Defining The M&A “Nibble” And What To Do When You Get One

Editor’s note: Jason M. Lemkin served as CEO and co-founder of EchoSign, the web’s most popular e-signature service, from inception through its acquisition by Adobe Systems in 2011. Follow him on his SaaS-focused blog, on Quora, and on Twitter.

If you are in a reasonably hot and/or interesting space, and you have a modicum of traction (or perhaps even perceived traction), after X months or X years (likely years in SaaS), you’ll probably have a day when you get an M&A nibble. And later, two or three or four.

The nibble can come in several forms and, more importantly, from several actors. In my experience at least (maybe 10 serious nibbles across four startups – two as a co-founder), there seem to be about four types of nibbles, and your responses and expectations should vary according to which one you get.

1.  The CEO/CFO Nibble

This is the easy one. If Marc Benioff or Mark Zuckerberg email you or call you up about “getting together,” you know you’ve got a high-probability offer at a high price. Be ready for it.

At a smaller scale, this is what happened with the first start-up I co-founded, NanoGram Devices. Okay, it was the CFO on authority of the CEO, but basically the same thing. The CFO asked to meet directly, discretely, after a conference.  He said to us: “We want to acquire you.  Go shop the deal if you want — we’ll pay more than anyone else.” Well, okay then. Crystal clear. Not that the deal itself was that easy (the diligence was painful), but everything else was fast, simple, and easy. These deals are the best ones, with the best prices and the least drama. No one sweats the small stuff.

2.  The SVP Of The Business Unit Nibble

While this one isn’t as serious as No. 1, it’s still ranks highly. Most M&A less than $100-$200 million is really driven by the head of a business unit, the SVP, not the CEO of the acquirer. If he or she wants to meet personally and talk about “synergies,” you’ll know it’s serious. But the thing is, they aren’t the CEO. So all it really means is that it is serious. Nothing may happen, and he or she is probably also looking at your competitors. And even if it does happen, it could take months or years if there’s no sense of urgency or, more importantly, fear.

3.  The SVP Of Corporate Development Nibble

Here’s where it starts to get a bit counter-intuitive. In most tech leaders, corporate development, no matter how senior, doesn’t create deals. They execute them. So if you get a nibble from the SVP of corporate development, it probably means someone is very serious. Someone else – someone senior (the CEO or an SVP) who had asked the SVP of corp dev to look at you seriously. This means there’s genuine interest, but a lower probability of a real deal than No. 1 or  No. 2, if for no other reason that you are several steps and a full SVP away from the actual decision-maker.

4.  The Director/Manager Of Corporate Development Nibble

And now here’s the other that can throw you for a loop. Not only is this nibble not from the business unit that might acquire you, it’s from someone more junior in corp dev. Here’s the thing. On the one hand, these guys probably look at 30-100 companies a year, so don’t read too much into the email. On the other hand, it’s often a way to start a dialogue that can lead to something real. Sometimes, they’re looking for information on the top 2-4 players in a sector.

Sometimes, they are sounding things out on behalf of an SVP who wants to see if there’s interest before they reach out. The motives can vary. What it doesn’t mean is BigCo Is Interested in Buying You. But it does mean there’s at least a vague interest that may take years to come to fruition. For example, at EchoSign we first met with the corp dev guys in 2006. And were acquired in 2011. Five years later! But no matter what, building relationships is important.

So when the nibbles come — and they will come if you are successful — take all the meetings in order to learn. But take them as seriously as they are ranked above.