If you pick M&A, proactively engage The best companies are “bought” not “sold” – Kara Nortman
M&A is brutal. It’s a full time job, emotionally taxing and mixed with subjective feedback. So how do you know if potential M&A is worth your time? Here’s a cheat sheet I share with founders:
First, some background. Prior to investing at Upfront, I co-led M&A at IAC. I’ve seen hundreds of deals get done. More importantly, I’ve seen multiples more flame out. This is really rough. Here are 10 questions to help founders drive clarity of thought on M&A:
Question 1: Do you really want to sell? This is NUMBER ONE question to ask yourself Inbound M&A interest is super flattering – it’s validating and speaks to our ego Do the work early to think about if you want to sell Otherwise you’ll kick off a painfully arduous journey
Question 2: Are you tired? It is completely normal to feel fatigue as a Founder. M&A is not the only pathway. Remember: you can take chips off the table at times (secondary) + take a new step (hire a CXO). Your board should help you lay all the options out on the table.
Question 3: Are you confident in the road ahead? – How does the market look? – Has there been any material shift in the landscape? – How is the business performing? If you pick M&A, proactively engage The best companies are “bought” not “sold”
Question 4: Is the timing right? Sometimes, startups have a “magic moment” in their journey. Everything is clicking and the market gives a *ton* of advanced credit. This can be a sign of things to come (keep building). It can also be an opportunity to consider (sell).
Question 5: Do you know how to handle the request? Don’t engage with a Buyer without first setting a goal for that first meeting: What questions to ask upfront? What would cause you to walk away immediately? Without a proper process, you’ll waste a ton of time and energy
Question 6: Is the Buyer serious? Some questions to qualify the Buyer: – Is there an Executive Sponsor? Who? – How senior is team leading this? – How many years has the lead been at the company? – Have they done acquisitions before? *Who* the interest comes from is impt
Question 7: Does this fit in their stated strategy? – What’s their typical acquisition? – Is your product on their roadmap? – Into which bus unit does it fit? These types of questions speak to structure + multiple The more strategic, the more attractive the price will be
Multiple buyers ALWAYS help drive price But also better to focus on one serious buyer if multiple buyers are not an option Bankers help. Esp if they are well regarded in the space Making an uncomfortable ask at the right time as valuable as “slowing down” at the right time
Question 8: What does the structure look like? You don’t need to negotiate upfront, but it does help to gather information: – How do they typically structure deals? – All cash? All stock? – Earn-outs? – Clawbacks? Devil is in details. Price discovery can also be done early.
With inbound M&A, interest begets interest! Best approach can be to feel flattered + move on quickly if you have something real. Especially if this company has the potential to be your life’s work AND you have the ability to access capital to drive growth.
Question 9: Do you like your new potential boss? If you are on the fence about selling, test your resolve. Schedule a meeting a week out, sit with your feelings. Imagine working at that company, visit it, sit on a bench. How does that make you feel?
Call other founders who have sold to that company. Are they trying to talk you out of it? Into it? Most importantly are you listening to the advice? If you really want to sell, you may find diligence doesn’t change your mind.
Question 10: Do you really want to sell? Didn’t you already tell me to do this? Yes!
M&A is a deeply personal question. It’s as much about your business as it is your personal goals. Whatever you do, don’t go through this alone. Talk to your Board, Advisors and Founder peers. But most importantly, trust your instinct. There’s a reason you’re the Founder.
While I did M&A many moons ago AND this topic comes up on nearly every startup board when “it’s working,” @upfrontvc’s new head of growth has led Corp Dev at Twitter, SuccessFactors and McAfee. Follow him @Seksom for future M&A + growth wisdom!