Good companies get bought not sold.
This saying has been passed down as conventional wisdom through generations of entrepreneurs, but it doesn’t tell the entire story. While the IPO is characterized as the pinnacle for venture-backed startups, far more companies see successful exits via an M&A process than by going public. Being bought by the best acquirer for you takes thoughtful planning, and, yes, selling.
As an entrepreneur, you probably started your company because you wanted to make a big impact. You’re building something that you truly believe will shift the world in a positive direction. And yes, there’s also an implied financial outcome there. People — maybe your investors, the media, your team — will often focus on the exit strategy in the context of a financial outcome.
Any investor or mentor will tell you that when a company says they want to buy you, the right answer is, “We are not for sale.”
In my experience, many founders are more motivated by the potential for impact. For these kinds of founders, my advice is to always consider acquisition as an option. It might not be obvious at first, but an acquisition can be your best path to massive scale.
Prior to becoming an early-stage investor at DTC, I ran business development and M&A for Microsoft across Europe and Israel. I was on the other side of the negotiations as Microsoft looked for innovative teams and technologies to bring into its fold. The founders who were able to capitalize the most on the acquisition process were those who’d planned for it from day one.
Planning for a potential acquisition is not a defeatist attitude
Companies are 10x more likely to be sold than to go public.
That isn’t meant to discourage you from planning to build, IPO, and then continue to lead your company. That’s one of many perfectly valid plans.
But if you are prepared, being bought by the right acquirer could mean a healthy financial outcome for you, your team and investors, and an even larger impact for the product and services you’ve worked hard to bring to life.
With that out of the way, I suggest founders take a 360-degree view of possibilities and eventualities.
Understand your position in the world at any given time
You’ve done all kinds of product competitive analysis, but it is just as important to understand the macro, and micro, landscape. Here are a few questions you should ask and consider the answers you come up with carefully:
- Where is the overall market heading? Are companies buying new technologies, or are economic trends pushing them into “nobody ever got fired for buying IBM” territory?
- What shifts could make your company significantly more valuable? Which might nullify your competitive advantage? Either state could mean becoming an attractive acquisition seemingly overnight.
- Last but not least, how are you faring? Being an entrepreneur is incredibly hard, and staying in the startup business for more than a decade isn’t possible for everyone. Regularly checking in with your co-founders and leadership team, your family and yourself to understand your current life goals and your ability to engage and meet them is probably the most important exercise in this list.
Make a list and revise it regularly
Any investor or mentor will tell you that when a company says they want to buy you, the right answer is, “We are not for sale.” And that’s true. But there are still many reasons to keep a force-ranked list of which market leaders might be acquisitive in your space. This puts you many steps ahead when you get that acquisitive call.
- Create a list of companies that need technology like yours in their product lineup to stay competitive.
- On that list, highlight the ones that may have a “buy over build” philosophy.
- Then, look at how “day two” has played out for recent acquisitions by them. Did they retain leadership? Was there a successful integration of team, product and culture? Underline which, if any, of these companies feel most aligned with how you’d like a successful acquisition to go.
If you’re approached by a company that tops your list of potential acquirers, you’re still not for sale. But maybe this is an opportunity to explore a partnership or strategic alliance. Either way, once you have an understanding of who might be acquisitive and why, you’re more prepared to engage in the conversation.
Lean into the possibilities
Understanding all the possible acquisition eventualities does not mean you’re any less dedicated to other types of successful outcomes. However, it puts you in a position of strength from where you will be better able to maximize your impact and capitalize on the value of what you’ve created. This is what I want for every founder.
In Part 2 of this column, I’ll advise on how to approach the very beginning of a potential acquisition, as well as ways to leverage your board and investors throughout the process.