Flow (DCF), Comps (trading and deals), Leveraged Buyout (LBO), and Sum of Parts. Slide 19, titled "3D Chess," is perhaps the most valuable for non-lawyers. It lists the regulatory and legal hurdles, specifically citing HSR (anti-trust) and CFIUS (foreign investment) reviews, which can delay or kill deals even after an LOI is signed.

Slide 21-27: Fiduciary Duties and the LOI

Slide 21 reminds the audience that "Directors Have Fiduciary Duties." This sets the stage for Slide 23, which displays a large "$50,000,000" figure—the hypothetical unsolicited offer for Arete Labs. Slide 25 breaks down the format of offers, ranging from a casual "Let's meet" to a non-binding LOI and finally a firm committed offer. Slide 27 lists the essential components of an LOI, including structure, deal value, earnouts, and conditions to close. This section emphasizes that an LOI is just the beginning of a high-stakes negotiation, not the finish line.

Slide 29-31: Alternatives and Funding History

Slide 31 provides a timeline of Arete Labs' capitalization. It shows a Launch with $50K, a Seed round of $150K, a Series A of $1M, and a Series B of $6M. The chart overlays these rounds against the revenue growth, showing that the company is currently in the "Growth VC/Equity" phase, moving toward "PE" (Private Equity) territory. This slide helps stakeholders understand the "cost" of the capital raised and the expectations of the investors who provided it.

Slide 33-37: Valuation and the Football Field

Slide 35 provides real-world context by showing financial data for Quest Diagnostics (DGX) and Laboratory Corporation of America (LH), sourced from Finviz as of September 19, 2023. These serve as the "Public Comps." Slide 37 is the analytical heart of the deck: the "Valuation Football Field." It plots the $50M current offer against six different scenarios based on EBITDA multiples. For example, if the company achieves a 50% EBITDA margin and a 21x multiple, the valuation could reach $234M. This visual makes it clear that the $50M offer is at the extreme low end of the company's potential value, providing a data-driven justification for the board to reject or negotiate the offer.

Slide 39: Stakeholder Returns

Slide 39 is a masterclass in cap table modeling. It breaks down the returns for the Founder, SAFE Investors, Series A, and Series B across three exit prices: $50M, $80M, and $150M. At a $50M exit, the founder sees a 363x ROI, while Series B investors (who invested most recently in Dec 2022) see a 4.42x ROI. If the exit is pushed to $150M, the founder's ROI jumps to 1144x and the Series B ROI to 10.58x. This slide exposes the differing incentives of various stakeholders; an early investor might be thrilled with a $50M exit, while a later-stage investor might require a much higher price to meet their fund's internal rate of return (IRR) targets.

Slide 41-43: The Recommendation

Slide 41 asks the ultimate question: "What Should the Board Do?" The options are to reject, negotiate, or explore alternatives. Slide 43 provides "An Opinion," suggesting that there is significant untapped potential in the business. Krylov recommends a "Go Shop" approach—seeking alternative bids from strategics or private equity. He proposes an aggressive valuation ask of $150M, but with a flexible structure: $70M cash upfront, a $50M earnout in 2024, and a $30M earnout in 2025. This structure bridges the gap between the buyer's current $50M valuation and the seller's $150M aspiration by tying the final price to future performance.

What Works Well

Data-Driven Decision Making: The use of the Football Field analysis (Slide 37) transforms a subjective negotiation into an objective exercise in market multiples. · Stakeholder Transparency: Modeling the specific ROI for each investor class (Slide 39) is a rare and highly effective way to manage board expectations and identify potential conflicts of interest. · Practical Negotiation Tactics: The suggestion of a structured earnout (Slide 43) provides a realistic path forward when there is a large valuation gap between buyer and seller. · Regulatory Awareness: Including HSR and CFIUS (Slide 19) demonstrates a sophisticated understanding of deal certainty, which is often overlooked by founders.

What Is Missing

Net Working Capital (NWC) Discussion: While the deck mentions a "clean balance sheet," it does not detail how NWC adjustments or debt-like items might affect the final "cash to seller" at closing. · Tax Implications for Stakeholders: The ROI calculations are likely pre-tax. Given the mention of IRS regulation on Slide 19, a slide detailing the tax efficiency of an asset sale vs. a stock sale would have been beneficial. · Specific Competitor Landscape: While public comps are provided, the deck lacks a slide on direct private competitors who might be alternative acquirers in a "Go Shop" scenario.

What a Founder Should Copy

The Football Field Slide: Every founder facing an acquisition offer should create Slide 37. It is the single most effective way to show a board that an offer is "leaving money on the table." · The Stakeholder Return Matrix: Copy the format of Slide 39. Knowing exactly what each board member's fund will return at different price points is essential for predicting their vote. · The "3D Chess" Checklist: Use Slide 19 as a checklist for due diligence. Being prepared for regulatory hurdles early can prevent a deal from collapsing in the final stages. · Structured Counter-Offers: The approach on Slide 43—splitting a high ask into cash and earnouts—is a classic M&A move that founders should use to keep buyers at the table when the headline price is too low.