How do you find a buyer to acquire your startup?
As I share in my book, Selling Your Startup, Finding a buyer, and the right buyer for your startup company is probably the most important and high-value task you’ll ever have as an entrepreneur. It will really determine how this venture ends up, what it was all worth, and everything that comes after it.
So, whether you are facing a crisis, and need to sell your company quickly, want to shop around after receiving an inbound offer to find a better buyer and ensure you are getting the best deal, or you want to start exploring the potential of a grand acquisition, how do you find those buyers?
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.
Here is the content that we will cover in this post. Let’s get started.
Why Finding & Choosing The Right Buyer Is So Pivotal
It is true that there are cases in which buyers reach out to startups with an interest in acquiring them. However, there are many good reasons that you don’t want to leave this to chance. You want control over the timing, and to have the right buyers making offers.
There are many other reasons that being proactive about finding acquirers, and particularly your choice of the acquirer is so pivotal when it comes to selling your startup. This includes the following.
Optimizing Your Time
In some cases, there may be a wide variety of potential buyers out there. Only a handful of those may be truly viable and reasonable matches. Many others may not have the financial capability or expertise to buy your company, even if they want to. Others and some brokers may just want to tie you up or get all of the inside information on your business.
Even if you have the best M&A advisor it can be extremely time-consuming. It can be very distracting and disrupting for your operations and business traction. So, it is important to only engage with legitimate and viable buyers and to save your time, energy, and other resources for the right one.
In a high percentage of M&A deals you as the founder will be expected to stay on and to continue helping the company to grow, integrate and hit specific performance levels and milestones. A substantial percentage of your sale price is likely to be held as an ‘earnout’, dependent on this over the next one to three years.
This is difficult at the best of times. Of course, there are probably some buyers out there that use this clause specifically to end up getting your company and its assets for much cheaper than the cover price. You really need a buyer that you can trust to empower you to achieve this performance and get what you were promised.
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Even though the sale of your company may just be a fraction of the whole journey, the outcome and headlines are going to greatly dictate how you and everyone else views it on your resume for the rest of your life, and beyond.
Everyone wants to be a part of a success story and to align with the successful. A great outcome will make it easier to hire great talent on better terms for your next venture. An exit with great returns to your investors will make them far more eager to invest in your next company. With more money, less hassle, and better terms too.
Think about it from the perspectives of vendors, lenders, and other entities too.
Who your buyer is will also greatly determine what happens to your team. Your cofounders and other staff you trusted in you and sacrificed themselves to work with you for so long.
This transaction will detail if they still have jobs, and if so, what their titles and compensation will be. Or if not, what freedoms they will have to pursue jobs within the industry.
If they had equity, options, or stock, then the deal also determines how much that becomes worth to them.
The Vision & Mission
Just because you are selling your business doesn’t mean that you stop caring about it. In fact, sometimes entrepreneurs choose to sell their startups because they believe it will best be able to fulfill the mission and vision in the hands of those who are more experienced at the next level and have the resources.
If the mission is important to you, then you want to proactively and carefully find and select your buyer. If they are not currently on the same core mission, then they should be bought into this one and the ultimate vision for it.
This is going to be vital for knowing you are having the impact you set out to create. It is also probably going to require them to have shared values, and perhaps even a similar company culture.
Your customers may also be a big part of this. Treating them well may be core to the mission and vision. It can certainly be imperative for the long-term survival of this venture, and its reputation. Sadly, many exits end up with poor decisions being made, that even punish the most loyal customers and fans you had.
Investors are also all about the story. Keep in mind that in fundraising or selling your startup, 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.
What You Can Do Next
The details of your deal will dictate what you can do over the next few years. Which can influence everything that comes afterward.
Will you have to stay on with your acquirer for several years as a simple employee with a boss? Will you be limited in what fields and technology you can work in and who you can hire and sell to as customers? Or will you immediately become a completely free agent to do as you please? How much net capital will you leave with to begin your next venture?
When Should You Start Finding A Buyer For Your Startup?
It takes a lot longer to complete the sale of a business after you strike an initial agreement. Between due diligence and nailing down all of the final details, it may take months or well over a year to get to closing after that initial LOI.
