How to avoid looking desperate during startup acquisitions? You don’t want to look too anxious when selling your company or buying a business. It can cost you big time. What strategies and tactics will help you secure the best deal?
Remember that mastering the storytelling side and how you are positioning your business is critical when it comes to engaging and speeding up the process. This is done via your acquisition memorandum. This is super important to reach a successful acquisition. For a winning acquisition, memorandum template take a look at the one I recently covered (see it here) or unlock the acquisition memorandum template directly below.
Why Avoiding Appearing Desperate Is So Important
When you think about it, it is common sense not to want to appear desperate during any potential sales transaction.
This applies to everything from cars to homes to personal items, and your company’s products and services. Given how much larger and more significant this transaction is likely to be to your life, career, and others, it is clear that it is even more important to be intentional about not seeming desperate here.
This applies to those on both sides of the deal, whether you are buying another startup, or are selling yours.
What is the impact of appearing desperate when selling your startup?
No matter how desperate you really are, it is important not to appear so.
One of the most obvious reasons is that you are going to automatically only attract lowball offers. Regardless of how much your company and assets may be worth, the assumption that you are desperate and under pressure to sell means that you’ll be offered a lot less. It is going to be harder to negotiate up from there.
Even if you can agree on an initial price and LOI, buyers may also be anticipating that they can easily renegotiate and keep on bringing that number down in the process. That is in addition to rushing through terms and documents which are heavily weighted in their favor.
If you aren’t careful, you may end up walking away with nothing.
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Not wanting to appear desperate is equally as important for buyers.
Sellers often already have overinflated opinions about how much their startups are worth. You don’t want to fuel that beast any further. It can be really hard to back them and their shareholders down from that once they have a big number in their minds.
This is more likely to end up in a no-deal situation than to be able to negotiate an acceptable price. Worse, it may mean they end up becoming an expensive competitor for you, disrupting your industry, or being acquired by one of your competitors who is happy to spend more than it is worth.
How To Avoid Appearing Desperate During Startup Acquisitions
Avoiding looking desperate when buying or selling a startup is important. So, how do you go about that, even if you may be very motivated to sell or to acquire?
Even if you need a piece of technology or other assets to shore up your own position, or you foresee issues on the horizon that may further deteriorate your position or end you, there are methods of avoiding appearing desperate. Here are some of them.
Avoiding Looking Desperate As A Startup Seller
Make Them Aware Of Other Buyers
Switch up the debate and positioning by showing other interested parties, or companies that should be highly motivated to buy you, and with great resources to make it happen.
This can be done by running an auction-like process, or through your pitch and presentation.
Just don’t lie about receiving other offers, as that can lead to serious legal consequences.
Keep Pushing The Right Metrics
Focusing on your own business, and demonstrating strength, position, and your value is the best way to attract strong acquisition offers.
Even if you are weak in some areas, don’t have everything figured out, or may have a limited runway, if you can perform on the right metrics you will be seen as a must-have.
This may be market share, growth rate, customer acquisition rates, or profit margins. They may desperately need these metrics. The cost of not having them may be greater than the difference you are asking for.
Show How Strong You Are Financially
You may not be firing on all metrics as some other startups are, though financial strength is still valuable to some buyers. It shows there can be a lot of potential and value to unlock with their resources.
Other buyers may specifically be looking to buy for this. Or at least it shows that you have plenty of runway, can sustain yourself without having to sell, and don’t need to take a bargain-priced offer.
While you may certainly be limited on the data you want to or can divulge there may be ways to demonstrate this.
Profit margins, unit economics, big new customer contracts, or getting strong commitments for a new fundraising round can all be ways to convey this. Some of which you may be able to publish in the press.
Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Don’t Jump At The First Opportunity
Don’t leap desperately at the first phone call or email enticing you to have a conversation about selling. Don’t drop everything to fly off to meet them and have a conversation on their turf.
Certainly don’t accept the first offer. You may not want to take the second offer either. Don’t foolishly miss out on the chance to sell. Especially if it is the right time for you. Though refraining from engaging in initial offers will certainly give the impression they need to come with something better.
Don’t Yield To ‘Standard’ Terms
If you haven’t prepared yourself and invested in learning about M&A, then they will take you for a newbie, and try to get you to sign lengthy documents, with plenty of legalese, and clauses they claim are ‘standard’.
