Do you have dreams of getting your company acquired for nine figures, ten figures, or more? Are you already fielding inbound interest in buying your company? Are you trying to stay ahead of the next step in your startup's life cycle? Or maybe you need to run a better process after a failed M&A deal.

Whatever the reason you picked up this book, no worries—you're covered.

Some founders and other key team members get involved with a startup specifically with the hope of quickly cashing out for a record-setting amount. Others swear they will never, ever sell their company, but one day discover that a merger or acquisition is actually the best path for fully realizing and maximizing their mission and vision. In some cases, if your startup is doing well, you will receive inbound offers out of the blue, and much earlier than expected.

In all of these scenarios, this book will help you understand the process, optimize the outcome, and survive the mental marathon.

M&A Is Harder Than Fundraising

Kudos if you've already read the prequel to this book, The Art of Startup Fundraising, and have subsequently raised a round of funding, or a few.

Whether you raised equity, used debt financing, or just bootstrapped your venture all the way up to this point, you've already gone through a significant learning curve. You've evolved as an entrepreneur, and you have probably learned much more than you thought you would. You've also learned how to get to market, find product market fit, hire and manage people, and much more.

Acquisitions can be fantastic. In many cases, they can be the best outcome for everyone involved. They can be good for you and your family, your cofounders, your team, your investors, and even your customers. They can be game-changing for so many people. In fact, some hyper-successful serial entrepreneurs will continue launching startups to create ongoing positive outcomes.

But even if you like challenges and learning new things, mergers and acquisitions are not easy.

In many ways, they are like fundraising. There are several crossovers in terms and terminology, tasks, and the materials you'll need. But there are also new concepts, factors—and paperwork—to master.

Mergers and acquisitions will be harder in terms of these factors:

• Time invested throughout every stage of the process
• The crazy hours and schedule needed to get the deal closed
• The mental anxiety and stress level
• How much scrutiny your company is under during due diligence
• Juggling keeping your business on track and managing the deal

The good news is that you don't have to do it again if you don't like it. But like fundraising and working through all of the other quirks of launching a startup, some people end up loving the art of the deal so much that they want to start, scale, and sell businesses over and over again. Just prepare yourself, because it will be challenging.

The Acquisition Process

A great acquisition is a combination of art, science, and execution. The first step to pulling off an acquisition is learning the parts of the process. Figure 2.1 gives you a great 30,000 foot view of what it looks like.

These broad phases of the business acquisition process encompass a lot of details and specifics that we will explore across the entire book:

• Chapter 2, Getting Your Company Acquired. To successfully close a deal, facilitate an efficient process, and end up happy with the outcome, you need to learn what potential acquirers are looking for and the pitfalls that await.
• Chapter 3, The Role of Investment Bankers. Investment bankers can provide a lot of value and advice, and they're a great asset in helping you set up good cop, bad cop roles.

  

• Chapter 4, How to Plan Ahead. Know why you want to sell, and understand why and how making yourself expendable is important.
• Chapter 5, Preparing the Company's Pitch Book. Your pitchbook is where you clarify your uniqueness and value proposition, transition plans, marketing plan, and more. This is where you bring together a proven template for success with the art of presenting the acquisition opportunity for the optimal outcome.
• Chapter 6, Putting Your Finances in Order. Everything needs to be properly organized and presented to show off the best picture. Your accounting needs to be polished, you need to have fresh and accurate research at hand, and you need to have the right metrics ready for your presentation.
• Chapter 7, Understanding Your Valuation. Make sure you understand the common methods of valuation, where valuation puts your business, and what you can do to strike the best balance of valuation and terms.
• Chapter 8, Building the Target List. Find out who the ideal and most likely acquirers of your business are. Filter them and make a short list of your preferences.
• Chapter 9, The Communication Process with Buyers. Get to know the paths of connecting with those on your short list, how to make the choice seem obvious to them, and take the conversation through to the next phase.
• Chapter 10, Preparing for a Successful First Meeting. Understand your buyer and their concerns, establish the agenda, and follow up.
• Chapter 11, Getting to a Letter of Intent (LOI). Learn all the aspects and details of what should be in the LOI and what shouldn't be included.
• Chapter 12, Communication with Stakeholders. There is plenty going on that can derail your deal. The last things you need are internal issues or pushback. Be sure everyone on your side is fully bought in to this move.
• Chapter 13, Negotiating the Price Tag. Get ready to negotiate and renegotiate. Know where you can give, where you can't, and how to play the game well.
• Chapter 14, The Due Diligence Stage. It's not a done deal until you survive the due diligence phase.
• Chapter 15, The Purchase Agreement. Get familiar with purchase agreements, what all of the clauses and terms mean, and who you should deal with.
• Chapter 16, Strategic versus Financial Acquisitions. Understand the different types of acquisitions, organizations, buyers, and what matters to them.
• Chapter 17, Ways to Kill a Deal. By knowing the many ways the deal can go wrong, you're better situated to handle problems that arise.
• Chapter 18, Legal Considerations. There is a lot more to legal considerations than just the contracts and warranties. Regulations, due diligence, working capital, escrow, stockholder approval, liens, and more all come into play.
• Chapter 19, Closing the Deal. This is the fun part—actually signing the deal and putting the money in the bank.
• Chapter 20, Transitioning to a New Phase. You may stay on with your new company for a while, or you may be ready to accelerate forward into the next venture after an extended, well-earned vacation. Be sure you are thinking ahead.
• Chapter 21, The Emotional Roller Coaster During Acquisitions. Acquisitions can bring a whole new set and level of emotions—not just the anxiety of getting the deal done (or not), but also the feelings that come with parting with your startup baby and putting it into someone else's hands—and then figuring out how you'll handle your future plans.

