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What I learned selling my company
- mbesto 3y agoWork in M&A. Have been involved in 500+ M&A deals and also sold a company. These are very good insights!
- kwerk 3y agoGreat validation. What (maybe more nuanced) insights would you add?
- mbesto 3y agoThe author basically says this - but companies are not sold, they are bought. Build a great business and focus on running a great business. Selling is just time in the market. If you're creating value, someone eventually will want to buy you (US centric mindset btw).
- ganeshkrishnan 3y agohow do you decide on the valuation of a startups?
- stagger87 3y agoCan anyone explain the statement "most M&A fails"? In what way? Edit: Nvm, I found some sources for this claim.
- thenerdhead 3y agoIn many ways. Like adjusting to the new company's culture. In staying the relevant length to exercise options. In producing at a similar caliber prior to acquisition. The list goes on and on.
- ozim 3y agoIt is there in the paragraph: failed integration, a ton of employee churn, and/or a series of missed targets.
- deleted 3y ago[deleted]
- gumby 3y ago> M&A is one of two ways a pot of gold happens. I don't know what the second one he has in mind is; the some of the ones I know are: 1 - operate a profitable business that throws off a ton of cash (these can be huge, like Koch, Cargill, Aldi, and can make long term employees extremely, and privately, rich). 2 - sell part of your company to the public (IPO) 3 - sell the whole company (M&A) 4 - spin out or sell off a division (a kind of M&A) One major disadvantage of 2-4 is that other people tend to hear about it.
- fairity 3y ago> One major disadvantage of 2-4 is that other people tend to hear about it I don’t doubt this, but I’m curious: why do you see the publicity as a disadvantage?
- throwup238 3y agoA parasite’s best chance of survival is to avoid discovery.
- gumby 3y agoRunning a profitable business with happy customers is parasitical? I thought that was for PE and hedge fund clowns.
- mcmcmc 3y agoThe concept of profit itself means you are beating the market by taking advantage of someone else or extracting value through arbitrage. In a perfectly competitive market with zero barriers to entry, profit margins will converge on zero as new entrants capture market share or competitors leave overcrowded markets. Edit: this is classical economic philosophy, not my personal opinion https://en.m.wikipedia.org/wiki/Profit_(economics) https://en.m.wikipedia.org/wiki/Profit_(economics)
- greenhexagon 3y ago
- cj 3y ago> I was advised that 50% of signed LOIs actually close. I bet it’s less. You will see the LOI and dream of trading stress for riches. Remember: Less than 50% chance of closing. 100% Which is why I hate that exclusivity is industry standard. It feels exploitative that acquirers can demand exclusivity in a deal when the chances of it closing are less than 80%. Imagine selling a house and taking it off the market because you got an offer with a 50% chance of actually closing 3 months later. Even worse, most acquirers will say “nope” if you ask them to cover your legal fees if they back out of the deal. This happens because sellers of companies only sell 1 or 2 companies in their lifetime, while buyers of companies typically do dozens and dozens of transactions. There’s an extreme power imbalance in favor of acquirers. Most sellers learn these lessons the hard way.
- aidos 3y agoNot to diminish your point, but you’ve described the UK housing market where that’s exactly how it works.
- argiopetech 3y agoThat's how it works de facto in the US as well. Agents don't show houses under contract, and a significant percentage of contracts fall through.
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- donor20 3y agoThey do take backup offers. We got our place that way. We didn’t want to beat the winning bid, but had a no contingency offer. We let them know if first fell through we’d still be interested at our price with a quick close. Someone missed some deadline and they were quick to call.
- 3y ago
- heads 3y ago> Deciders on M&A [do] not include the VP corp dev or the corp dev managers. Those are good relationships to have, but they don’t initiate large offers. What is corp dev’s role then? Maybe they like an in house recruiter: they conduct negotiations and ease the process by meeting with both parties, but the yay/nay decisions are made by the hiring manager?
