Wash, rinse, repeat: A startup is founded, first product ships, customers engage, and then a larger company’s corporate development team sends a blind email requesting to “connect and compare notes.”
If you’re a venture-backed startup, it would be wise to generate a return at some point, which means either get acquired or go public.
If you’re going to get acquired, chances are you’re going to spend a lot of time with corporate development teams. With a hot stock market, mountains of cash and cheap debt floating around, the environment for acquisitions is extremely rich.
And as I’ve been on both sides of these equations, an increasing number of my FriendDA partners have been calling for advice on corporate development mating rituals.
Here are the highlights.
Before my first company was acquired, I believed that every acquisition I’d ever read about was strategic and well thought out. I was blindingly wrong.
You need to take the meeting
Book a 45-minute initial meeting. Give yourself an hour on the calendar, but only burn the full 60 minutes if things are going well. Don’t be overly excited, be a pleaser and or ramble on. Pontificate? Yes, but with precision.
You need to demonstrate a command of the domain you’ve chosen. Also, demonstrate that you’re humble and thoughtful, but never come to the first meeting with a written list of “ways we can work together.” That will smell of desperation.
In the worst-case scenario, you’ll get a few new LinkedIn connections and you’re now a known quantity. The best-case scenario will be a second meeting.
But they’re going to steal my brilliant idea!
No, they aren’t. I hear this a lot and it’s a solid tell that an entrepreneur has never operated within a large enterprise before. That’s fine, as not everyone gets to have an employee ID number with five or six digits.
Big companies manage operational expenses, including salaries and related expenses, pretty tightly. And there frequently aren’t enough experts to go around the moneyball startups for new domains, let alone older enterprises.
So there’s no secret lab with dozens of developers and subject matter experts waiting for a freshly minted MBA to return with their meeting notes and start pilfering your awesomeness. Plus, a key component to many successful startups is go-to-market (GTM), and most larger enterprises don’t have the marketing and sales domain knowledge to sell a stolen product.
They still need you and your team.
You will be the wisest person there
In these meetings, do not assume that the majority of the attendees will have the same level of product and market knowledge that you possess. In fact, treat early meetings as educational and exploratory.
Use this to your advantage: Have points of view that plant traps for your competitors and accentuate your uniqueness. By gauging how well a corporate development team knows a market and competitors, you can understand where they are in their process, how serious they are, and if you’re just a box being checked because the real target has been identified.
Who else is in the room?
I made my first acquisition in my mid-20s after failing to get operational expenditure to build a new product concept. In retrospect, the leadership of the company we acquired must have thought it odd that this random child was pursuing them, and they must have wondered if I was even authorized to be having the conversations I was having (no comment).
But you definitely want to understand who’s in the meeting. If you’ve got the general manager of a multi-billion dollar business unit, excellent. If it’s a summer intern who’s writing in crayon … this might not be a priority. But also remember this is a journey, so do the meeting, be respectful and hope things continue.
What is strategic?
Before my first company was acquired, I believed that every acquisition I’d ever read about was strategic and well thought out. I pictured a secret bunker with multiple forms of authentication protecting walls covered in market maps, competitive weaknesses and targets that will complete the quest for market leadership.
I was blindingly wrong. Acquisitions generally fall into three categories:
- Acqui-hire: Opportunistic — interesting tech, couldn’t get explosive growth, investors got tired, no one retires but tech lives on, and many team members have employment continued.
- Strategic: Decently well thought-out, high-growth business leading their market, premium dollars paid, founders get an earnout that delays private island purchase, lucite statues for everyone.
- Executive hubris: Sometimes a senior executive will get an idea in their mind and everyone around them is powerless to prevent impending disaster. Often, premium dollars are paid, but there’s no obvious synergy with the existing business and the offending executive is the only person who speaks in meetings, phrasing questions in the form of statements to their underlings in attendance.
It’s a marathon with a lot of sprinting
If there’s appetite for an acquisition from a larger company, you’re going to have a lot of intense moments followed by (perceived) lulls in activity. I tell folks on a path to get acquired that it’s going to take 17 meetings. But it’s actually going to be variations of the same meeting 17 times. Each meeting, there will be one new person and they are the Most Important Person in the meeting.
It’s likely they’re the next rung up the leadership or part of a new function that needs to engage on the deal (Sales, for example). If you get to 11 meetings and then no more, well, you know that the 11th Important person more than likely played their veto card (Sorry).
At the same time, quiet does not mean over. When a larger company is doing an acquisition there are dozens (sometimes hundreds) of people who get involved. That’s a lot of people to brief, answer questions from, advocate with, etc. It doesn’t mean your potential buyer has lost interest just because they don’t call you daily.
But don’t be surprised if you suddenly get a flurry of questions after periods of silence. If things are going well, this is your chance to partner with the corporate development team and make them look like heroes by getting back the best information you can to answer the (likely) random questions.
What about bankers?
If you aren’t running a formal sale process, corporate development teams will get annoyed if you show up with a banker at the first meeting. And, well, all the meetings. The really good investment bankers will always annoy a corporate development team, because this is Now Serious and the power dynamic will shift from the big company to the banker (note: it does not shift to you, the entrepreneur).
Assuming there’s no process leading up to the first meeting, you should seek out a banker only once the intentions of the larger organization are clear. This will likely be after things like joint customer exploration, a partnership, etc. Also, bankers are expensive, so make sure a senior leader at the potential acquirer has signaled that they want to get married and at a price that generates an ROI on those fees.
Bankers will also be happy if you’ve been engaged with multiple corporate development organizations, because they can then manufacture FOMO.
Strategic options
Every corporate development team does the same exercise: Build, buy, partner. I doubt there has ever been an acquisition where someone had to generate this spreadsheet.
The reality is that this exercise has never generated an, “oh, we should build this” result once you’re past a few meetings. But if you’re in early meetings and there’s an engineering VP who’s demonstrating their intelligence, yes, they might try to build something.
So the discussions will go on ice, the company will try to build — and fail, and then discussions will resume. (Again, they aren’t going to steal your source code, etc.) Remember: Play the long game.
The partner option is a little harder to navigate. Don’t be fooled by someone who says, “We have 18,000 sales people who will sell your product.” It takes a lot of work to partner with a bigger company and they might drag you into deep water before you know it.