Startup Acquisition: How to Get Your Startup AcquiredStartup Law ResourcesVenture Capital, Financing
Getting acquired as a startup can be a major success for a company, but tricky to navigate with all the laws. Here is our guide on preparing for an acquisition.4 min read
Updated November 26, 2020:
There are many great reasons to start your own company, including the desire to be your own boss, the desire to make something happen, passion about your product or service, or even the desire to make more money. A successful startup will need the following:
- A solid sales and marketing plan;
- High-quality accounting;
- A strong legal team;
- A great corporate structure;
- A dedicated managerial team;
- Healthy financial resources or a solid plan to get them; and
- Ensuring that best industry practices are followed.
Regardless of the reason for starting your own company, a startup requires many factors to work so the likelihood of success for startups is still relatively low. Many entrepreneurs are satisfied with their startup being acquired (i.e. bought over) by a bigger company so that they can reasonable profit upon selling their business. In fact, in the global market, American companies are major acquirers of startups and pay more per acquisition than European companies. Like any buying and selling transaction, there are lots of factors to consider before agreeing to let a bigger company acquire your startup.
First, it is important to understand what kind of buyers/acquirers you may encounter:
Potential buyers could be venture capitalists (VCs), who want to take your company to a new level. In some cases, VCs offer to just invest in your company, while guiding you to success; but in others, the VCs might ask you to step aside, sell your interest, and give up your job in exchange for a large sum of money. If you elect to take VC money as an investment, your investors will likely point out areas of improvement to increase profits. In the case of most startups, few thoroughly analyze their operation for potential problem sectors.
You may not be the only company in the market for your particular product or service and might have numerous competitors. A competitor may wish to acquire your startup to capture your customers as theirs, or they may buy your company so they can shut it down to eliminate their competition.
A company that your startup supplies to may find it more practical to acquire your business rather than pay you money for your products as its vendor. Alternatively, a company may want to buy your company so that it can sell your products to their customers under their name.
Patents, trademarks, and other intellectual property can be highly valuable, and if you have a patented product or a trade name that another company wants, you can be an acquisition target.
We’ve identified the different buyers that may want to acquire you, and their possible reasons for wanting to acquire your startup, which is the easy part. The next step is to identify how to make your company visible and attractive to potential acquirers. The following is a list of things you will need to do:
Those with the Means to Acquire You
When big companies look to expand, they have to decide whether to build or buy. Hypothetically speaking, let’s say that General Mills is looking to add energy bars to their arsenal, which your startup happens to produce. General Mills can always start an energy bar division from scratch, but if a company exists that already meets their criteria, then buying that company may be more cost-effective than building one from scratch. If you are setting yourself up as an acquisition target, you need to first identify potential buyers, and then once they have been targeted, you need to get your startup ready.
A Solid Vision
It is important to make sure your company’s vision aligns with your potential acquirer. For example, if Pepsi is the targeted buyer, and they are currently looking to target a healthier market, you should tailor your next big product launch to be for a health-based drink, and not something like Super Sweet Natural Sugar Flavored Tea.
The idea is to look for and attract potential acquirers that are compatible with the products and services of your startup.
An Attractive Product
If acquisition is the main goal, you will need a superior product. An old-school business motto is that to enter a market, you need a product or service that is better, cheaper, and faster than the ones that already exist. Today, disruptive is also on that list. Clayton Christensen described disruption as an “innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market-leading firms, products, and alliances.” Chief examples are Uber and Lyft.
Sometimes an acquirer can be drawn in by a well-oiled team. A company will consider buying a startup if they know the team is well-versed in the product or service and they can avoid the learning curve that comes with hiring new people.
A Good Story
Another thing in common about startups that are successfully acquired is a great story. That great story can be about how you develop your products, build your company structure, serve your customers, and simultaneously plan for the future. A great story goes a long way in attracting potential acquirers.
Technological integration of your product or service can really boost the chances of acquisition. For example, a well-developed app or system that efficiently moves your product or service into your customer’s hands can quickly make you visible to bigger companies looking to expand.
Companies with a clean history will have a much better chance of being acquired. A recent CEO looking for financing on Shark Tank was rejected once the sharks discovered that the company had lost $14 million earlier and had been operating for 10 years without showing a profit.
Finally, position yourself so that you can show how a potential deal will add value to both you and your acquirer. The key is to show the potential acquirer that their purchase will push them towards profitability while making certain that your efforts and hard work are also rewarded.
Talk to a Lawyer
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