Search for...

Prepare Your Startup for Acquisition: Tips From Founders Who Did It

An acquisition process can be complex and overwhelming, with many important decisions to be made along the way.
Image credit: Freepik
, , ~

For many startup founders, being acquired by a larger company is the ultimate goal. However, going through an acquisition can be a daunting experience for any founder, business owner, or executive. The process can be complex and overwhelming, with many important decisions to be made along the way so you can thoroughly prepare your startup for the acquisition.

Therefore, proper preparation and a clear understanding of what to expect can help founders navigate this process successfully. From assessing the company’s value to identifying potential acquirers and negotiating the deal – these are just some of the steps that you can take to prepare your startup for acquisition.

Ben Wong, a seasoned investment banker with global investment bank Moelis Australia, has taken part in more than 50 global acquisitions. According to him, the most obvious questions at the beginning of the process can also prove to be the most crucial ones.

“First, you have to understand your own motivations, as well as the ones that your shareholders have. Let’s say you are a tech company, you’ve been building a product and a business,, you’ve got VC funding, angel investors, and so on. But what do you want – what do the founders and the management want? Do you want to sell and take the cash? But most likely that won’t happen, since when most acquisitions happen, the buyers want the founders to stay on, at least for a couple of years,” Wong tells The Recursive.

Motivation is definitely one of the key aspects, the Croatian entrepreneur and chief developer experience officer at Infobip, Ivan Burazin agrees.

“Typically, the motivation is the financial benefit of the seller. Of course, there are other motives as well – sometimes it’s done to expand a vision, in the sense you that can’t get to the next step as a stand-alone company,” Burazin, whose Shift Conference got acquired by Croatian tech unicorn Infobip in 2021, tells The Recursive.

Read more:  This is Why Startups Fail (and How to Avoid It): #2 The People Chapter

The dynamic that the co-founders have is also very much important when there is an acquisition proposal, Wong continues.

“For example, what if one of the co-founders is 35 years old and hungry, and the other one is 60 years old, and at this point just wants to sell the company? This changes the way you negotiate from the start. Then, VCs and angel investors add another layer of complexity – they’re not involved in the business, but are they willing to sell? Are they going to support you to sell? I sold a company two years ago where the shareholders didn’t want to sell, but the main founder wanted this. So, as a founder, you can find yourself in a tricky situation here – since most tech companies are risky – if you don’t take the money now, what happens if let’s say Google comes in as a competitor, what do you do then?” Wong explains.

How to figure out your value (and your price)

Thus, the first step to prepare your startup for acquisition would be to get everybody on board. After that, when everybody is aligned on the acquisition, the next question for the founders is to figure out what the buyers want from the deal.

“You need to think about what you want as a part of the sale – cash versus stock? Then you need to get ready and know who their party is. What value do you bring to them that will help you think about price? Do they want you because of their code, because of your customers, or brand? So you definitely need to know what you bring to them,” Wong tells The Recursive.

Then, there is also the competition for the potential buyers, and for Wong, this is also one very important aspect of any acquisition deal.

Read more:  What Is the SaaS-acre and What Does It Mean for the Future of SaaS Funding?

“The next thing you do is this about who else would want to buy you? Because then you need competition – for example, there’s Google, Apple, and anyone else who might want to buy your startup. After that, just get prepared – have your data room, have all your documents ready. And one more very important thing – know your financial model, the financial revenue, and everything else that might come up during due diligence afterward,” Wong says.

When it comes to due diligence though, for Burazin this is also a two-way street – one needs to know as much as possible about the buyer as well.

“There should be due diligence on the buyer as much as they do on the seller. Does the buyer have a history of M&A, does the buyer have a history of following through after an LOI, does the buyer have a good track record of integrations post-acquisition, and so on,” he tells The Recursive.

This stage of the process is also where the big challenges come in, and according to Burazin, there are several of them that founders need to focus on.

“Setting valuations is probably the first challenge. Then come voting rights (if they are similar in size), and the third challenge would be the cultural fit,” Burazin points out.

What happens post-acquisition?

Then, there is also the post-acquisition integration process. What happens here? According to North Macedonia-based angel investor Igor Madzov, there are several scenarios that can happen afterward.

“There are several scenarios on how the business will survive in the new circumstances: the first one is the “acquihire” that happens when the company is interested in the team and it continues to thrive in the new company. The second scenario is when the buyer is interested in the product and wants to develop it or incorporate it into its offer. And the third one is when the deal is done to buy users and market positions,” Madzov tells The Recursive.

Read more:  Debt or Equity: Which Funding Option Should Startups Choose?

However, the value of the employees and the team is often as crucial as the role of the founders themselves, Wong adds.

“One of the reasons that are of great importance for founders is the people. What happens to them? Do they stay on the job? Do they get cut? Does the company just take the technology and the company, and that’s it? I know founders who have not sold the company just to protect the employees – and they’ll keep going, they’ll keep getting money, they’ll keep getting funding, and keep building.” Wong concludes.

Thank you for reading The Recursive!

Over 1 million people from all over the world have learned about the tech ecosystem in Central and Eastern Europe thanks to The Recursive. In order to keep our content free for everyone, we need your help. If you believe what we do is important and have the means to do so, support us in giving a voice to Central and Eastern Europe with as little as €7. Thank you!

DONATE Keep reading this article

Help us grow the emerging innovation hubs in Central and Eastern Europe

Every single contribution of yours helps us guarantee our independence and sustainable future. With your financial support, we can keep on providing constructive reporting on the developments in the region, give even more global visibility to our ecosystem, and educate the next generation of innovation journalists and content creators.

Find out more about how your donation could help us shape the story of the CEE entrepreneurial ecosystem!

One-time donation

You can also support The Recursive’s mission with a pick-any-amount, one-time donation. 👍

https://therecursive.com/author/bojanstojkovski/

Bojan is The Recursive’s Western Balkans Editor, covering tech, innovation, and business for more than a decade. He’s currently exploring blockchain, Industry 4.0, AI, and is always open to covering diverse and exciting topics in the Western Balkans countries. His work has been featured in global media outlets such as Foreign Policy, WSJ, ZDNet, and Balkan Insight.