How would you feel if you’d just sold your startup for millions of dollars?
Are you making deliberate moves to make a sale more likely? Or are you just hoping the right buyer will come along as if by magic?
Almost 2 years ago Jason Nazar announced “to the world that he had just sold the company he had worked on for 8 long years for a reported $50 million to Fortune 500 powerhouse Intuit.”
What were the steps he took and what were the lessons he learned along the way?
Wil Schroter at startups.co asked him and here’s a summary of what he said.
Knowing when to sell
- It’s never easy and is a big decision requiring serious introspection
- Deciding to reject the alternatives of continuing to run the company, taking more investment or pursuing other M&A options is as much an emotional and personal call as anything else
- Judging how other founders, the team and investors will feel they will benefit is a huge factor
- Is it too soon? According to Jason, “Almost everyone regrets it [the sale] afterwards, because they think they can keep growing.“
Starting the process
- Companies are bought not sold
- Jason collected a list over the years of potential suitors who he thought could be a good strategic fit – and why
- Is there ‘mission fit’ and how closely aligned were their customers with his
Positioning the deal
- Positioning to acquirers is similar to pitching investors but “it’s a fine balance between selling the future while justifying the present.“
- Research where they are focussed and where they are lacking to identify critical selling points
- Do you offer a growth opportunity they cannot hope to emulate?
- Do you offer an opportunity for them to enter a new market?
- Do you offer an opportunity for them to acquire tons of new customers?
- Do you offer an opportunity to attain instant market traction in a space that would otherwise take years if ever to achieve?
- Unlike pitching investors, “in an acquisition, the deal that gets done is more or less the final deal. Whatever price the seller agrees to at that moment in time is the end of the story.“
- Deal points directly affect things like investor return and factors affecting the team.
- “The most important thing in any deal process is the people. You paper an agreement, but it’s the people and how they treat each other during and after the deal process that create all the value.“
- Time limit how long the acquirers get for due diligence.
- Beware: “A typical lock-up period can require the Founders or other shareholders to have to stay on board with the company for a fixed period of time, or in some cases restrict their ability to sell their shares.“
- You and your investors may have previously negotiated single or double ‘acceleration clauses’ which can impose extra conditions on the acquisition such as when your equity vests.
- Who’s going to end-up reporting to who? Including founders and key team members.
- What are the compensation terms for those transferring to the acquiring company?
- It’s common for public acquirers to pay with stock. Watch out for conditions for resale. As ever cash is king!
- Be aware that so-called hold-back insurance may required you and your fellow founders and/or team to meet various requirements before any proceeds are released.
Signing the deal (or not)
- For Jason, it took just 30 days between receiving the letter of intent and signing it. Then another couple of months to move the deal through negotiation to signing.
- Many deals fail to conclude and not just due to price…
- Especially within a large acquiring company, a real risk is that momentum can be lost due to key sponsoring staff getting fired, or re-assigned, or changes in political or strategic agendas.
- Due diligence can often derail the most promising of deals
- Speed is essential since each extra day the process takes adds to the risk of Murphy’s Law causing some unexpected event to scupper the deal
Announcement day and beyond
- The press, everyone, fails to appreciate the risk and the work that goes into each done-deal. But also that for every successful acquisition there are many others that don’t even start or fail to complete.
Was Jason smiling the day his deal got done?
“Yes! But more from relief at first than joy.
The joy came later…”
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