(upbeat music)
- How do you negotiate somebody buying your startup?
In this video, I'm gonna share with you some strategies
of going through that negotiation process,
'cause maybe you've had somebody
reach out and showed interest.
Maybe they've asked you how much
you would want to sell your company for,
or even started negotiating terms with you,
and you've never done this before.
Well that's what I want to share in this video.
You know, I've been building companies now for 20 years.
Over the last 10 years alone, I've started and scaled,
10 companies have been acquired.
The last two were venture-backed,
and I've helped 20 plus other entrepreneurs
sell their business or go through that process.
You know, recently I was working with one of my clients,
and she was working on the discussions
and she had different interest from different parties,
and was wondering, how do you structure that?
How do you respond to one?
How do you get somebody else excited?
How do you create that process
to try to maximize the value for your shareholders?
That's what I want to share with you guys in this video.
The five strategies to negotiate
an acquisition of your company.
So the first one is, never, ever put out the first number.
And this is a tough one, because, you know,
if you both are good negotiators,
the acquiring company and yourself,
then there's like this stalemate.
It's like, who's gonna put out the first number?
Who's gonna say what your company's worth?
If you get stuck, and they're like,
"Look. We just need a number.
"What do you think?
"What do you think your shareholders, your investors,
"your board, your team would want as an outcome
"to make this deal happen?"
You could say, "Look, we want to hear from you first,
"but I can say this.
"In the past we've had people
"suggest that the number could look like this."
So, it's not even you saying it.
It's other people, potential acquirers,
other people in the markets.
Maybe it's the valuation from other VCs or investors.
They're setting the price, so that
you aren't beholden to that.
You're not telling them like,
"This is what I think it's worth."
You're just saying, "Look.
"This is what other people have said.
"And take it for what it's worth.
"And what do you want to do?"
Really you're just trying to give them
enough information to get them to a point
where they're gonna sign or write
a term sheet for your business.
So that's number one.
Two, I always suggest moving to the phone.
I do not negotiate in email.
If I feel like the acquirer has some legs
and there's some real meat there
and they really want to do a deal, I'll be like,
"Let's get on a call."
The first one will just be with usually the CEO
or the corp dev person, trying to understand
where they're at, and then eventually it's like,
who are the other people that need to be involved
in this decision?
Let's get them on a conference call.
And then it's just an introduction and it's a conversation.
And then really quickly, I'll try
to move them to a term sheet.
But here's the deal.
I always get on the phone to negotiate, to discuss,
because there's so much things that can be misunderstood
in an email, and also there's a record of what you said
that they can share with the rest of the team.
So what I do, my strategy, is pick up the phone,
talk, follow up with an email to get the commitment
of what you've discussed, especially if there's numbers,
there's terms, or strategies.
Whatever it is, you want to make sure that you negotiate
using voice, because that's way more fluid
and easy to understand, and the nuances.
But then you move to an email to lock in the understanding
of what was said on the call.
The third thing is, know your BATNA.
You know, a guy named Roger Fisher wrote a book
called Getting to Yes, incredible book on negotiation,
and he talks about a BATNA, your Best Alternative
To a Negotiated Agreement.
Before you get into any negotiation,
you need to sit down with your team, with yourself,
reflect, and say, "Hey, what's our BATNA?
"What's the number?
"What's the lowest number we're willing to accept
"to make this deal happen?
"And with that, what are the terms that we should look at
"or review to ensure that we're on the same page?"
But having that BATNA will help you decide,
what's the number that you may go back
and kind of counter with?
Or what are some of the terms that are gonna be involved?
Whatever it is, understanding your Best Alternative
To a Negotiated Agreement, when you're gonna walk away,
is a critical step.
It's really the third in the five strategies.
The fourth is, create a competitive process.
Please, please, this is the biggest thing,
that I worked with the entrepreneur
that I was consulting with.
I call it the escalation ladder.
Like I have a framework for, how do you take
a company that never heard of you
and walk them through and escalate
to the point where they could be writing
a competitive term sheet for that same deal
in a very short amount of time.
You can do the same thing with investors.
If you have a company coming to buy you,
and you think what you've created is really valuable,
then you can take that opportunity
and go to other investors and say,
"Hey, we really want to build this business,
"but we have an opportunity to get some liquidity
"or exit or return for our investors,
"but we think there's a big opportunity here.
"Do you want to look at this deal
"and maybe preempt that investment?"
So, creating a competitive process
will give you more avenues to negotiate
against the different potential acquirers
or investors, to increase the valuation or the number
that you're gonna get for your business.
So always create a competitive process.
That's number four.
And five is hustle across the finish line.
Like, no matter what, I just want to let you know this.
30% of deals that get signed term sheets go south.
They don't work out.
Something comes up in the due diligence
or the negotiations, or just it takes too much time.
The way I look at it is, once there's a signed term sheet,
you want to set a date that's six weeks to eight weeks
out in the future.
You want to make sure that the lawyers are on point.
You want to make sure the lawyers don't have
any scheduled vacations coming up,
which happened to me in one of my deals,
and you want to make sure that you talk
to your team and let them know what's going down.
Make sure you do interview prep.
There are so many things you don't want to get wrong,
but that area is called the red zone, right?
That point where you sign a signed term sheet
with one acquirer, like pretty much you have no defense.
If something goes wrong with that deal,
then it's really hard to go back to the other ones
and say, "Oh, sorry we passed on you,
"but this didn't work out.
"We now want to talk about that deal."
Not a good spot to be.
So that is the five strategies.
First is don't mention the number.
Second is talk on the phone,
then write an email to follow up.
Third is know your BATNA, your Best Alternative
to a Negotiated Agreement.
Fourth is create a competitive process.
And five is always hustle across the finish line.
You know, I want to invite you to subscribe
to my newsletter to get exclusive content
and private invites to events that I hold,
and as per usual, I want to challenge you
to live a bigger life and a bigger business.
And I'll see you next Monday.