How to Sell Your Startup (or not)
1. you are certain you want to sell the company
2. you are likely to get a price you will accept.
3. you have all the documentation of your company in order.
Don’t talk to potential acquirers “just to see what price you can get.”
2. The executive that runs the relevant division of the acquirer needs to demonstrate “big moves”.
3. A competitor to an acquirer is out-executing it in a business and you can help the acquirer become better.
4. The acquirer doesn’t have or can’t retain talent in an area where you have employees.
5. Your businesses actually have some synergies.
6. The acquirer is running a similar business but you are executing much better. They are afraid of you.If some of these reasons seem ridiculous and arbitrary, it is because sometimes they are. Remember that companies are bought, not sold: in order for a company to want to buy you, an internal champion will have to internalize one of these reasons.
2. Commit 100% to the selling process: if you have decided to sell your startup, commit all your energy towards achieving the best possible deal.
3. Get all your documents in order: financial reports, contracts, … Make sure everything is up-to-date and that you have all required signatures from partners/shareholders and that all reports are properly filed.
4. Prepare a selling pitch that is specifically targeted to your buyer and not just for *any* potential acquirer: that allows you to use the right arguments. Sell the dream.
5. Establish criteria for evaluating offer: determine what you and your investors want in a sale: cash, stock of another company? What is the minimum salary you want in case of an acquihire? Do you want to stay with the entity, and, if so, for how long?
Due diligence is an investigation of a business or person prior to signing a contract. It can be a legal obligation, but the term will more commonly apply to voluntary investigations.This process is not something specific to an acquisition of 100% of the shares of a company, but is a usual process for every meaningful investment. Unless you’re raising money from Family & Friends, you will face a more or less advanced level of due diligence from your potential investors or acquirers.
There is no single Due Diligence process. Each investor or acquirer will have its own checklist and a more or less established process. Nevertheless, in all cases you will probably start with one or several screening meetings. The goal of this first phase is to have an overview of your startup, including the product/service, the team, the customer and finances without entering into too much detail. The process is more or less the following:1. Founders/Team: How do the founders know each other? How do they interact with each other? Are they passionate? How qualified are they? What would it be like to work with them?
2. Angle: The angle: What secret, what insight has the founding team made that the rest of the market hasn’t yet realized? What discontinuity in the market can they leverage to win large share?
3. Business: Review the Business Model Canvas or Lean Canvas: value proposition, customer segments, problem, solution, channels of distribution, current cost/revenue structure, market size, key partners and activities…
4. Traction: What traction does the startup have? Current revenue? Revenue growth? User growth?
5. Intellectual Property: Does the startup have a highly valuable patent?
The goal of this step is to have a basic understanding of your business and filter between your startup and other business opportunities.
– addressable market size
– competition level
– market growth
– some background check of the Founders, looking up on LinkedIn and making some reference calls.This step allows to quickly raise possible red flags: have the co-founders invested their own money? Do they have a salary? How much? Is there a naive claim of “no-competition”? Are your forecasts grossly overestimated ?
– Is there any upcoming big expense?
– Any debt? What interest rate?
– Is your business model financially sustainable?
– What is your Customer Lifetime Value?
– What is your Churn rate? (the annual percentage rate at which customers stop subscribing to your service)
– What is your revenue/customer growth?
– How do those metrics compare with industry benchmarks?
– What is the time commitment of each person?
– How do Founders and employees work together?
– Is there any conflict between team members?
– Are the tasks properly distributed for each person?
– What is the feedback from customers?
– Is the product/service quality fine?
– What is your software testing approach?
– What is your product/service roadmap?
– Is there any lawsuit threat?
– Is there any intellectual property violation?
– Disputes with clients/providers/employees ?
– What are all the important contracts?
– Is the company legally well formed?
– Have all the reports been filed properly?
– What are your trademarks and patent status?
– Have all the relevant people (employees, partners, mentors) signed a no-competition and non-disclosure agreement?
– If yes, what is the period and scope?
– Does your startup have insurance in case there is fire/flood/lawsuit etc?
– Has the company actually paid its taxes or is a giant tax bill to fear a year from now?
– What is their respective percentage ownership?
– Do your employees have equity? Enough to motivate them?
– Basically, who has control?
– Have all securities (shares, convertible notes, debt, stock options etc.) been legally issued and documented?