They say that startups are bought, not sold. Though like any good product, getting bought, means selling your startup well.
You are always selling your company. This is especially true when it appears that you may be approaching an important or attractive time to sell or bring on new capital.
Again, whether inbound or outbound, maximizing the deal is all about the pitch. You have an enormous amount of control over the value and terms.
The pitch deck or memorandum can millions, if not billions of dollars in difference. The presentation delivery itself is extremely pivotal.
You have to be able to sell the vision, and forecast of the future of your companies and assets together to unlock the full value.
Metrics will draw in buyers, determine their offer prices and terms, and dictate how easy and fast due diligence is.
This can include:
This is one of the most overlooked parts of M&A deal making. Yet, also one of those which can make the most substantial difference in the net, and what happens next.
You don’t have to sell everything. In fact, your buyer may not want it all. Some of your assets may be more costly for them to manage or liquidate than they view as being profit centers. Yet, the opposite may be true for you.
This can apply to various types of assets your company controls. It may be physical assets, like real estate and equipment or inventory. Or it could be entire divisions of your company. Acquirers may see little role of some of your IP in their plans too. If they aren’t going to get the full value out of it. You can spin off a new company on that, or sell it separately.
This may also extend to team members and non-compete agreements.
The maximum net profit from selling your startup can weigh much more heavily on the terms of the deal than on the valuation and top line price.
Your net, including after taxes and when you bank it can depend on whether this is paid in cash, stock, or both, as well as currency exchange fluctuations.
Your payout can be greatly increased if there are earnout provisions and vesting overtime, or performance based bonuses. Just be sure that you are 100% confident you can stick it out, and that the fine print is fully empowering you to achieve those additional milestones.
To really maximize the outcome you may even want to run some M&A deals of your own in advance of an exit.
You can build value in a variety of ways. By owning the supply chain, gaining ability to change the pricing, owning competition, and acquiring more growth and future potential growth.
This may or may not require pulling in an additional round of capital from investors, or leveraging a buyout.
Get rid of bad debt, restructure financing, cash out partners or shareholders if needed, clean up HR contracts, and shed overhead. Make your company more profitable, so that it will be more profitable for other buyers too.
You might have the best numbers in the world, but if you can’t prove it with a clean papertrail and accounting then buyers have to assume the worst, and they are going to price that into the deal.
The price and terms you are offered are adjusted for risk. The less risk, the better the deal. So, what risk can you eliminate for potential acquirers?
Solidify that IP, improve profitability, get legal contracts right, settle legal issues, and be the best bet so they can’t afford the competition to buy you instead.
Integration is a beast. The vast majority of business integrations fail. That has to be priced in too. Unless you can show how great your companies and teams can work together in advance. What can you do together now to show that and prove you have earned a bigger payout?
How you fund your startup from the very beginning and along the way will make all the difference in the finances at the end.
Avoid bad debt and dilution. Be sure you have aligned investors. Pay careful attention to the fine print of financing documents. Especially when it comes to equity investments, or loans that can have big early payoff penalties, or maybe called due when ownership changes hands.
It’s not just funding either. Build with end in mind, and knowing the high chances that is an exit, even if you would prefer other options.
Note that this comes back around to being sure that you have the control to sell it when the time comes.
Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a foreword by ‘Shark Tank‘ star Barbara Corcoran, and published by John Wiley & Sons, the book was named one of the best books for entrepreneurs. The book offers a step-by-step guide to today‘s way of raising money for entrepreneurs.
Most recently, Alejandro built and exited CoFoundersLab which is one of the largest communities of founders online.
Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding where he was involved in one of the biggest investment arbitration cases in history ($113 billion at stake).
Alejandro is an active speaker and has given guest lectures at the Wharton School of Business, Columbia Business School, and NYU Stern School of Business.