Some might be, though, just about everything is negotiable. Even if you end up signing the same terms, showing that you are willing to question things and not just blindly sign will suggest strength.
Retain The Right To Shop The Deal
During initial negotiations and your letter of intent, you can argue to retain the right to shop your company and solicit offers from other bidders.
This shows them your confidence in the value and saleability of your company. As well as puts them on notice that they probably have competition, and need to step up with their best possible offer.
In a turn of course you can also parlay this into more offers with several rounds of bidding.
Keep Control Of Your Schedule
When you start allowing someone else to control your time and schedule, you automatically give them the upper hand. It shows desperation.
No matter how desperate you really are, show strength and confidence by finding room for them in your schedule on your time frame. Not vice versa.
Have them contact your assistant to set a time. Don’t be pulled into sacrificing your time boundaries, personal time, quality time with family, weekends, nights, vacation time, or more important matters of running your business on its own.
Use A Third Party Intermediary To Negotiate
Whether it is a business broker, investment banker, lawyer, or M&A advisor, a third-party intermediary can be highly valuable in these scenarios.
There can be many advantages to using them. In this scenario, they are far better able to objectively converse and negotiate without letting emotions trigger accepting inferior offers or showing how much you need this transaction.
These parties can also offer a lot of value making initial connections with potential buyers in the right way.
Don’t Give In To Restrictive Terms Too Easily
While longer vesting periods, earnouts and non-compete agreements, and performance-based payouts can all offer additional value in an acquisition, don’t show that you are too eager to take them.
A stronger, more confident startup founder would be able to sell their company without them. You may take the extra earnings, but don’t leap too fast.
If you do, be sure to carefully negotiate clearly defined terms, and secure enough resources and decision-making authority to really earn it in advance.
Demonstrate Your Alternatives
If the buyer is aware you know your other alternatives to selling and sees you are confident in pursuing them, you’ll seem far less desperate.
Raising another round of funding to keep on growing independently is one of the most obvious paths you could take. You can create a new pitch deck and start doing your rounds. If you can demonstrate you already have some notable investors or capital committed that proves you don’t have to sell, even if you would prefer to.
A potential IPO or SPAC deal is another route. You could begin exploring that and preparing the paperwork to file to go in that direction. Let them convince you why you should sell to them instead.
You can also portray your confidence in being able to continue to sustain your venture yourself and profitably without outside funds. You may not want to reveal your internal finances, but this may be done by announcing new customer contracts, or talks of partnerships with big clients. Some of which may even be their competitors.
Interview Them As Much As They Vet You
If you make it all about trying to please them and begging and desperately trying to show how they should buy you, you will already be on the wrong foot.
Turn the tables. Make them make the case for why you should sell in the first place. Then why you should specifically choose to sell to them instead of someone else. Ask what they can do to give you more confidence in that.
Vet them as much as they vet you, rather than being giddy about getting an offer from them.
Avoiding Looking Desperate As A Startup Buyer
Make Them Aware Of Other Opportunities
There are a lot more startups and companies to buy than there are companies that can buy them. Conversations can definitely circle around how you are evaluating other similar startups in their space, and what they have that makes them stand out as attractive options to buy.
You may really prefer this company, but on paper and in the media headlines, others may look better. Sellers are often already feeling competitive and on the defense about these things.
Don’t Be Afraid To Pull Back
The art of the takeaway is one of the most classic negotiation strategies and tactics. This can be played at any point in acquisition conversations and negotiations.
Don’t overplay this hand and end up losing the deal. Though putting deadlines on offers, or going silent and taking your time to respond to counter offers can all make you appear less eager and desperate.
Be Firm On The Due Diligence Items You Want
A more motivated and desperate acquirer may be willing to waive a lot of items, tasks, and data in the due diligence phase. Whether you really need that data to do the deal or not, you may be rigid in your demands. Suggesting you are willing to walk away if they won’t provide it.
This can include interviewing their team, customers, and spending time on going through all of their paperwork, accounting, and evaluating their assets in depth.
Show How Easy It Is To Replicate
Aside from buying a competing startup, the obvious alternative to buying them is to replicate their success yourself.
This may be a product, technology, specific result, or metric. You may prefer to acquire an existing solution for speed and efficiency. Though you can demonstrate the math on how you could copy what they’ve done less expensively than acquiring their company.
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