- caseysoftware 3y agoNo, they're less recruiters or negotiators and more as scouts. They are supposed to go out and find interesting things in (or adjacent to) your space, get to know them, understand how they measure up among their peers and competitors, and bring all that information back to the company. They're all waiting for the company - usually the CEO, CPO, or CRO - to say something like "we have a need for X." Background: I was at Okta through the Stormpath, Azuqua, and Auth0 acquisitions. I didn't have a role in any beyond knowing the M&A team and observing it throughout.
- heads 3y agoThank you, that’s a useful explanation. I suppose, in that sense, the way corp dev operates between businesses is the same way that diplomats and business envoys operate between nations. The public role is about developing new opportunities but there’s a good amount of intelligence work (spying) going on at the same time.
- cxx 3y agoYou just literally described recruiting (for anything other than low/mid level employees).
- lhh 3y agoAll great points! If anyone is interested in how things tend to work if you're trying to proactively sell a company (especially a profitable one), I put together a write up a while back: https://www.fivecastfinancial.com/guides/how-selling-a-company-works/ https://www.fivecastfinancial.com/guides/how-selling-a-compa... (I used to be an M&A advisor - no longer!)
- bmitc 3y ago> People often get into startups because of the chance for a pot of gold at the end of the rainbow. At least someone's finally honest about it. Startup culture is in general a blight.
- tombert 3y agoYeah, I'm a bit burnt out on startups personally. They tend to give somewhat mediocre compensation, and they give you a bunch of shares with some bloated arbitrary value number to make up for it. Obviously it would be awesome if those shares end up being as valuable as they claim it is, but honestly it just kind of feels like lottery tickets. Most startups don't end up becoming the next Amazon or Apple, and as such those shares end up not being worth anything.
- bmitc 3y agoI think startups and venture capitalism is destroying the economy. I think this is pretty clear qualitatively, but I'd also like to start investigating it quantitatively.
- tombert 3y agoIt certainly feels a bit ponzi-ish to me. Historically it feels like you raised funds by IPO-ing immediately and going from there. With VC, it seems like the plan is "waste VC money until we IPO, and then it the public's problem, not ours", and everyone who can realistically make money exits. I suspect a place to start investigating would be to try and find the number of dollars being spent by the VC firms in relation to how many startups go belly-up. It certainly feels like startups are more volatile than ever but I don't have any data proving that.
- ramraj07 3y ago> Your post-money valuation is a hard floor on your sale price > Punctuated by fielding calls from confused angel investors. Can someone ELIE - explain it like I’m an engineer?
- jahewson 3y agoDon’t sell your company for less than your investors have agreed it’s worth.
- ramraj07 3y agoI don’t understand how it’s a hard floor though. Is there a contractual limit when you get a funding round?
- tptacek 3y agoYes, and board seats.
- matsemann 3y agoYes, there can be limits in the contract, making it not possible to sell for less than X in the next Y years. So if you want to do that, you then need to convince your investors this is the best deal they will get. Also, the investor also often have liquidity preferences. So if they invested at a valuation at $100, and you want to sell at $50, they might get all their money back before previous investors and yourself get a single cent. Then it might not be worth it for you to sell at all.
- karmelapple 3y agoEven if there isn't a contractual limit, I think this is a pretty easy logic problem for an engineer (such as myself): If a stock costs $10, and I spend $100 to buy 10 shares of that stock, I don't want to sell that stock if it's worth less than $10. Will I consider taking the loss? Maybe... but I will probably be unhappy with it, so I will do everything in my power to wait to sell until the stock is worth more than $10 again.
- 3y ago
- thewizardofaus 3y ago"Once you get an offer, try to generate competing offers from your key relationships" I've always seen the statement of getting competing offers but how does it actually work in reality? Is it as simple as contacting the key decision maker from competitor and saying... "I've got an offer X, what can you do?"
- hackitup7 3y agoSometimes, although working with focused M&A bankers is the typical strategy for large transactions
- paulddraper 3y agoRight. This is the entire job of M&A bankers.
