How to plan a startup acquisition?
Sooner or later your startup business is very likely to end up being acquired.
Rather than leaving that to chance or giving the other side all of the power in the situation doesn’t seem smart.
That’s considering how much you have and will put into this venture.
So, what are the parts of planning a successful acquisition?
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.
- 1. You’re Headed There: Plan For It
- 2. When To Start Planning Your Startup’s Acquisition
- 3. Critical Elements In Planning Your Future Acquisition
- 4. Raising The Money You Need To Grow To Get There
- 5. Developing & Obtaining The Value Acquirers Want
- 6. Creating A Timeline For Your Business
- 7. Who Do You Need On Your Team To Get There?
- 8. Who Will Help?
- 9. Steps In Planning Your Startup’s Acquisition
- 10. Identifying The Right Buyers
- 11. Connecting With Your Target Buyers
- 12. Strategically Positioning Your Business
- 13. Organizing Your Business For Sale
- 14. Presenting Your Company
- 15. Know Your Priorities In A Sale
- 16. Understand The Timeline
- 17. Understand Your Needs Through The Process
- 18. Have A Plan For What’s Next
- 19. Get Your Team On Board
- 20. Summary
You’re Headed There: Plan For It
If your startup fails to achieve what you hoped, then having it acquired in some way can be one of the best outcomes and ways to exit it.
If your startup is successful, then getting acquired is one of the most likely outcomes.
An IPO is possible, though more will probably sell than continue as a public company.
If this is where you and your company are headed, it just seems to be common sense to plan for it.
Gain some control over the process and outcome, and be sure it is in your favor, not something that is just happening to you.
When To Start Planning Your Startup’s Acquisition
Great endings don’t happen by chance. It’s not just good luck.
Whether it is your life, a career, or a startup, a great outcome is the result of planning for and aiming for it.
If you don’t plan to go somewhere or get something specific, then the odds are overwhelming that you are not going to get there and achieve it.
Sadly, most entrepreneurs and startup business owners map out some form of path to some success metrics and stop.
They try to reverse engineer things from there. They don’t think beyond that. Which is ironic at best.
Chances are they may be acquired before that. Or they may need to go well beyond that.
This misalignment can prove very counterproductive when it comes time for the exit.
So, when is the right time to start planning your acquisition? Even before you launch and start your startup.
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Everything you do from how you structure your company to initial products will impact your acquisition and the journey there.
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.
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Critical Elements In Planning Your Future Acquisition
Below are some of the critical elements in your business planning that will be instrumental in your acquisition.
You’ll need to understand them when working out how to plan a startup acquisition.
Raising The Money You Need To Grow To Get There
No matter what you plan to be the basis of your value and an acquisition, it is going to take money to get there.
Even if this is just going to be assembling the best team in the industry, it is going to take money
You may need money for product development, expansion, and certainly, marketing.
You may even need to arrange the capital and financing to acquire other companies before yours is optimized for an acquisition.
Start mapping out how much you’ll need, and when, as well as the milestones you may have to hit to earn each next round.
Developing & Obtaining The Value Acquirers Want
What is it that will be most valuable and compelling to potential acquirers?
What will justify your hoped-for exit, and create the sense of urgency to get them to take action?
Will it be IP in the form of certain software capabilities, business processes, and operational efficiency, or patents and trademarks?
Will it be specific types of assets? Or a certain market share?
Will it be metrics-based? Do they want growth, customer base, recurring revenue, or something else?
Will it be a financial decision? Do they want to acquire cash flow, margins or profits, or even tax breaks?
Creating A Timeline For Your Business
Now with this acquisition in mind, what does the potential timeline look like for your business?
It could certainly come sooner than you anticipate. Or it could be much later, depending on various external market factors.
When will your business outgrow you? When will it best benefit from being put in the hands of someone else with more experience at that scale?
You need someone who has the infrastructure and resources to make the most of it.
What do you need to focus on in order, and to get there on time?
Who Do You Need On Your Team To Get There?
What talent and roles will you need to fill to achieve what you want for this exit?
Do you need certain technical talent? Or will it mostly be marketing and sales which really drive the factors that will result in a great acquisition?
What executives do you need to really excel at that level and standard?
You may also begin contemplating the technology, software, organizational structure, and company culture.
These factors will best align with and be most attractive to your ideal acquirers.
The easier you can make the integration, and more of a no-brainer you can make it, the better this is going to go down.
Who Will Help?
Who are the experts that you will specifically recruit to ensure the best possible acquisition?
Are you putting the right investors in your stable? Are you connecting with investment bankers?
Which M&A advisors stand out as great professionals to help you with everything from strategizing and positioning to closing this transaction?
