Selling Your Startup

Crafting the Perfect Exit, Selling Your Business, and Everything Else Entrepreneurs Need to Know
 
 
Standards Information Network (Verlag)
  • 1. Auflage
  • |
  • erschienen am 26. Juli 2021
  • |
  • 288 Seiten
 
E-Book | ePUB mit Adobe-DRM | Systemvoraussetzungen
978-1-119-79804-0 (ISBN)
 
Learn how to sell your startup from an acquisition expert

Many entrepreneurs dream of the day their company is acquired and they secure a perfect exit. But information about the process of getting your business acquired usually comes from expensive investment bankers who typically advise late-stage startups.

In Selling Your Startup, serial entrepreneur Alejandro Cremades delivers an accessible guide on how to sell your startup. With first-hand experience as a fully exited entrepreneur, investment banker, and lawyer, Cremades describes the tips and tricks startup founders need to sell their early-stage to growth-stage business.

In this book, you'll discover:



The role that investment bankers play in the acquisition process, how they add value, and how to break down their fees
Preparing your company for sale, including compiling a pitch book, putting its finances in order, and building a target list of potential acquirers
How to get to a Letter of Intent, perform due diligence, and reach a purchase agreement

Perfect for entrepreneurs of all kinds, Selling Your Startup is a must-have roadmap to the practical realities of company acquisition and contains proven guidance on crafting your perfect exit.
1. Auflage
  • Englisch
  • Newark
  • |
  • USA
John Wiley & Sons Inc
  • Reflowable
  • 0,63 MB
978-1-119-79804-0 (9781119798040)

weitere Ausgaben werden ermittelt
ALEJANDRO CREMADES is a serial entrepreneur and currently a Founding Partner of Panthera Advisors, a premier investment banking and financial consulting firm. His professional focus is on small- and medium-sized companies seeking M&A advice and fundraising support. He has guest lectured at NYU Stern School of Business, Columbia Business School, and The Wharton Business School. Furthermore, he is the host of the popular DealMakers podcast where some of the most successful entrepreneurs share how they did it.

Contact him at alejandro@pantheraadvisors.com, follow him @acremades, and connect with him at www.alejandrocremades.com
Acknowledgments xvii

