How Likely Will Your Startup Be Acquired?

An acquisition can be a lucrative opportunity for your business to exit, potentially leading to significant financial gain.

Consider this: a strategic acquisition may yield a higher price and proceed more smoothly compared to going public. This option holds significant promise and potential for your business.

To learn more about startup acquisitions and how to make your business attractive and ‘acquirable,’ consider the following questions and essential information.

Table of Contents

Acquisition Questions

Be aware that this article has more questions than answers, as it provides thought-provoking information on how to prepare your start-up for an acquisition.

Is your board on board?

Are your board members and any other voting stockholders in agreement about pursuing an acquisition as the preferred exit strategy?

Is your board’s vision aligned with yours? This alignment is not just important; it’s crucial in the context of an acquisition. Confirming that your board supports your strategy can provide you with a strong sense of confidence.

Do you all agree on the approximate valuations and the timeline for allowing your venture to be passed on to another party?

Do You Have What Buyers Want?

Understanding what your potential buyers are looking for and aligning your offerings with their needs is crucial.

Are you currently providing what your most likely buyers are seeking? This is a key consideration in making your business attractive for acquisition.

Why buyers want startups

Some of the most common reasons startups get acquired by investors or established enterprises include:

• Acquire a team with proven talent and expertise
• Add growth to their larger and slower operations
• Add profitability to existing customer bases and lines of business
• Harness a hotter new brand
• Eliminate competition
• Implement new technology faster and cheaper than they can create it

Are your documents up to scratch?

Even if the prospect of acquiring your startup is appealing to investors and they have a good impression of you, are your documents organized and clear enough to make the acquisition process straightforward and viable?

Are you utilizing the appropriate accounting methods?

Is your corporate structure optimized for fundraising and acquisition?

Are your contracts, human resources paperwork, leases, and intellectual property protections all in order?

This can be more important than you think, and no one wants a messy and hellish due diligence process.

Is there a proven demand for your product? In the world of business, it’s not just about big ideas, but about tangible profitability. This focus on demand can drive your determination to succeed in the market.

Big ideas are great, but it’s all about whether they can turn a profit when it comes to a saleable business.

You may not need to be profitable and have revenues in the early stages of fundraising or even to go public these days. Yet, an acquisition is much more likely to be about the money.

You should have established a proven demand for your product, demonstrated commercial viability, and secured a substantial market by the time you consider selling your company.

Is your business model scalable?

Is there a sufficient and exciting market available that could increase profitability for a potential acquirer through its infrastructure and financing?

Have you accurately priced your product, ensuring there is enough margin to accommodate additional sales channels and the administrative costs associated with operating within a large organization?

Are your numbers substantial enough to justify the price you are seeking?

Can your startup reach enterprise-level?

There is a significant financial opportunity in catering to enterprise-level businesses. Establishing a clear path to enterprise solutions, or better yet, showing traction with an enterprise-level product or service, can significantly enhance your chances of being acquired.

However, many startups face challenges in this area and often do not begin with an enterprise-level solution. If you can identify and develop such a solution, it will undoubtedly give you a competitive advantage in attracting potential buyers.

Does your startup have synergy?

The vast majority of acquisitions fail, with only a few becoming profitable and successful; therefore, it’s often puzzling why big companies invest so much in M&A activity.

The answer is that it can be an efficient and cost-effective method of operating and meeting investor expectations, making it necessary at times.

The most significant factor in whether these mergers and acquisitions survive or fail is usually integration.

Culture, systems, and synergy in client bases are all a part of this. The more synergy you share, the more confident buyers will be in taking the leap, and the more they can afford to offer.

This can also go a long way when it comes to negotiating the final terms and any earnouts.

Savvy entrepreneurs will use this knowledge to build in as much synergy as possible throughout their development. They’ll highlight it through their media releases and in early conversations.

It is also demonstrated by the synergy in meetings as you build a relationship with these contacts.

This certainly isn’t a single factor either. You’ve put in a lot of sweat, sacrifice, time, money, and energy.

A big payout may be enough to convince you to sell your business. Most likely, you’ll also be selling because you believe it is best for the industry, team, customers, and the world.

The last thing you want is for your venture to fail due to selling to the wrong buyer.

Do You Have Relationships?

Here is an example of a serial entrepreneur who achieved success by building strong business relationships.

Alejandro Cremades, a serial entrepreneur and the author of The Art of Startup Fundraising, built and exited CoFoundersLab, one of the largest communities of founders online.

He has interviewed startup founders on the DealMakers Podcast, many of whom received offers and invitations from big tech giants like Google out of the blue.

Alejandro often says that an M \ & deal will come out of a relationship with existing contacts or an M \ & advisor that runs the process.

The more people you meet and really connect with, the higher your odds of selling to the right buyer. Make sure you are budgeting time for this each month, right from the start.

Alejandro’s book, The Art of Startup Fundraising, with a foreword by ‘Shark Tank‘ star Barbara Corcoran, and published by John Wiley & Sons, 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.
In this article, Alejandro shared this knowledge of the challenges startups face with potential acquisition and merger activity.

Before CoFoundersLab, Alejandro worked as a lawyer at King & Spalding, where he was involved in one of the most prominent 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.

Alejandro has been involved with the JOBS Act since its inception and was invited to the White House and the US House of Representatives to provide his views on the new regulatory changes concerning online fundraising.

Is It Vital for Investors to Acquire Your Business?

To prepare your startup for a potential acquisition, you need to increase the perceived risks of not making a winning offer. At the same time, you should make the integration process and its benefits far more appealing than the current situation.

Could your startup become a formidable competitor and disrupt the industry if it chooses not to acquire you? This potential for disruption can be a powerful bargaining chip in your acquisition strategy.

Alternatively, consider expanding your business beyond the startup phase.

You might explore selling shares in your company to encourage employee buy-in and generate cash for business growth.