Thinking of selling your startup? Here’s what you need to know about startup acquisitions.
Having sold my own company, interviewed dozens of the most successful founders with big exits on the DealMakers Podcast, and through my work advising entrepreneurs at Panthera Advisors, the following factors really stick out as what you need to know before you think you can hang up a for sale sign and cash out of the business you built.
Companies are Bought, Not Sold
You don’t just put your company up on Craigslist or stick a for sale sign on the corner when you are ready to cash out. Even if you did, you’d get a lot less than positioning for a strategic acquisition.
You can take your company to an investment banker when you are considering getting ready for a sale. They can help evaluate your business and subtly make the right connections for you to get bought.
Even more important is simply positioning your company to be attractive and even irresistible to be acquired. If you know your industry, you know what other larger companies need to keep fueling their own organizations. Prepare that on a silver platter and they’ll come knocking.
Years in the Making
What you need to know about startup acquisitions is that exits are generally years in the making. Things have seemed to be speeding up recently, though that could be a part of a larger cycle. There are exceptions where companies have sold or gone public in just a year or two. However, it normally takes years. Both investors and founders should be prepared to be committed for at least 10 years.
If you’ve checked out the case studies on the DealMakers Podcast, where I interview some of the most successful entrepreneurs, you will have seen that in most cases founders have been developing relationships with their eventual acquirers for months and years in advance.
Get to know them, keep them updated, build the friendship. Let them come up with the idea of buying you out.
The More Options You Have the Better
Getting acquired may be your plan A, but it’s always smart to have a plan B and C. If you can also go for an IPO or maintain the business with great cash flow and profitability, then you’ll always have the upper hand in negotiations.
What you need to know about startup acquisitions is that wou’ll be negotiating from a position of power. If you do go the merger or acquisitions route, then you can hold out and encourage prospective buyers to keep making better offers or create an auction that generates the best possible multiple.
Everything is Negotiable
“It’s standard,” is the worst line ever. You can negotiate some pretty incredible terms if you have an experienced negotiator who is really in your corner.
Some of what is possible or easy may depend on the strength of your business and the wider economy, and the timing, though don’t just sign everything blind, without asking.
You’ll want to know what your responsibilities will be after the sale, secure what happens to your team, and ensure your customers are well taken care of.
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