Foreword by Bhavin Turakhia xix

1 Seeding What Would Grow into Panthera Advisors 1

Accelerated Growth through Acquisitions 1

Inbound Interest and a Path Forward 2

Choosing My Wingman 4

Our M&A Journey 5

Launching Panthera Advisors 6

My Unwavering Commitment to Entrepreneurs 7

2 Getting Your Company Acquired 9

M&A Is Harder Than Fundraising 10

The Acquisition Process 11

Media versus Your Business: What You See in the Press versus Reality 14

Acquirer Expectations 15

Why Most Acquisitions Fail 18

3 The Role of Investment Bankers 21

What Is an Investment Banker? 21

Good Cop, Bad Cop 22

Why Bankers Add Value 23

Getting the Right Advice 25

Breaking Down the Fees 26

4 How to Plan Ahead 31

Consider the Reasons Why You Want to Sell 33

Tying Up Loose Ends 36

The Importance of Making Yourself Expendable 37

How to Make Yourself Expendable 39

5 Preparing the Company's Pitchbook 41

Packaging the Message 41

What Makes Your Company Unique? 42

Nailing the Value Proposition for Potential Acquirers 43

Defining Transition Plans for Potential Buyers 45

Crafting the Marketing Plan 46

Identifying a Powerful Flow and Structure 47

Acquisition Memorandum Template 48

6 Putting Your Finances in Order 53

Understanding Financials 54

The Importance of Key Metrics 55

Why Growth and Operating Assumptions Are Critical 58

Modeling Out a Powerful Five-Year Projection 60

Anticipating Questions on Numbers 61

7 Understanding Your Valuation 63

Variables Affecting Your Startup's Value 64

Common Methods of Business Valuation 64

How to Value Pre-revenue Startups 67

How to Increase Your Valuation Faster 69

Valuation versus Terms 71

Why You Never Want to Disclose Your Valuation 71

Avoiding High Valuations with No Rationale 72

8 Building the Target List 73

The Importance of Building the Target List 74

Ways to Identify Potential Buyers 76

Vetting Buyers for the Right Fit 77

Using Partnerships to Trigger Acquisitions 80

How to Make Contact with Interested Parties 81

9 The Communication Process with Buyers 85

Liabilities and Responsibilities 85

How to Handle Communications 86

Gauging Initial Interest 87

Nailing the Follow-Up 88

Finding the Decision-Maker 92

10 Preparing for a Successful First Meeting 95

Finding Out the Strategic Road Map of the Buyer 96

Agreeing On the Meeting Location 99

Setting Up the Agenda for the Meeting 102

Follow Up with Emails to Keep Them Warm 103

Understanding How to Address Concerns 103

Questions Potential Acquirers May Ask You 104

11 Getting to a Letter of Intent (LOI) 109

Why an LOI Is So Important 110

Breaking Down the LOI 111

Comparing Valuations 113

Measuring Suitability of the Potential Buyer 113

Hostile versus Friendly Buyers 115

Considerations before Signing 116

The LOI Template 117

12 Communication with Stakeholders 121

The Role of the Board of Directors 121

Keeping Investors Updated in the M&A Process 125

The Dos and Don'ts with Employees 126

13 Negotiating the Price Tag 129

Price versus Terms 129

Communicating Outcomes 130

Pushing for a Deadline 131

Increasing Price with a Bidding War 133

Maximizing Value on the Buyer and Seller Sides 133

Thinking Like a Buyer 135

14 The Due Diligence Stage 139

Putting Together the Deal Room 140

Validating Your Claims 153

The Dos and Don'ts During Meetings 154

Managing the Flow of Information 155

What to Look for in the Potential Buyer 156

15 The Purchase Agreement 159

How to Review the Purchase Agreement 160

Terms and Clauses to Watch 164

Typical Purchase Agreement Outline 166

Lawyers and the Purchase Agreement 168

Choosing the Right M&A Lawyer 169

Dealing with Legal Counsel 171

16 Strategic versus Financial Acquisitions 173

Different Types of Acquisitions 173

Reasons for Strategic Acquisitions 174

How to Know What Drives the Buyer's Motivation 177

Why Revenues Take a Back Seat on Strategic Deals 180

17 Ways to Kill a Deal 183

Not Respecting the Buyer 183

Making Changes and New Demands 184

Lack of Commitment from the Team 185

How You Communicate with Employees and Customers 186

Withholding Information 189

18 Legal Considerations 193

Regulations and Regulators 193

Due Diligence and Assumed Liability 194

Intellectual Property 194

Working Capital 194

Escrows 194

Contracts 195

Warranties and Indemnifications 195

Stockholder Approval 195

Noncompete and Non-solicitation Agreements 195

Stock versus Asset Sales 196

Buying Companies That Are Not Incorporated 199

Liens and Encumbrances 201

19 Closing the Deal 203

The Anatomy of an M&A Deal Closing 203

Closing Preparations 204

Closing Times and Locations 204

Speed to Closing 205

Accounting and Taxes 206

Closing Checklist 208

Wrapping Things Up 209

20 Transitioning to a New Phase 211

Vesting and Revesting 212

Post-acquisition Integration 216

Looking Forward 219

21 The Emotional Roller Coaster during Acquisitions 221

Anxiety 222

Understanding the Process 223

Depression 226

Acceptance 227

Happiness 228

Glossary 231

About the Author 237

Index 241

1
Seeding What Would Grow into Panthera Advisors


I first dipped my toes into the acquisition world while running my previous company, Onevest, which was backed by 14 different venture capital firms.

Building Onevest was a wild ride-full of terrible lows and exceptionally steep highs-but it became one of the largest communities of entrepreneurs, supporting over 500,000 founders in 234 countries.

Onevest and its portfolio of companies provided services such as cofounder matching, accelerator programs, a vibrant Q&A discussion board, key workshops on everything related to building and scaling businesses, and a platform where investors could meet and invest in startups.

It was a dynamic and deeply loyal community.

Accelerated Growth through Acquisitions


On the journey of building and scaling Onevest, part of its growth was organic, which we absolutely lucked out on, but the other part of its growth was attained through acquiring major competitors in the space.

In total, we acquired three of our direct competitors, which was bold and certainly risky, but it turned out to be a strategic move in the end. Two of those transactions, CoFoundersLab and FounderDating, were purchased in the millions of dollars and were a bit complex, given all the stakeholders who had a hand in the pot.

In one of those deals, we inherited investors who were not very sophisticated in these sorts of deals. A ton of back-and-forth negotiating ultimately shot the billable lawyer hours through the roof.

As newbie investors, they would either get stuck on standard terms or they would request things different from what was generally accepted in the market. That proved to be a painful but valuable lesson I will never forget. This specific experience is the reason I typically warn entrepreneurs to stay clear of non-sophisticated investors.

These kinds of investors can literally blow up a good deal, or at least significantly complicate things. Believe me, it can be frustrating and complete nonsense when you experience it firsthand. It's almost as if someone is throwing stones at their own glass house-but what can you do?

Yet those specific deals each came with important lessons that really helped me to understand how startup acquisitions work from an operator's perspective.

Acquisitions, to my surprise, were one hundred times harder than rounds of financing. And there's dealing with all types of emotions and egos, so mastering psychology is key.

Inbound Interest and a Path Forward


About eight years into building the business, Onevest started to receive inbound interest from companies that were drawn to our distribution capabilities, data, subscription structure, and access to the venture world.

The offers to buy the company couldn't have come at a better time. I had spent nearly a decade building Onevest with my wife, Tanya Prive, and at that time, she was pregnant with our second and third child (yes, identical twins!). But we soon found out the pregnancy held other surprises for us.

