- After having been part of four companies
that have been acquired, two of which I co-founded,
after running M&A to go look at multiple companies
in the martech space and then go acquire them,
in this video I'm gonna walk you through the three
stages that you need to know about
the startup acquisition process.
And even if you never wanna sell your company
or you're going through a process now, either way
if you watch 'til the end, having a options
for an exit, having acquires that are interested
in your company is always good for optionalities.
If you watch 'til the end of the video
I'll teach you which activities to focus on early on
so you'll always have optionality around getting an exit
even if you don't wanna sell the company.
Intro.
(upbeat music)
What's everybody, welcome to Unstoppable.
I'm TK, author of the book, How to Punch
the Sunday Jitters in the Face, entrepreneur
and angel investor.
On this channel, I help startup founders
and business owners and entrepreneurs build out
an unstoppable strategy so you can be successful
in your life and your business.
Be sure to hit the subscribe button and the bell icon
because I drop an episode every single Sunday
to help you become unstoppable.
If you're a start-up founder, entrepreneur,
business owner, then at some point in your career
you will be going through the startup acquisition process.
Whether you wanna sell your company or not,
having acquirers that are interested in buying
your company is always a good optionality piece to have
as you're building out your business.
In this video, I'm gonna walk you through
the three stages that you absolutely need to know
in navigating this startup acquisition process.
Now, in a prior video I talked about how to actually
build out an exit strategy.
You don't need to watch it here right now.
You can watch it after.
I'll include a link to it down below.
But the most important part about that video
is I covered a key thing on how to actually go about
building out a good exit strategy.
Now, the thing about an exit strategy, the core piece
of it is to know who the likely acquirers are in your space
and who the people are that are involved in there.
That's where step one comes in.
Now, if you're excited about learning about
the three stages on how to actually navigate
the startup acquisition process, go ahead and hit
the like button and let's get started.
So once you've built out your exit strategy
and again, you can check out that video later,
not important right now, the first stage
of this whole startup acquisition process,
which starts super-early, even well before anyone
is ever interested in even buying your company,
is to actually build relationships.
Now, when you're building these relationships
there's three key roles who you have to focus on
so that you can understand and forge those inroads
into the potential acquirers.
The first is the CEO or the leader of the business unit.
This is the person that owns the whole PNL
of the company or the specific division that would go
and acquire your company at some point down the line
if it really matched up.
The second one is the head of product
or the chief product officer.
This is the person that's responsible for owning
the vision of that company, owning the vision
and the strategy for the space that you're both in,
and is responsible for figuring out what do they build
in their own roadmap, who do they partner with,
and who do they go by.
And then lastly, the third piece is the corp dev person.
This is a person that is literally paid to make sure
that they constantly know all the key players
in the space and get coffee with the key people
so they can forge a thesis on how they can expand
the footprint of the company through acquisitions.
Now, even before you're even thinking about selling
the company, it's good to forge relationships
with the key people in your space, especially
these sweet roles, because even if you're not selling
or you don't wanna sell, it helps you understand
where they're going with their product
and their company and their customers.
And it will always open up opportunities for partnering,
for integrating into them, or at some point
getting bought by them.
Now, once you've established these relationships
it doesn't just stop just after you've had that coffee.
The key here is that you're constantly meeting with them
on a yearly basis or a quarterly basis,
depending on how close you guys are, so you're constantly
comparing notes on where the space is going,
how the vision is evolving, and what other things
are coming together.
This is where step two comes in.
Step two is where you're negotiating.
Now, most startup founders that I talk to,
I get calls all the time, where they're like,
"TK, we got an inbound offer.
"What do we do?
"You've been through them in A process."
Here's the thing.
What you need to realize is well before anyone decides
to actually buy your company or express interest
in your company or you get prioritized by a corp dev person
saying, "Hey, we should look more into this company,"
you enter a negotiation conversation.
In fact, most of the conversations you're having
with these key people are actually negotiations.
SO the key thing that I always say is approach
all these conversations as a negotiation
and follow a framework that you like around negotiating.
Here's why.
Most people think about negotiating and they're like,
"Well, we should probably split the difference
"or we should not give anything and we should ask
"for what we want, ask for something more."
Here's the thing.
Negotiating is actually a very, very deep discipline.
There's a specific way of doing it.
And an entire episode could be done on negotiating
and I'll probably do that.
If you want that, put it in the comments below
and I'll prioritize that on the list.
Now, if you are going into this process
one of the books that I recommend is this book
called Start With No.
I'll include a link to it down below.
It's a quick book, it's a quick read,
and it gives you one framework of many on how to negotiate.
