It’s All About Relationships When Selling Your Startup

Editor’s note: Tomio Geron is head of content at startup Exitround

What is actually required for a startup to get to an M&A? While the popular image may be Facebook buying Instagram over one weekend, that’s not how it usually happens. A select few companies may not do anything to try to sell their companies but still get a call out of the blue and then sell for billions.

The vast majority of founders, however, have to work hard for a long period of time to sell their company. And this is not just making a couple calls to potential buyers. So what exactly does this entail? Somrat Niyogi, who has founded and sold Miso and Stitch, and worked at several other startups, describes this as a long-term process.

From early on in a startup’s life, founders should have at least some idea of potential buyers for their company. Just as that sales pipeline can be the lifeline of your company’s growth and future, this CRM for potential M&A can ensure your future via M&A. Sales often requires close attention paid to a pipeline and regular engagement with prospects. That same idea applies to these potential M&A prospects. “You should have a plan treat it with all the care and focus as you would with the sales pipeline for your company,” Niyogi says.

Get Organized

Like many salespeople do, create a spreadsheet of the potential companies that could be best buyers. Then list all the contacts you have at those companies, as well as contacts you don’t know but can be introduced to.

Niyogi color codes them with red, yellow or green based on where they are in the sales pipeline process. Once you have all the people on the list, prioritize them in terms of who are the most important to reach first and who can wait for later. (Niyogi also shares this document with his investors.)

With that framework, you can go about chipping away at that list. You want to find ways to regularly stay in touch with these contacts, ideally every 60 to 90 days — though this depends on your situation. “Have constant touch points,” Niyogi says. “Find excuses to talk to each other.”

Just as a civil engineer would do a structural evaluation of a building to assess its sturdiness, you want to understand the power centers, pressure points and weaknesses in a company.

Getting to know buyers is a complex multi-step process. It isn’t just getting to know one person. You have to play detective/sociologist/anthropologist to get to know the organization. While many people in a company work on a deal, the actual power to make a final decision often rests with a small number of executives — your goal is to get to know them. The closer you get to them, the better.

So your task as a founder or CEO is to connect with anyone in the company who can help connect you to those top executives. You may only know a mid-level product or engineering person, but that person can connect you with others in the company. He or she can also give you key insights into the company, such as how product or engineering decisions are made or how resources are allocated.

“Founders will say to me, “I got inbound interest!’ That’s awesome, but does that guy have any authority to do anything? And who does that person report to? You want to talk to the person at the highest level possible at every potential acquirer,” Niyogi says.

Next, figure out who the key influencers are at the buying company. Top executives will go to the key voices for advice on major decisions, such as an acquisition. You want those people to know you and have a positive thing to say. The influencers are not always defined by the org chart. They can be a key senior engineer, an early employee or a founder. Figuring this out can be difficult, but as you talk to more and more people at the company, you will be able to piece together the puzzle. You’ll also have a better sense of how decisions are made and who actually wields power there.

Think of this as creating a structural analysis of an organization. Just as a civil engineer would do a structural evaluation of a building to assess its sturdiness, you want to understand the power centers, pressure points and weaknesses in a company.

This political/sociological/anthropological analysis is what people in politicized organizations, such as government entities, large corporations or large nonprofits, do in their everyday jobs if they want to survive and thrive. You have to do it from the outside. “It’s just like selling,” Niyogi says. “Are you talking to a decision maker? Who are the other influencers in the company? In these big companies you need a plan. Then you try to connect the dots.”

One way to get to know a company is through a partnership. While talking or working with them, you can show how you add value for the potential buyer. Partnerships can also turn to deeper collaboration. But a partnership doesn’t have to be elaborate. It can be a simple co-marketing agreement. “You want a way to get in there and have a conversation,” Niyogi says. “This is an excuse to engage in dialogue.”


The key to this whole process is relationships. This may not come naturally for some founders, especially those who are laser-focused on engineering and product. One little-discussed aspect of M&A: Buyers want to buy people they like. Not just companies or products. People. “If someone buys you, they want to hang out with you. If they have their choice, it’s going to be someone they like. It may not be socially acceptable to say. But it’s a fact,” Niyogi says.

Buyers want to buy people they like. Not just companies or products.

You want to have so many relationships with a company that you’re in conversations with when you’re not even in the room, Niyogi says. If there are 10 executives in the room talking about your product, and one person says he’s heard of your company, you want another person to say he knows you, then another one. If four of the 10 are interested in you, it may dawn on them to buy you. That’s what you want. “The hardest part is when you’re not even in the conversation,” he says.

You want to have relationships with potential buyers long before you enter into any sort of M&A conversations with them. This will give you options in the event that you decide to sell or really need to sell, you’ll have people who will pick up your call. “At some point you may have to make a call. You want them to care. If you haven’t built a relationship and say ‘Oh my god I’ve got to sell’ and start making calls, it’s too late,” Niyogi says.

Corporate Development

So how do you handle corporate development if your objective is to get to the real decision maker or highest person possible, but the corp dev executive is not that person? Some suggest avoiding corp dev, but corp dev executives are just doing their difficult job, Niyogi says. They have many of the same challenges you do. They can also be helpful in connecting you with those you want to meet. Corp dev also sometimes has a business development function that could be useful for you.

Some people feel it’s a waste of time to meet corp dev. If you’re really busy and have no interest whatsoever or it’s a bad time, you can say, “Thanks so much for getting in touch. I’d love to chat in a few months.” Also, you can ask, “I’m curious why you’re reaching out? What’s the nature of you reaching out? Are you acquisitive or what are you trying to accomplish?” These are fair questions.

Tough Decisions

If and when startups get to the point of negotiating acquisition terms, many have to make difficult decisions. For smaller acquisitions (which make up the majority of all deals), startups don’t generate large returns for investors, so there often are choices about who gets what proportion of the total value of the acquisition.

Startup CEOs and founders often have to choose between investors, employees and themselves. People have different opinions on whether investors or employees should be taken care of first, but either way, Niyogi believes the founders should take care of themselves last. “The team took a risk joining you. The investors gave you the opportunity. You should always be on the bottom of that list.”

If you want a lasting career in entrepreneurship, you should play the long game and treat everyone with respect.

This decision can sometimes be exacerbated by buyers who want to cut investors or employees out of the deal. So founders should already have a plan of who gets prioritized. “An acquirer may say, ‘Hey we want to give you a lot but the investors won’t get anything.’ Another one says ‘We’ll take care of the investors but not the team.’ So you have to already have a framework in mind.”

Niyogi also has a warning: Every action you take and decision you make at this time will be remembered. People will remember how things ended at your startup — investors, employees and colleagues. You want to be remembered as generous and grateful to others for helping you with your startup. “It doesn’t matter how great of an outcome you created. You’ll be remembered for how you handled the transaction and how you treated the people impacted,” he says. “The way you communicated, negotiated and how you really listened to everyone.

If you want a lasting career in entrepreneurship, you should play the long game and treat everyone with respect, Niyogi says. People will remember that and will help you make your next startup even better than your current one.