Founders Fund's Geoff Lewis on Getting Acquired, on Your Terms
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Tumblr's 26-year-old founder David Karp just got the kind of windfall that many young entrepreneurs can only dream of. This week, Yahoo announced its $1.1 billion acquisition of the six-year old micro-blogging site -- giving Karp a $275 million cash and stock pay day.
And while there is no shortage of startups getting acquired, the topic of a startup's acquisition strategy is rarely discussed. Many founders are told to focus on creating a long-term successful company, investors want to hold out for an IPO and if a startup is in dire straits, in no way should they be shouting from the rooftop their desire to sell.
At an Internet Week New York event this week, Geoff Lewis of venture firm Founders Fund shined a little light on this elusive topic during a discussion called, "The Terminal Plan: Selling Your Startup on Your Terms." Lewis admitted the topic is rarely brought up at Founders Fund. Yet, the most common question he receives from entrepreneurs is how to sell their company.
If a possible acquisition is in the cards, here is a roadmap to selling your startup on your terms.
1. Decision time
Contemplating selling is no light matter and founders need to consider a multitude of factors. According to Lewis, here are four signs you should consider exiting stage left: 1) your startup is not going according to plan 2) you've run out of alternatives 3) people in the industry still believe your company is doing okay and 4) you have time -- at least six months of financial and team runway.
2. Plan your exit
Once you decide to take the leap, planning for an acquisition is imperative. You need to get major stakeholders on board. That includes lining up support from co-founders and investors.
Once you have key people looped in, you need to decide how you want to exit. Are you looking to unload the product and team in a strategic acquisition, just your talent in an acqui-hire or a straight-up technology buyout? It takes some soul searching and thought to determine how much your company is really worth, its selling points and what would provide the best financial return for your startup.
After you decided what kind of acquisition, you need to start connecting. Comb through your contacts, emails and network for those people that have expressed interest. Also, plan on reaching out to three to five cold prospects, such as competitors, where your offerings would make sense in an acquisition, according to Lewis.
Lastly, make your startup attractive for acquisition. Ditch the long-term development projects, settle any lawsuits and put on a PR blitz to remind everyone how great your startup is.
3. It's go time
When meeting with potential acquirers it is really important how you handle this delicate conversation. Don't ever be the one to bring up the word acquisition and don't say you want to sell your company. Instead, Lewis suggests holding tight and let the other company bring up the topic.
Also, when a company expresses interest, make sure you are upfront with any unpleasant surprises, such as key talent leaving.
And when the tricky subject of price comes up, already know your minimum price. Look at recent acquisitions of competitors and the price tag on past buyouts from the potential buyer. Got a term sheet, or a non-binding business agreement? Don't celebrate yet. Your work is only halfway done.
4. Sealing the deal
Before the signatures are even dry on the term sheet, the acquirers will begin the due diligence checklist of looking over all your documentation to prove why they shouldn't buy you. This is the most vulnerable time of the acquisition process, so make sure you reach out to your lawyers and keep all documents, like financials, organized and ready to hand over.
While the exit strategy can consume every waking moment, now is not the time to drop the ball on your startup. Keep it moving; keep it exciting.
What other tips do you have for making a successful exit? Let us know in the comments section.
Looking to learn more about exit strategies? Tune in below for Geoff Lewis' entire presentation: