21
The Emotional Roller Coaster during Acquisitions
In 1969, Elisabeth Kübler-Ross wrote the book On Death and Dying. The book explores the five stages of grief: denial and isolation, anger, bargaining, depression, and acceptance. In the book, Kübler-Ross provides examples and stories illustrating how imminent death and the aftermath affect everyone around a person who is in the process of dying.
The book offers a framework to help people who are in the grieving process. Believe it or not, getting your company acquired often leads to a grieving process. The grieving process emerges because ultimately everyone associated with the company will never experience the business as it was prior to the acquisition closing. Significant change can trigger grief.
Yet, selling your startup can be one of the most exciting moments you'll ever experience in your lifetime. It can certainly be one of the most exhilarating and pivotal. But it can also be one of the most trying and stressful periods you'll ever have to go through.
There is very little information out there for entrepreneurs about the M&A process, and even less is good-quality information. It's almost impossible to find info and stories on the mental and emotional aspects of this roller-coaster ride.
Entrepreneurs rarely open up about the reality of launching and building a startup, fundraising, and the many daily failures and trials involved.
To my knowledge, at the time of writing and publishing this book, there really hasn't been any substantial documentation or disclosure about this part of the founder's journey, though I've been able to pull back the curtain through interviews on the DealMakers podcast with real founders who have sold their startups for millions and in many cases billions.
There will be plenty of learning and challenges in this short phase of your journey. When you understand how the process relates to anxiety, isolation, and depression, you can better navigate your path to acceptance and happiness.
This chapter isn't meant to discourage you from having your company acquired. Rather, I want to empower you, by providing a road map to get through the process so you know what to expect. Entrepreneurs don't just run on financial capital—they also run on emotional capital. For that reason, being conscious of your state of mind and the triggers behind it is key.
Anxiety
You may get an initial buzz of excitement at the thought of being able to sell your company. Big numbers and big partnerships can be alluring.
Then, once it starts becoming real, panic can begin to creep in, and a string of factors can trigger a period of anxiety, which will last until the deal is closed and money is in the bank.
If you haven't studied ahead, then not knowing the steps in the process and being mentally prepared for the roller coaster is going to bring additional anxiety. Educate yourself, and it will be much easier.
Understanding the Process
Having a good overview and visibility of the process will bring some peace, because you will know what needs to happen every step of the way until the deal is closed. The following sections look at a lot of the parts of the process that can affect your emotions.
The Terms and Conditions
As the initial flirting begins to turn into real talk, anxiety about the terms can set in.
The top-line price, valuation, stocks versus cash, and whether you'll stay on under the new parent company or you'll be free to go out on your own are just the most basic aspects to consider.
There may be questions about some of the intellectual property and products you don't believe your acquirer will use or continue. You may want to find a way to continue the missions they were created for, such as carving them out of the deal.
You may care deeply about what will happen to your cofounders, employees, and early investors. Will those who believed in you at the beginning get a good multiple on their investment? Will your cofounders get a fair payout and be set on a great path for their individual goals? Will those employees who helped make everything happen and sacrificed comfy jobs at steadier companies be kept on by your acquirer? Will they be given good roles, salaries, and benefits?
Due Diligence
How intense and lengthy the due diligence will be can depend on your stage of business and how much there is to go through.
This process can involve various teams digging into your legal work, finances, and data. You may have dozens of people on-site looking through every document and even talking to your customers throughout this process.
In many instances, I have seen teams locking themselves up in a hotel room with the potential acquirer and going through documents together for weeks.
This will all happen while you are desperately trying to keep up your business's performance.
Renegotiations
The final terms of your deal can look a lot different from the initial offer. Expect to feel so exhausted talking about negotiations and hashing out different terms and clauses that you almost don't care whether the deal closes by the end.
Tough acquirers will find all types of reasons to renegotiate and change things. Stay strong and maintain focus. Don't let them take the necessary energy away from you.
The Sprints
When you are closer to a deadline concerning the LOI or the final agreement, you should expect to sleep less. This will be a very stressful time as things will be negotiated over and over again between lawyers. You need to remain calm, trust the process, and avoid your frustration from getting in the way of getting the deal done.
The Silence
For weeks, dozens of people can be all up in your business. Then, one day, everything goes quiet. No phone calls. No one showing up in your office. Complete silence.
If you are not expecting it, it will freak you out and make you feel isolated and anxious. There can be a variety of reasons for this. It doesn't mean the deal is dead.
Be patient. The last thing that you want at this point is to sound desperate. The buyer may use that against you and negotiate you down on the terms. A good way to set up expectations and keep this from happening is by setting up weekly check-ins.
Anticipation
Anticipating the closing can be nerve-wracking. You don't know if it is going to happen and you need to clear out your office and announce the next stage of your life, or it is going to fall apart and you'll be working more furiously than ever to make up for the lost time.
You'll survive this best if you can emotionally detach yourself from the outcome. The best deals happen when you are completely unattached to the outcome of the deal.
The Calm after the Storm
After all the mayhem, the deal closes, funds are wired, and everything goes still. If you aren't clocking in at your parent company on Monday, then things can seem eerily quiet. This dramatic change of pace can take a few days to adjust to.
Sharing the News with Employees
Typically, when it comes to acquisitions, you want to avoid sharing details with employees until the deal is closed to avoid any leaks that could jeopardize the deal getting done.
During the process, you will only be sharing what is going on with the leadership team and with other key employees who could play a critical role to close the deal.
When the deal is finally closed, it is a tough moment to deliver the news to employees. Many of them will probably not own stock in the business, and they may be disappointed by the potential changes ahead.
To be effective here, you just want to be yourself and authentic. Don't sugarcoat it, as people will see through it and create a disconnect. Just share it the way it is and acknowledge them for everything they have done for the business.
