Investors discussing a startup acquisition

Preparedness is key.

 

There are many important considerations when selling your startup to a larger company. At Procter & Gamble, we’ve been through this process and would love to share some tips so you know what to expect when seeking an acquirer—from beginning to end. 

There are lots of details to consider before selling your business; this list is simply a starting point to help motivate you. Or, if this list leaves you feeling overwhelmed, it can help you make sure you know what to do to prepare. 

Before seeking an acquirer:

Evaluate your product.

To best align yourself in the marketplace, you need to know yourself and your competition. What differentiates your business from the others, whether startups like yours or existing larger companies? Be sure you are intimately familiar with your company’s mission, the driving force behind all that you do. 

Start by working on your core. Do metaphorical planks and crunches. Focus on building out your startup’s core strengths. 

Does your startup check all these core aspects?

  • You solve an important problem that people actually care about.
  • You offer a solution at a price users consider a good value.
  • You are significantly better than the competition.
  • You ensure profitability (even after accounting for all costs!).
  • You possess the ability to scale. 

Make sure you know your consumers. 

Get inside their heads. Be able to anticipate their needs and wants while also remaining flexible. Your customers change and evolve, and your brand should be able to adapt as necessary. 

Know your company’s value. 

Find out what the larger company specifically wants from you. Then illuminate that trait, and make it irresistible. 

  • What makes your startup attractive? 
  • What do you bring to the table that other companies don’t? 
  • Why should an investor be interested in acquiring you? 
  • Is it your deep consumer understanding? Your authentic connection to your community? Your deeply personalized, customizable products? 

Be (and stay) noticed.

Have a solid product, stay relevant, and generate buzz. Create fun, exciting, and engaging content. Better yet, establish a brand that people can relate to—be memorable and desirable. Find your niche and own it. 

While actively seeking an acquirer: 

Establish rapport with potential buyers. 

What are their needs and motivations? Build relationships in advance. Establish your trustworthiness, reliability, and business savvy. Drop a hint that your business might be acquirable, and have conversations versus pitches. Then convince them that their investment in you and your company will pay off. Then be patient.

Know your strengths.

What can you do better than they can? What do you bring to the table? How can you solve a weakness that the larger business is experiencing?

Protect your differentiators. 

Whether it’s a unique supply chain scenario or an especially hard-to-replicate product, be sure that the attribute that makes your startup a real gem is impossible to knock off. Think NDAs and “confidential” disclaimers. 

Be predictable and transparent. 

Whoever is expected to take over your business wants to assume they’ll hit the ground running to the tune of continued success and stability. Be upfront with potential buyers regarding your culture, personnel, systems, and protocol. Share any pressing concerns and issues with buyers. They deserve to know what they’re getting themselves into, and they’ll respect you more for doing so. 

Situate your company so that it can run without you.

If you’re looking to execute a seamless, strategic exit, ensure all your systems are up to date. Meticulously document your procedures, hire excellent accountants to ensure your books are current, track key metrics, and beef up your internal systems. Make your startup low-risk and, therefore, attractive to potential buyers. Be able to withstand scrutiny because once you start to grow, you won’t be able to fly under the radar.

Have a concrete plan. 

Present potential buyers with clear documentation detailing why this acquisition will be mutually beneficial. Come up with a roadmap of how they can grow the business, how your brand will help them grow, where your value lies, what foundational assets you bring to the table, and how your product helps their existing customer base or enhances their scope.

These are all questions that they’ll want to know. When you have answers ahead of time, it shows that you know your value and how it can be valuable to them.

Pursue the most attractive investors.

Investors can offer so much more than a check. Find the perfect match for your business by researching and finding out which other startups they’ve already invested in. You can then see how they compare to you or even talk to people who were part of the deal to get a sense of how their working relationship was.

Find yourself a buyer that’s a good fit with your company. Make sure you see eye to eye when it comes to the essentials. The more aligned your values are with your buyers, the more effectively you’ll share one another’s resources and time. 

While making the acquisition: 

You’ll be asked to provide a deep dive into your business-related details, such as:

  • Metrics: including info about customers, revenue, and growth rate.
  • Business: including fundraising history, business model, and relevant patents.
  • Product: including any special features and your roadmap.
  • Organization: including your team bios and expertise.

Discuss the terms and conditions of the acquisition. 

  • Waive and release: a waiver to hire the team.
  • Asset purchase: an agreement to buy specific assets and the team.
  • Stock purchase: an agreement to buy the company alongside the assets and team.
  • Merger: an agreement to formally merge both companies into one entity. 

Know what type of acquirer you’re pairing with. 

This will help set reasonable expectations and ensure everyone has common goals in mind. 

  • Strategic acquirers are seeking products, growth, revenue, profitability, efficiency, and/or new demographics. 
  • Financial acquirers are simply buying your startup to add an investment to their portfolio of companies, which means they’re looking to see returns quickly.

Create a bidding war (if possible). 

If you have several offers, shop around, don’t settle. Play hard to get, and make sure each acquirer knows how popular you are. If you have something others want, they’ll be willing to pay more for it. 

Consider hiring a banker or broker to negotiate the details. They can often help you get a better deal. Plus, bankers excel at playing the bad cop, freeing you to remain in good graces with your new partners.

After the acquisition? Time for the next big idea!

If you’re interested in getting funding and other support, check out P&G Ventures at www.pgventuresstudio.com.