How to prepare for your startup to be acquired
From the moment a founder makes their first investment, they need to think about how they are returning money to their investors and what they personally expect from an exit – money, time, influence, etc. One way to exit is through an acquired exit will.
Timothy Armoo has sold his influencer business, Fanbytes, to global digital marketing agency Brainlabs for an undisclosed eight-figure sum. Anisah Osman Britton will interview him on stage about scaling and selling his company Sieved peak in October. As a warm-up act, she spoke to him about his top tips for preparing for the acquisition.
These questions and answers first appeared in Sifted Startup Life’s newsletter, which is published weekly on Wednesdays. Throughout September she will be busy with the sensitive topic of M&As. Sign up here for the latest.
Spend time with potential partners
An acquisition is like a marriage. You’re bringing two companies, cultures and groups of people together, so you want it to fit right together. Start “dating” partners while you are still building the business. A CEO needs to spend at least 20% of their time networking – and that includes building strong strategic partnerships with potential buyers (usually larger companies).
If you’re planning to sell a business for less than $10 million, you can be relatively informal about how you build relationships – reach out to the founders of businesses you think would be a good fit. Or if a potential buyer is a company that has a reputation for acquiring businesses, they may have a business development team that you can contact that is looking for interesting companies.
Do you have a rough idea of your terms
When the conversation about buying your company turns to a potential partner, you want to have a rough idea of what you and the company would like to get out of the deal. First, find out how much your business is worth. Talk to a mergers and acquisitions (M&A) bank – you can see how they rate companies in your industry. This is the beginning of an adoption process, so good practice for later.
By understanding how business reviews work, you can fine-tune your startup’s strategy to build things that increase value for potential buyers.
Find out what you want
People are obsessed with wanting a billion-dollar exit, but most people won’t get that — and it won’t come easily, either. A major exit can change your life dramatically – it’s not just about getting rich, but the opportunities it offers you in terms of your lifestyle, the people you can hire, the investors you can choose , and the work you want to do.
Create an acquisition strategy
This comes a little later when the conversations get more serious, but it’s good to think about it early so you can put things in order. It can be created by the team or, if you are a larger company, by an M&A bank. Focus on getting your finances in order, getting things checked, having a strong management team and most importantly, organizing your data room – this is where you store all the information about your business, from legal to financial, contracts and personal information.
Plan it as if it were a sales job
It’s the biggest sales job of your life. You want your best senior sales rep to be on the job full-time during acquisition negotiations. This is usually the CEO. It just has to be another sales job – just with a few more zeros at the end.
Preparing for an acquisition