The graphic below is an attempt to illustrate the value creation stages in a typical technology company:
- 10% for locating the target company and completing the transaction.
- 40% from the value-added by contributions to the strategy and ongoing corporate governance.
- 50% for the value created from the strategy and execution of the eventual exit—or sale of the company.
These last two areas are where experienced Directors and Mentors can add enormous value to any company.
This model is approximate and impossible to prove. Company value is as much art as science. For example, in some companies, much more than half of the value was created by the design and execution of the exit. The best cases to support this are the situations where almost all of the value was created by the skill in executing the exit. While not usually obvious at the time of the transaction, the truth of these situations often become clear in the fullness of time.
The most significant part of the entire value creation process is the exit. A well designed and executed exit transaction can add 50%, to as much as 100%, to the final business valuation of the company. This is not an isolated instance, it happens all the time. As much value can be created during the exit as has been created through all of the other activities combined.