Even before that, there may be a string of meetings and conversations about the potential transaction before you get to the LOI. You don’t want to be rushing it and appear desperate in these negotiations either.
The right buyer and seller match is also often the result of periods of getting to know the individuals involved personally. Building trust and relationships with them before you are confident they are someone you want to pursue this with.
Well before this you should be strategically curating and positioning your business for your ideal buyer. So, at a minimum, you ought to be starting to look at buyer months, if not years in advance of a potential closing.
Finding The Buyer
What is the process of finding a buyer for your startup?
Create The Buyer Profile
Who is the ideal buyer of your startup? If you could create the perfect buyer, what would they look like? At a minimum, what boxes should they check?
Just as you created an ideal customer profile for your product, do the same for your buyer.
You can also use this to reverse engineer your startup and the metrics and other factors you should seek to provide.
Research the market and see which companies or funds out there fit the mold of the buyer you are looking for.
There are plenty of websites, platforms, and data sets to help you dig into the data.
Interview & Vet Them
This is a critical step that many founders drop the ball on. They get too focused on trying to please and impress buyers. Instead, they should be screening and vetting buyers as much or more. You want them to be trying to prove why they are the buy that you should choose.
This should not just be done on the company itself, but the individuals that you will be dealing with through the transaction, and afterward.
Dig into their process, plans, reputation, organization, and how they’ve interacted with and treated others.
Connecting With Your Prefered Buyers
Know that you know who you want to connect with to buy your company, how do you go about it?
If the decision-makers or gatekeepers to these buyers are not yet in your personal network, expand your network. Do more personal networking, live or online.
You can also look them up online and grab their contact info. It’s not ideal, but you don’t know what a cold DM, call or email can yield until you try.
You can also turn to your network for introductions and referrals. Who can they connect you with? These warm introductions are far more powerful, and start the relationship with trust and familiarity. This includes leveraging your investors, and other entrepreneurs you know. Even perhaps your big customers.
Don’t forget investment bankers. This is their job. To connect you with buyers and represent you. They are not always cheap, but they can do a lot to help and protect you.
M&A advisors can also be invaluable in this process. Helping you to evaluate your business, position it, determine the right buyers, connect you with them and negotiate the deal.
Attracting The Best Buyers
They say that startups are bought not sold. Yet, that still means making yourself visible and attractive enough to catch their attention and trigger them to action.
Elements of this include:
- Keeping up a strong and positive media and press presence
- Delivering positive customer service experiences
- Focusing on growing the right metrics
- Pushing growth and/or profitability
- Brand recognition
- Growing recurring revenues
- Owning market share
- Establishing key partnerships
Converting Your Buyers
Identifying and connecting with them is just part of it. You still have to convert them into buyers.
Do this by:
- Creating a winning pitchbook and verbal pitch
- Having the right professional representation
- Being able to back up your claims with data
- Showing how you can derisk their purchase
- Trial deals and partnerships to demonstrate fit
- Knowing their triggers in negotiation points versus your must haves
Alternatives To Selling Your Startup
If you just aren’t finding a great buyer, or the timing isn’t right for you and your preferred buyers, what are your other options?
One obvious option is to raise more capital. Raise more funding to carry you through to that right moment. Use it to get your startup to where it needs to be for a great exit. Or buckle down on profitability and revenue so that you can be self-sustaining.
You may also use these funds to acquire others. Roll up your space, or acquire more of the supply and logistics chain to gain profitability and to be able to compete with any bigger competitors who may have been potential acquirers. You may force their hand to buy you.
Then there are mergers. Can you join forces with others to own more market share and enjoy better unit economics. Become a more powerful force this way, and more valuable to potential buyers.
Of course, if you do want or need to exit, then going public with an IPO is the next most obvious choice. The more modern, easier and more streamlined version of this is a SPAC deal.
Ready to find a buyer for your startup? Being proactive and intentional about finding a buyer enables you to drive the deal and find the best match for all your desired factors in the outcome.
Using this guide you’ll gain more perspective on the importance of owning this process, as well as the steps you can take to find the best possible buyer for your business.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.