At six months, Tanya was diagnosed with twin-to-twin transfusion syndrome, a rare condition affecting the placenta in identical twin pregnancies where blood is transfused disproportionately from one twin (donor) to the other (recipient), causing the donor to have decreased blood volume and the recipient to be overloaded with blood, which often results in the death of one or both babies. With that diagnosis, Tanya was rushed into the hospital for an emergency C-section.

Our twin daughters were born at 28 weeks gestation, weighing in at 2.4 pounds and 1.7 pounds, respectively, which catapulted us into weeks, and then months, where our baby girls fought for their lives in the hospital. After 129 and 180 days, respectively, at the neonatal intensive care unit (NICU) at Mount Sinai in New York City's Upper East Side, they were finally discharged and able to come home. Our lives had changed, and I knew that stepping back from the daily grind was the right thing to do for myself and Tanya.

Before our girls came home, our four-month-old daughter, Alya, had to undergo heart surgery. As she was wheeled into the operating room, I was preparing the agenda for a board meeting on the four acquisition offers the company had received. I wanted to be near my daughter that day, but the offers left us no choice.

One of the acquisition offers had a 24-hour expiration date. It was December 19 and the members on our board were about to check out for their holiday vacations. It was literally the only time we could get everyone together.

I was a wreck thinking about all the things that could potentially go wrong with Alya's surgery, but I had to sidebar my thoughts to get our board aligned. We unanimously agreed that pursuing an acquisition was in the best interest of our stakeholders. But how did we get to these four acquisition offers in the first place? It all began with me finding Mike Seversen.

Choosing My Wingman


I instinctively knew it wasn't wise for me to tread the transaction path alone, so I began searching for a master banker who would help me navigate any merger and acquisition (M&A) landmines and optimize my chances at a successful exit. To have the best outcome, the deal needed to be viewed not solely as a financial acquisition (all based on revenues and EBITDA) but more as a strategic acquisition.

But in meeting after meeting, I was greeted by more or less the same person: a suit-and-tie Wall Street guy with little to no operating experience. After speaking with tons of potential M&A advisors, I was getting desperate. I knew the kind of person I needed to make the deal a success, and I felt as though I was looking for a needle in a haystack.

Finally, after endless research and asking around, I had a major breakthrough. I connected with Mike Seversen. He was in every sense of the word a true rock star. Sure, he had all the bells and whistles you would expect: Stanford undergrad, MBA Harvard graduate, and a 26-year career in the mergers and acquisitions space, but that wasn't what sold me.

Mike had a rare, heightened emotional intelligence, as well as the operational experience from running his own entrepreneurial ventures. I knew that if anyone could pull off this transaction, it was going to be Mike working with me as a team. I was strong on the business development side and relationship building, and Mike was a wizard of operations, numbers, and creative strategies. He was also keenly skilled in navigating big egos.

Once Mike and I were on the same page, we presented the plan to the board. As soon as the plan received board approval, we immediately got to work.

Our M&A Journey


We ended up with four letters of interest (LOIs) to buy our company. LOIs are the formal way acquirers tell you they are interested in buying your company and at what price, pending a due diligence process. (I'll explain these in more detail later in the book.)

So how did we generate these letters of interest?

First, we went ahead and prepared a list of all the companies we thought could show potential interest in acquiring Onevest. (We're talking here about a list with 300 leads.) We tried to cover every strategic angle we could think of that could trigger interest.

We wanted to target CEOs as opposed to your typical head of corporate development, who usually leads this type of initiative, because the path to a yes is far less risky when a deal comes through the CEO. We knew that if we penetrated the company via the CEO and were handed over to the corporate development team, the team wouldn't hesitate to report back to the CEO if it saw a good fit.

Once we populated our target list with outreach data, we went ahead and reached out to all of the CEOs. In parallel to reaching out to potential acquirers, we also put in motion the formal discussions with the firms that had already expressed direct interest in doing something strategic, which typically means an acquisition.

In essence, this ended up being a four- to six-month process from the start to narrowing down the seriously interested parties.

Out of the 300 leads, we had active conversations with at least 60 of them via phone calls and in-person meetings. From there, we had 25 companies that requested access to the acquisition memorandum (which is the document that lays out the story of your company and what's possible).

Ultimately, it was this process that led us to receive the four letters of interest. In partnership with our board, we ended up taking the LOI that we thought had the best terms and offered the greatest level of alignment with the acquiring management team.

From there, we went into due diligence for three months following the signing of the LOI, and we ultimately closed the deal, which was worth millions. But I can't tell you how many times the transaction nearly blew up.

When all was said and done on the due diligence side, we signed the legal paperwork, got approval from the shareholders, and made the announcement to the world.

Mike and I saw the entire process like a tennis match. He would volley the ball to me when I had to talk about vision or product, and I would volley the ball back to him when terms or negotiations came up.

It was good to remove myself from the difficult conversations about numbers, as well as important clauses in the agreement. This way, when things got tangled up, I could grab the phone and call the CEO directly to keep pushing...

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