Share with employees the joint vision with the acquirer and where things are heading. You were excited about this deal so you should be able to convey that to them and get them equally excited about what is coming.
A majority of mergers and acquisitions fail primarily because leaders ignore the emotional needs of their employees. Employees are a key component to the deal being a success. That is why effective communication and improving the employee experience is critical—especially if there is an earn-out component and your employees will determine the potential outcome of the deal.
Depression
Although this is probably something you'll never hear from an investment banker or acquisitions team, the M&A process and hangover of selling your startup usually involves a grieving process. This is especially true for selling your first company, and even more so if you swore you'd never sell it.
In these cases, separation and loss are very real. If you aren't prepared for it, the days after closing the deal can be far more depressing than you imagined, even if you made out pretty well financially in the exit.
I can tell you from personal experience and real conversations with other highly transparent founders that this loss can often feel as real as any other.
If they say partnering up with cofounders and investors to give birth to a company is like a marriage, then selling it can feel like divorce or giving away your baby—or at least, sending them off to kindergarten for the first time, hiring that first babysitter, or shipping them off to college.
The money comes in a distant second. You are severing ties with your baby and putting it in someone else's hands, where you have no control.
Think about this for a second. You were used to the fast pace and having full control over the execution of the business, and now, all of a sudden, things go on cruise control and you are reporting to someone else.
This is something you've been supremely passionate about. You care about the people you've lived with and fought alongside in the trenches every day for years. Many of those employees sacrificed their paycheck or professional journey because they believed in you and the vision of the business. Often, the business was your main mission in life.
You wake up the next morning and maybe you can't even call in to check on them. You can't go to the office. You have to sit in the bleachers and watch from a distance without being able to go on the field.
This can leave a real void in your life for a while, one that can come back or continue to be a nagging factor in the back of your mind until you get through these next two phases of the roller coaster.
There's a lot of advice that's easy to throw around, but it may not immediately make you feel better. Understand that this is just part of the ride, and it is temporary. The best ways to beat it and speed through it is to talk to others (family, peers, and mentors), remember the good parts, look to the next phase, and accept it.
Acceptance
The sooner you can get to this stage, the better it will be for you.
If you have mentally prepared for the emotions that will arise, and you have trained yourself to be more objective and think of the big picture in advance, you'll get to acceptance faster.
Accept that you may feel a real loss. Accept the emotions that come with that. Yet, also be clear with yourself that it is done. You sold your company. For better or worse, it is a done deal. Who knows—one day in the future they may want to sell it back to you at a discount.
For now, the only thing you can be grateful for is the great ride you had. Enjoy the present, and plan an even more fulfilling future.
After all, it may not even be your second or third startup that is your greatest work and accomplishment. It may be your fourth or fifth.
Happiness
If you've equipped yourself by reading this book, you've hopefully achieved a profitable outcome. Your investors achieved a great multiple that will make them want to give you money again in the future and refer you. Your team has gone on to grow professionally, and many of them were financially well rewarded for their participation and loyalty. Your customers are being taken care of even better than you could, and the mission continues to prosper.
You also received a game-changing financial reward from this exit. The money may not be the main thing, though you can count it as a win and a confidence booster, and you've set up your family to be comfortable.
You now have the luxury of operating from a place of doing what you are really most passionate about rather than for your own finances.
Even if you didn't walk away with a penny, you can be happy for the incredible learning experience and the chance to go on to do something even better.
Overall, there seems to be three general scenarios for exiting founders to take consider when taking their next step. If you've already been thinking ahead, you may already be rolling into your next startup. That's great. Why wait? That's the first scenario.
The second scenario is that the terms of your merger or acquisition required you to stay on as an employee of your new owner. This is called the vesting period when you need to stay for a period of time in order to receive all the cash or stock that was promised to you with the deal.
Some entrepreneurs have loved the learning experience the process opened up for them in large-scale companies such as Google, Facebook, or Microsoft. It's given them the chance to learn from a bunch of smart, new people and to see how things are done at a different level.
Invariably, however, the honeymoon period comes to an end. Some make it through the full vesting period, others pull the emergency eject cord much sooner. They crave being back in a startup, going fast, and building something of their own again.
Keep in mind as well that during the vesting period you are working 9 a.m. to 5 p.m. as opposed to being always on duty, like you were before the acquisition. This enables you to have a full-time job with an income stream while you are crafting, as a side project, what could be your next startup.
The third scenario is to finally take that much-needed time off. It's a smart move. It's a chance to really decompress, while you can. A short window where you can relax and focus on things outside of the office for a while. It could be a long time before you get that kind of luxury again. Stay present, and you may find it to be one of the best rewards of building a successful startup.
Periods of decompression are often spent heading off to a cabin away from the city, traveling the world to meet other entrepreneurs, finding new ideas, gaining new perspectives, and spending time with family.
Some dream of early retirement and finally being that ever-present stay-at-home parent. That may last six weeks or six months. Sooner or later, your family is going to beg you to go do something and stop hovering.
You may even do a stint of some angel investments of your own.
Go learn and do all the things you might not have time for if you've been neck-deep in a new startup—because once you've tasted entrepreneurship, you'll never want to stop.
The good news is that the roller-coaster ride of anxiety, depression, and resigning yourself to acceptance of your new circumstances is short-lived, and after experiencing the void, you'll be on to your next project (if you haven't already planned it out).
Knowing this is all coming, line up some great new projects and goals for this period, and cling to the excitement of being able to tackle them to get through the tough days.
Ultimately, you want to be able to gain emotional intelligence. This will enable you to control your own emotions and help manage the emotions of others (particularly when it comes down to preventing any reactions that could disrupt what is a very fragile process).
Now you know there is a silver lining on the other side of the clouds.