Learn how to sell your startup from an acquisition expert
Many entrepreneurs dream of the day their company is acquired and they secure a perfect exit. But information about the process of getting your business acquired usually comes from expensive investment bankers who typically advise late-stage startups.
In Selling Your Startup, serial entrepreneur Alejandro Cremades delivers an accessible guide on how to sell your startup. With first-hand experience as a fully exited entrepreneur, investment banker, and lawyer, Cremades describes the tips and tricks startup founders need to sell their early-stage to growth-stage business.
In this book, you’ll discover:
- The role that investment bankers play in the acquisition process, how they add value, and how to break down their fees
- Preparing your company for sale, including compiling a pitch book, putting its finances in order, and building a target list of potential acquirers
- How to get to a Letter of Intent, perform due diligence, and reach a purchase agreement
Perfect for entrepreneurs of all kinds, Selling Your Startup is a must-have roadmap to the practical realities of company acquisition and contains proven guidance on crafting your perfect exit.
Table of Contents
Acknowledgments xvii
Foreword xix
Bhavin Turakhia
1 Seeding What Would Grow into Panthera Advisors 1
Accelerated Growth through Acquisitions 1
Inbound Interest and a Path Forward 2
Choosing My Wingman 4
Our M&A Journey 5
Launching Panthera Advisors 6
My Unwavering Commitment to Entrepreneurs 7
2 Getting Your Company Acquired 9
M&A Is Harder Than Fundraising 10
The Acquisition Process 11
Media versus Your Business: What You See in the Press versus Reality 14
Acquirer Expectations 15
Why Most Acquisitions Fail 18
3 The Role of Investment Bankers 21
What Is an Investment Banker? 21
Good Cop, Bad Cop 22
Why Bankers Add Value 23
Getting the Right Advice 25
Breaking Down the Fees 26
4 How to Plan Ahead 31
Consider the Reasons Why You Want to Sell 33
Tying Up Loose Ends 36
The Importance of Making Yourself Expendable 37
How to Make Yourself Expendable 39
5 Preparing the Company’s Pitchbook 41
Packaging the Message 41
What Makes Your Company Unique? 42
Nailing the Value Proposition for Potential Acquirers 43
Defining Transition Plans for Potential Buyers 45
Crafting the Marketing Plan 46
Identifying a Powerful Flow and Structure 47
Acquisition Memorandum Template 48
6 Putting Your Finances in Order 53
Understanding Financials 54
The Importance of Key Metrics 55
Why Growth and Operating Assumptions Are Critical 58
Modeling Out a Powerful Five-Year Projection 60
Anticipating Questions on Numbers 61
7 Understanding Your Valuation 63
Variables Affecting Your Startup’s Value 64
Common Methods of Business Valuation 64
How to Value Pre-revenue Startups 67
How to Increase Your Valuation Faster 69
Valuation versus Terms 71
Why You Never Want to Disclose Your Valuation 71
Avoiding High Valuations with No Rationale 72
8 Building the Target List 73
The Importance of Building the Target List 74
Ways to Identify Potential Buyers 76
Vetting Buyers for the Right Fit 77
Using Partnerships to Trigger Acquisitions 80
How to Make Contact with Interested Parties 81
9 The Communication Process with Buyers 85
Liabilities and Responsibilities 85
How to Handle Communications 86
Gauging Initial Interest 87
Nailing the Follow-Up 88
Finding the Decision-Maker 92
10 Preparing for a Successful First Meeting 95
Finding Out the Strategic Road Map of the Buyer 96
Agreeing On the Meeting Location 99
Setting Up the Agenda for the Meeting 102
Follow Up with Emails to Keep Them Warm 103
Understanding How to Address Concerns 103
Questions Potential Acquirers May Ask You 104
11 Getting to a Letter of Intent (LOI) 109
Why an LOI Is So Important 110
Breaking Down the LOI 111
Comparing Valuations 113
Measuring Suitability of the Potential Buyer 113
Hostile versus Friendly Buyers 115
Considerations before Signing 116
The LOI Template 117
12 Communication with Stakeholders 121
The Role of the Board of Directors 121
Keeping Investors Updated in the M&A Process 125
The Dos and Don’ts with Employees 126
13 Negotiating the Price Tag 129
Price versus Terms 129
Communicating Outcomes 130
Pushing for a Deadline 131
Increasing Price with a Bidding War 133
Maximizing Value on the Buyer and Seller Sides 133
Thinking Like a Buyer 135
14 The Due Diligence Stage 139
Putting Together the Deal Room 140
Validating Your Claims 153
The Dos and Don’ts During Meetings 154
Managing the Flow of Information 155
What to Look for in the Potential Buyer 156
15 The Purchase Agreement 159
How to Review the Purchase Agreement 160
Terms and Clauses to Watch 164
Typical Purchase Agreement Outline 166
Lawyers and the Purchase Agreement 168
Choosing the Right M&A Lawyer 169
Dealing with Legal Counsel 171
16 Strategic versus Financial Acquisitions 173
Different Types of Acquisitions 173
Reasons for Strategic Acquisitions 174
How to Know What Drives the Buyer’s Motivation 177
Why Revenues Take a Back Seat on Strategic Deals 180
17 Ways to Kill a Deal 183
Not Respecting the Buyer 183
Making Changes and New Demands 184
Lack of Commitment from the Team 185
How You Communicate with Employees and Customers 186
Withholding Information 189
18 Legal Considerations 193
Regulations and Regulators 193
Due Diligence and Assumed Liability 194
Intellectual Property 194
Working Capital 194
Escrows 194
Contracts 195
Warranties and Indemnifications 195
Stockholder Approval 195
Noncompete and Non-solicitation Agreements 195
Stock versus Asset Sales 196
Buying Companies That Are Not Incorporated 199
Liens and Encumbrances 201
19 Closing the Deal 203
The Anatomy of an M&A Deal Closing 203
Closing Preparations 204
Closing Times and Locations 204
Speed to Closing 205
Accounting and Taxes 206
Closing Checklist 208
Wrapping Things Up 209
20 Transitioning to a New Phase 211
Vesting and Revesting 212
Post-acquisition Integration 216
Looking Forward 219
21 The Emotional Roller Coaster during Acquisitions 221
Anxiety 222
Understanding the Process 223
Depression 226
Acceptance 227
Happiness 228
Glossary 231
About the Author 237
Index 241