This particular book I really love and I recommend
to every startup founder that's going through an M&A process
or an acquisition process because it's just so powerful
and applicable to what you're doing.
Once you've read a book like that, you know
how to negotiate and what you need to understand
is there's three key things you're negotiating
when you are having these conversations with these people.
The first one is you're negotiating on what the vision
for the space is.
There's a certain space that you're both in
and there's a certain vision for it.
And you're negotiating on who's right, who's wrong,
whether it's a commonly-shared vision
or it's a opposing vision or it's a vision
where you're disrupting them or this is just
a small feature for them.
It's a negotiation.
And as you're having these conversations
to build these relationships, you're negotiating
on what your shared view is.
Now, whether you wanna sell or not,
whether you wanna deceive them or not, that's up to you
and that's part of the negotiation game
which is why I always say learn how to negotiate.
Read the book, Start With No.
I'll include the link below.
Once you actually have a shared vision
or a differing vision, whichever it is,
there's the second negotiation that's always happening
in the mind of all of these people and for you
is a bigger company going to build, buy, or partner?
Are they gonna take what you do and build it themselves
as part of their own roadmap, are they gonna go buy you
or a competitor, or are they just gonna partner
with you because it's not core to what they're doing,
maybe not yet?
They're waiting for it to get bigger?
They're always going through that decision-making
process in their minds.
And regardless of whether you wanna sell or not
it's always good to partner because you always
get a channel into their customer base.
But regardless, you're subtly negotiating
in every conversation you're having on whether
they're gonna build, buy, or partner, whether it's now,
five years from now or 10 years from now.
That's the thing that's constantly going in
through their heads.
And then finally the third thing is is there
a one plus one equals three?
This is kind of a code word thing for their M&A people
and corp dev people and people that are doing deals.
If I were to take your company and combine it
with my company, one and one, would we be so great
together that we would actually end up with three?
That's the final question that's going through
all these key peoples' minds in that, "Look,
"are we gonna save a lot of time and a lot of money
"and dominate our goals that much faster
if we buy these guys?"
That's a one plus one equals three scenario.
And that is an actual negotiation that's happening
as you're having every casual conversation.
Now, you can do one of two things.
You can either let them have these conversations
on their own and come to their own conclusions
or you can build these relationships
and influence those conversations.
You can negotiate those conversations
which is why I always say that you wanna start
at least building some of these relationships early
so they know you, they know your brand,
they know your mission, your vision, and then
you can keep executing.
Now, let me just pause here for a second.
Are you starting to see how regardless of whether
you wanna sell your company or not, regardless
of whether you're going through a startup acquisition
process or not, it is so important to at least
have an exit strategy and start to map out
who the key players are, and build relationships
with the key players in the space.
Are you starting to see that?
If you are, can I just get a yes in the comments below
because I want others to see how this is a slightly
different two-millimeter adjustment on how you approach this
and how you think about this strategically.
It makes the biggest difference.
So once you've done these two things
there's something magical that happens.
You start to create optionality for your company.
The reason this is so powerful is say you're going
in for your next funding round.
When you're going in for your next funding round
you always have the option on your next update
when you're building these relationships like,
"Oh, by the way, we're gonna go and raise our series B
"or we're gonna go raise our series C."
Acquirers always know that once you raise the next round
the price of the company almost always goes up.
So that's a signal to them to say, "Oh, are we really
"interested in these guys 'cause we should make a move
"right now pre-emptively before they raise the next round."
Regardless of whether you're actually gonna take
the deal or not, when you're fundraising
knowing that there are exit opportunities actually
helps give you optionality and more power
in every negotiation you're having
both on the fundraising side and on the exit side.
So once you have done these two activities
you start to build inroads and you're already halfway
into this startup acquisition process
which maybe surprising to you, was surprising to me,
is actually a process that starts way before
someone comes in and says, "Hey, I wanna buy your company."
Now, there will be a time where they'll come to you
or you'll go to them and you'll say, "Hey, we're interested
"in selling the company," or better yet
they're gonna come to you and say, "Hey, we're really
"interested in buying you guys."
It'll probably be a very casual mention.
It may be a kick the tires thing or it may be very real.
Now, here's how you know whether it's real or not.
If these three people are starting to get involved
then it's real.
If it's just the corp dev person, it may be real
but may not be real.
But here's what really happens when it's real-real.
It goes from like, "Hey, we wanna buy you guys,"
to like, "Hey, we really wanna buy you guys.
"What would the price be?"
And there's a whole negotiation tactic for that.
And as you go through that, there's essentially
three stages that come up in the deal process.
