Thinking about selling your startup? What are your next steps when you are thinking about how to sell your startup company?
It would be nice if Google called while you are reading this with a nice outsized offer to buy your business, and were willing to close with cash next week.
I’ve interviewed some founders on the DealMakers podcast who pretty much had that experience. Though it is typically far less common than you think.
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If being bought by Google is your dream outcome, check out the case studies of Gil Elbaz and Kevin O’Connor.
If your startup hasn’t received any buyout offers yet, these steps will help you get there.
Take Inventory: Be Sure You’re Ready
Are you really ready to promote your business for an acquisition? Do you have the right support in place from outside professionals and your shareholders, founders, and board? Are you at the right stage of your business to sell it, and for the most money? Those are all questions you will need to keep in mind when figuring out how to sell your startup company.
Don’t be too greedy. If you can get what you want and get onto the next venture or stage in your life, and ensure your startup has the best support to really grow to its full potential, it can be wise not to gamble on the market. Things can change at any time. Though if the business is going well, then the more you prove your startup, the more it may be worth.
Research the Market
Which big companies are buying startups like yours? Which have dedicated funds and resources to M&A deals over the next year? What prices are they paying? How strong are their stock prices? What are similar startups in your industry at your stage selling for?
The more educated you are before considering how to sell your startup company, the more they will respect you, less they will try to take advantage of you, and the faster you’ll be able to spot a terrible offer from one that you just can’t refuse.
Learn the Process
Selling a company is much harder and more complicated than you can imagine. There are so many working parts. There are so many people involved. So many line items for taxes and negotiation. There is due diligence, integration, and all types of stock calculations to consider.
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There are some very experienced corporate development teams who have a very streamlined process. Then there are others who haven’t really become comfortable with the process, and it can be worse than pulling the team to get to the final signing and money in the bank. If you thought getting a mortgage was hard work back in 2008, multiply that by 10.
Establish Your Musts
What does a deal need to have in order for it to be a deal for you and your team? What’s your minimum price? Will you accept some stock, or will it need to be an all-cash deal? Will you want to continue to be involved for several years, or do you need to be free to work on other projects immediately? What protections will you want to put in place for your cofounders and team?
You may have to be willing to give and take a little, but having this clarity in advance will make things much easier, and help you avoid beginning a process you’ll regret.
Prepare an Up to Date Pitch Book
Mastering the storytelling side and how you are positioning your business is done via your acquisition memorandum. 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.
ACQUISITION MEMORANDUM TEMPLATE
A solid acquisition memorandum can help simplify the main points, demonstrate your full value, and why this is the time for buyers to act. It can also help speed up shopping around to other buyers after you receive your first offer.
Consult the Experts
An M&A advisor may be valuable in helping manage this process. They can spike interest in buying your company, without having to stake a for sale sign in the front yard. They can generate competition for your business, and hopefully a higher sales price.
At a minimum, consult an M&A expert who can help you think about factors you may have overlooked. After all, it’s what you don’t know that really gets you.
Load Your Data Room
Stay ahead of the game and be prepared to keep potential buyers engaged by loading a virtual data room with all of the pertinent documents they are going to want to see.
There are a variety of programs you can use to do this, and restrict and revoke access as needed. It will greatly smooth the process, and make you look far more attractive than letting your business get completely sidetracked by the mayhem of trying to find all your data as they ask for it.
Work Your Plan B
Even after an LOI things won’t always work out. Don’t get too distracted on trying to sell that your business suffers either. Keep your team focused on building the business, growth, customer happiness, and profit. That is what is going to make your company magnetic for acquirers anyway. You can always go raise another round of money or go public too.