Steps In Planning Your Startup’s Acquisition
When the time comes to actually work toward the acquisition and map out the steps, the following will help guide you through it.
Identifying The Right Buyers
Begin by identifying the best buyers for your startup.
Just as you don’t just want to try to sell your product to everyone and anyone, you also want to be sure you are targeting the optimal buyers.
- Who can afford it?
- Who can and is likely to pay the most for it?
- Who may give you the best terms?
- Who is the best fit for your company?
- Who can pull off an integration or the best ongoing management of your company?
Answering these questions will give you a fair overview of how to plan a startup acquisition.
Connecting With Your Target Buyers
After you’ve made a shortlist of preferred acquirers, you’ll want to start reaching out and connecting with them.
Selling your startup is not like hard cold calling and hoping to close on the first conversation, nor like door-to-door vacuum sales.
Even before you get into serious conversations and negotiations about an M&A transaction, the best deals are built on established relationships and trust.
These relationships can be months and years in the making.
Don’t wait until you need to sell your company tomorrow, or it is the optimal moment to get out. Start working on this casually now.
A critical facet of planning your startup’s acquisition is knowing how to value your company. If you would like more information on how to get that done, check out this video I have created. You’re sure to find it helpful.
Strategically Positioning Your Business
Startups are bought because they stand out and are positioned to appeal to active buyers.
There is a lot that startups can do to position themselves to attract great offers and even competitive bids from multiple buyers.
This can be achieved in a variety of ways. Through branding, creating a buzz in the media, and highlighting the right news about your business.
You can also try inking, exclusive, and desired contracts.
Organizing Your Business For Sale
A lot of planning your acquisition is about marketing and positioning it.
However, getting an M&A transaction closed is also going to rely on being able to ace the due diligence. And having the infrastructure that is desirable.
Many entrepreneurs overlook this critical factor. No matter how sexy they can make it all seem on TikTok, the guts of the business have to be right too.
This includes cleaning up your accounting, contracts, cap table, and more. Get this done before people start asking to see inside your business.
Presenting Your Company
Much of the value and negotiating power in selling your business is going to come down to how it is marketed and presented.
This includes your pitchbook, supporting materials like forecasts, and other documents for your virtual data room.
Having trusted intermediaries that can make warm introductions with decision-makers at your target acquirers can make all the difference.
Know Your Priorities In A Sale
Before really diving into your positioning or having any serious conversations about a sale, you need to know your priorities.
- Is it just about how much money you will get out of the transaction and when?
- Or is it about people and the mission?
- What are your top must-haves, and must-nots in this deal?
When you’re working out how to plan a startup acquisition, these factors will help the process.
Understand The Timeline
We’ve talked a little bit about planning your entire timeline for your business, and up to engaging in an acquisition process.
Yet, it is also critical to get the timeline for the acquisition itself.
This can vary widely depending on your buyer, their experience in M&A, and the size and complexity of the deal.
Whatever it is, you need to know what you are in for.
Is this something that they are trying to close in the next two weeks and will make many concessions to close on time?
Or could it potentially take many months or even a couple of years?
How will this impact the deal you want to negotiate? Learn what you can do to speed it up, and avoid slowing it down.
Understand Your Needs Through The Process
As with everything else in business, your acquisition may well take longer than planned.
Through understanding your potential timeline, what are your needs throughout this process?
Specifically for the deal, you will want a buffer or intermediary to help in negotiations. You’ll need legal counsel and expert advice.
You want assistance in clearly understanding the fine print and terms.
At the same time, you are going to have plenty of needs associated with running your business.
This is the moment when your business should really be performing at its best. You need to keep it growing.
You can’t afford to drop the ball now and potentially kill your deal in the process.
So, what extra team and capital needs will you have at this time when half of your own time or more will be taken up with the acquisition?
Have A Plan For What’s Next
This whole transaction and everything else that follows will go much better if you already have a plan for what you will do afterward.
Even better if you start planning and working on that now. Think about:
- Are you jumping into a brand new startup right away?
- Are you eager to catch up on all of the things that you haven’t been able to do while engulfed in your business for the past five years?
- Or are you dreaming of some much-needed rest and relaxation, while hunting for your next business idea?
Get Your Team On Board
You aren’t going to get far in an M&A deal unless everyone else is on board.
That includes your executives, key team members, investors, and cofounders.
Though if you have planned well then you should have the right people in these seats. And all already be aligned before you get to the point of voting on it.
Great acquisitions aren’t sheer luck. They are the result of great planning.
These are some of the most important elements and steps in mapping your way to the success that you really want.
The best time to start working on them is right now. And, the first step is understanding how to plan a startup acquisition.
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