The first one is you get a letter of intent.
That's a actual, written letter or email
that says, "Hey, we wanna buy you guys
"and here's what we're thinking and here are the terms.
"Let's talk through it and let's see if you're interested."
And that's when a whole new level of negotiations start
for the deal process.
Once you get an LOI and you sign it, then you get
into due diligence.
Due diligence can take anywhere from three weeks
to six weeks and maybe even longer depending
on the complexity and size of the deal.
Now, this is where it's all hands on deck.
When I was going through my last acquisition
we were two people on our side.
It was me and our VP of Ops, Cleo,
and on the other side there were literally
two law firms, an accounting firm, and the actual people
part of the company.
And then there was a separate group from the PE firm
that owned that company.
It was completely insane and we didn't sleep
for three weeks.
Due diligence is a very intense process
and the best thing that you can do is just
have everything organized from early on,
have clear financials, have clear metrics,
clear customer lists.
And there's almost always gonna be more things
that they ask for that you don't have.
But the more you have ready, the better off
you're going to be when that time comes if that time comes.
And guess what?
It's very similar to things you do
for a venture round anyway so you're better off
having clean books and clean documentation of everything
that you do.
And then finally, once you get through the due
diligence process, you'd get to a close.
Now, here's a caveat though.
You would be shocked how many deals get into the LOI phase
and then start to go through due diligence
and then don't ever close.
So don't assume anything.
You need to be alert.
You need to be all hands on deck.
And the thing is when you're going and signing an LOI
if there are other companies because you're gonna be talking
to multiple companies, if there are other companies
you're gonna have to say, "Hey, we're gonna go
"a different direction.
"We're gonna take a deal."
And you won't be able to talk to anyone else.
This is gonna be exclusive.
So you wanna make sure you're super-careful
in the due diligence process and you ask
for all the information they're gonna need
in the due diligence process, what they're expecting,
how much time they're thinking, so you can be properly
prepared before you enter that exclusivity period
and you increase your chances of actually closing the deal.
So just because you're in DD doesn't mean
you're gonna close.
In fact, a shocking percentage of deals don't close.
So be very careful through this process.
And this is why, particularly for DD, what you wanna do
is not tell everyone that you're getting bought,
not tell the company.
You wanna keep it to a small group, keep it
to a small room, and only deal with those people
and make sure the core business keeps running.
So in summary, stage number one is building
the relationships.
Stage number two is actually having those conversations
that builds on the vision, identifies whether
they're gonna build, buy, or partner, looking at why
it's one plus one equals three,
and they're all negotiations.
And you gotta read that book on negotiating.
And then the three is what the deal process is.
And by the way, this whole stage, this three stages,
can span the decade or 20 years or 30 years of you
building and running the company.
It could span that entire time.
But it's always important to think about these three things
because it gives you optionality and it strengthens
your strategy for the whole company.
Now you know how to navigate this whole startup
acquisition process.
But what you might not know is how to craft
that exit strategy.
So I'll include the link to the video below.
The other thing you might not know is how to actually
craft a strategy for your business.
Look, you can't just do these three things
and expect to get acquired if that's your sole goal.
In fact, it's a terrible goal to have.
Your best goal to have is to have a sound strategy,
an unstoppable strategy for your startup,
so you build a successful business and a successful company.
Successful businesses and successful companies
will always have acquirers interested in buying them.
And so you may not know how to actually craft
that strategy, which is why I created my Unstoppable
Startup Strategy Guide.
If you actually follow the link below
there's a five-point guide.
I walk you through the five key areas
that you need to think about to build your core strategy.
And then there's a one-page strategy template
with actual questions you can answer to actually
build out your strategy so you can tether yourself to it.
So follow the link below.
It's completely free and it'll teach you
how to build out an unstoppable strategy for your company.
Also in my next episode I'm gonna be digging more
into how to grow your startup, how to get in
to go to market and sales.
So be sure to hit the subscribe button and the bell icon
because I'm gonna drop an episode every single Sunday
to build out an unstoppable strategy for your life
and your startup and your business.
If you like this video and got value from it
please hit the like button.
It means the world to us.
We put a lot of effort into planning out these videos.
If you're part of a startup mailing list,
startup founder mailing list or a Slack channel
or a group, please share this video so we can spread
our message and spread all these principles
that we're sharing on how to build an unstoppable
strategy for your startup.
And most importantly, if you got value from this
comment below, let us know.
It means the world to us.
And remember, everyone needs a strategy for their life
and their business.
With us, yours is gonna be unstoppable.
I'll see you next week.
(upbeat music)