Media versus Your Business: What You See in the Press versus Reality

Just as with fundraising, there can be a big difference between the average merger and acquisition and the sensational headlines you see in the media.

After interviewing hundreds of real-world entrepreneurs on the DealMakers podcast—entrepreneurs who have raised amazing money and exited their companies for the grandest outcomes—I've gained and shared the inside scoop on many big deals.

There are certainly startups that have attracted amazing inbound offers in just a year or two since launching. Some have been incredibly fortunate to have found highly competent and efficient acquirers who have run smooth and fast processes. More than a few have sold their companies for billions of dollars.

Others appear to be “overnight successes” after 10 years or more of hard work. Some end up exiting their companies in less-than-ideal circumstances and for much less than expected.

Sometimes board members sabotage the ideal moments to sell for the most dollars. Although exits can happen in only a few weeks, they can often take a year to complete—a long period of extra hustle and stress, which few people talk about.

And although most founders strive for an exit that creates a great future for their startup baby, customers, product, and team, it isn't always as glamorous and profitable as expected. Companies that choose the IPO route often find things go downhill fast in the 12 months after going public. Reverse mergers to take back and revive a company aren't all that uncommon.

If things haven't been structured well for you up to this point, it can lead to huge shortfalls. Did you know that you can sell your company for $1 billion and end up walking away with almost nothing? Due to earnings multiples, seniority, and liquidation preferences, companies appearing to have a lot of equity can leave founders and employees with very little stock at the closing.

When the startup Get Satisfaction sold for $50 million, the founder said he didn't get a penny. The startup Good Technology was valued at $1.1 billion. When the company sold, some employees paid six figures in taxes on their supposed equity, then saw the values of their shares fall from $4.32 to just $0.44.

Even in some of the best scenarios, vesting and resting clauses may mean that you only get half of the announced sale price if you can't stick out the next few years working for your acquirer and hitting the high goals they have set.

The point is, unless you are very careful in structuring equity and legal agreements during the journey, and you understand what they mean in a given exit, those big headlines may not make you feel that good in reality. Sure, the gold star for your résumé might make starting a new venture and raising new money easier, but you should ensure you are getting paid well for all of the sacrifice and work you are putting in.

I often share with entrepreneurs the importance of looking after the founder exit as opposed to just thinking about the business exit. Founders should always keep an eye on the ball. It is all about finding an outcome that justifies all the sweat and tears shed over the course of time.

Acquirer Expectations

What is it that potential buyers want?

Unless you understand what acquirers want, you can't build and position your company to attract them and the best offers. The more intimately familiar you are with these factors, the better you can curate this opportunity for them, and the more power you'll have in negotiations.

This isn't just about understanding their motivations—it's also about what they expect of a target company and its leaders throughout the process, from first talks to the closing table and beyond.

Why Most Acquisitions Fail

According to CB Insights, 70 percent of startups fail after their first financing round; 97 percent of some categories, such as hardware startups, eventually die or become zombies.

If you've made it this far, you've already beaten many of the odds. Yet, 60 percent or more of all acquisitions fail, too. Some put the number as high as 90 percent, so you are not out of the woods yet.

The following sections examine some of the top reasons that these M&A deals fail during the process or within the next couple of years after a sale.