Founders of Virtual Companies Create More Wealth than Their Bricks and Mortar Competitors

BY David Rowat

Virtual (all-remote) tech companies sell for more money in an exit transaction than conventional bricks and mortar tech companies.  Their founders also retain more of the proceeds.  Strategic Exits Corp., our boutique investment bank, noticed this trend beginning a few years ago.  It seemed strange to us that a company with no physical head office and everyone working online when and where they wanted could be worth more in an exit transaction than a conventional bricks and mortar company.  We began to research the trend to virtual companies.

When the COVID-19 pandemic hit in 2020, the world had to learn to work remotely overnight.  The media was immediately flooded with stories and advice on structuring remote work environments, the newfound freedom to structure a better work-life balance, and how the remote shift would permanently change the business environment.  Some tech companies decided to remain virtual while others couldn’t wait to return to the office.   Clearly, there was a paradigm shift in business strategy and operations happening before our eyes.

But no one was looking at the effect of virtual companies on the mergers and acquisitions industry.  As @Strategic Exits acts solely to advise tech entrepreneurs in the optimum exit transaction, we needed to better understand how the trend to virtual companies would affect M&A.

We approached Professor Prithwiraj Choudhury at the #harvardbusinessschool, an expert in remote work, and Professor Jan Bena, an expert in Entrepreneurial Finance at The University of British Columbia, to extend our research.  We collaborated for a few months to better understand the advantages of the remote work structure and the impact on exit transactions.

We co-authored a case study: “eXp Realty and the VirBELA Platform”, HBS case#: N-621-068. The case illustrates the many advantages of a virtual company and compares the financial performance of eXp Realty, a virtual real estate brokerage, to its bricks and mortar competitors.

In the course of the research, Strategic Exits partner, David W. Rowat, developed the Founders’ Wealth Creation Formula to demonstrate why virtual companies sell for more money and why the founders keep more of the proceeds:

Founders’ Wealth Creation = (EBITDA * Multiple – LP) * F * (1-T) – EC


  • Founders’ Wealth Creation is the quantum of money that the Founders retain from the gross proceeds earned on the sale of their company
  • EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization and other non-cash charges to the Income Statement
  • Multiple captures the qualitative and quantitative factors which the acquirers impute to adjust the value of the company
  • EBITDA * Multiple calculates the value of the company and the gross proceeds that the acquirer is paying to buy the company
  • LP is the Liquidation Preference paid to the Venture Capital investors
  • F is the percentage of the equity retained by the Founders
  • T is the percentage of their proceeds that the Founders pay in taxes
  • EC is the Exit Costs that the Founders pay to their professional advisors

In this series of articles, we will explain the derivation of the formula. We will use the formula to highlight the advantages that virtual companies enjoy compared to bricks-and-mortar companies and how they tangibly affect the wealth that founders retain in an exit transaction.  We will reference the figures below in developing the formula and comparing the outcomes between virtual companies and bricks-and-mortar companies.


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