INSUBCONTINENT EXCLUSIVE:
roller coaster, with only the most tenuous connection to the track
Understand the motivations of your acquirer.The first thing you need to understand is why the acquiring company wants your startup
Do you have a strategic product or technology, a unique team or a sizable revenue run rate Strategic acquirers, like Google and Facebook,
likely want you for your tech, team or sometimes even your user traction
Financial acquirers, like PE firms, care a great deal more about revenue and growth
assessing the seriousness of the discussion
or worse, a ploy to learn more about your strategy and product roadmap.2
If executed poorly, the process can terminally damage the company
tough choice for first-time founders
Often the opportunity to sell the company comes just as the process of running it becomes enjoyable
Serial entrepreneurship is a low-percentage game, and this may be the most influential platform a founder will ever have
But the reflex to sell is understandable
Most founders have never had a chance to add millions to their bank accounts overnight
Moreover, there is a team to consider; usually all with mortgages to pay, college funds to shore up and myriad other expenses; their needs
should factor into the decision.Is it actually your choice to make Most investors look at MA as a sign your company could be even bigger and
as an opportunity to put more capital to work
However, when VCs have lost confidence and see a fair offer come in, or they hear a larger competitor is looking at entering your space,
they may push you to sell
negotiate price, but other deal terms could be negotiable
One of the most important is the amount of time you have to stay at the company, and how much of the sale price is held in escrow, or
This is important for two reasons.First, your executive team will likely start counting their potential gains, and they just may let KPIs
key to running the business slip
If the deal fails to close, the senior team will be dejected, demotivated and you may start to hear some mutinous noises
This attitude quickly percolates through the team and can be deadly for the culture
What was supposed to be your moment of triumph can quickly turn into a catastrophe for team morale.This is typically the toughest part of
Recognize the fact that managing internal expectations is as important as managing the external process.4
shorten, allowing the acquirer to play hardball
In an ideal scenario, you want at least nine months of cash in the bank.5
Your VCs should be able to introduce you to a few strong firms
Acquisition negotiations are high stakes, and while bankers are expensive, they can help avoid costly rookie mistakes
They also can classically and plausibly play the bad cop to your good cop, which also can contribute positively to your post-merger
relations.My only caveat is that bankers have a playbook and tend not to get creative enough
Now is the time to call your point of contact and warn them that a deal is going down, and if they want in, they need to move quickly.Until
leverage as you negotiate key terms
The valuation may be set, but the amount paid upfront versus earnouts, the lock-up period for employees and a multitude of other details can
be negotiated more favorably if you have a real alternative
Of course, nothing provides a better alternative than your simply having a growing and profitable business!7
Start building your data room
Founders can raise shockingly large sums of money with pitch decks and spreadsheets, but when it comes time to sell your startup for a large
sum, the buyer is going to want to get access to documentation, sometimes down to engineering meeting minutes
Financial records, forward-looking models, audit records and any other spreadsheet will be scrutinized
Large acquirers will even want to look at information like HR policies, pay scales and other human resources minutiae
rather than later.One CEO said that during the peak of diligence, there were more people from the acquirer in his office than employees
For instance, a small shareholder on the cap table is more likely to blab to the press than a board member whose incentives are the same as
Use leaks when they inevitably happen.Leaks are annoying and preventable, but if they do happen, try using them as leverage
other potential bidders take notice
higher-priority, multi-billion dollar transaction over the finish line
It can be terrifying for founders to have what were productive talks go radio silent, but it happens more often than you think
A good banker should be able to back channel and read the tea leaves better than you can
Focus on execution, but feel good about achieving a milestone many entrepreneurs will never experience!