- lhh 3y agoYes: “Hey, our company is on the market for sale and I thought you might be interested in taking a look before we accept another offer.” And you can tailor it based on the specifics. Working with an advisor can sometimes make this easier because they can be more direct and say things like: “Competitor X has made an offer and I know it’d make your life difficult if this asset ended up in their hands, so I wanted to give you an opportunity to take a look first.” By the way, waiting until you get an offer to start trying to bring in competing ones isn’t great, definitely better to do that as early as you can if you’re serious about selling. You risk pissing off the interested party if you’re making them feel like they’re just being used as leverage and drag things out before giving them an answer.
- alberth 3y agoBe profitable. It’s implied when OP says “run a good business”, but as someone who’s been on the acquiring side - it becomes a lot harder to be the advocate to buy a company when it’s losing money. (The business case math gets hard fast, with unprofitable companies & introduces a lot more risk)
- 101011 3y agoSurprisingly, that didn't matter for a lot of years until pretty recently.
- syndicatedjelly 3y agoIt mattered for most years in history except for one particular decade
- bruce511 3y agoCompanies losing money can still sell, but expect the price to be a lot lower, to make the business math work better, and to offset the risk. You can't sell "potential" but you can buy it. In other words a "good" company, with a "good" product, but running really inefficiently (and thus making a loss) can be very attractive to a buyer, if they can get it cheap. They might see that AWS line, or that Google marketing spend, or the giant sales team, or whatever and realize that by refactoring that part of the business they can extract a lot of value in the short term. But this "potential" is not reflected in the price. You can't sell a business saying "oh, you just have to make AWS go away..." etc. Ultimately any seller is saying "you're offering me a price where I think I get more cash now than waiting for later". Usually with time commitments built in. The buyer is saying "you have something interesting, but I can get a lot more profit out of it than you are currently doing." Often by doing things you have specifically rejected (downsizing staff, cutting expenses, maximizing revenue etc) Be aware that any _principles_ you have, which are suppressing your profit (open-source licenses, fair wages, pride in customer service, reasonable price increases, employee benefits, whatever) are all _almost certainly_ going to be changed after the sale. Those things are exactly where the purchaser is going to get their return from.
- didgetmaster 3y ago>People often get into startups because of the chance for a pot of gold at the end of the rainbow. Few people will take the chance to join a risky venture if the didn't see some kind of payout down the road. I once left my stable job to join a startup. I took a salary cut and even loaned them money to make paroll. But I got some founders stock and had confidence in the product we were building. It payed off years later when the company was aquired. But I also knew that I had to contribute effectively if I wanted that company to succeed. Too many will join a startup just to be on the bandwagon if an M&A event happens. They think they will win big even if they do little to make that actually happen. These people are parasites that can kill a startup.
- donor20 3y agoStartup stock can get diluted to hell during a non amazing acquisition. So founders and key staff (3-4) sometimes get a deal structure that rewards them for doing a year or two at buyer
- guappa 3y agoYou can contribute amazingly and the company can still fail. Equity might be worth 0. You were lucky… but it's not a fault to not want to bet years of work and just sticking to the paid hours.
- didgetmaster 3y agoOf course, there are no guarantees that a startup will be successful. But it wasn't just luck. Myself and others worked hard to create something valuable. If I wanted the safety of a paycheck while working just the minimum hours, I would not have made the leap. My criticism was of those who join a startup for the chance at a payout but don't want to put in the effort to help make that a likelihood.
- karmelapple 3y ago> But it wasn't just luck. Agreed that success such as yours is not only luck! But as a co-founder of a SaaS company that has survived over a decade, I would stress that luck* is also part of it. Many people work very hard at a startup and the thing just crashes and burns, sometimes very quickly. It's not just hard work and being competent at your job - other things outside of your control or influence have to happen to align, too. * I think "luck" is a pretty good descriptive word for things outside of your control and influence going your way.
- deleted 3y ago[deleted]
- lazyeye 3y agoThe Berkshire Hathaway of The Internet https://awilkinson.medium.com/the-berkshire-hathaway-of-the-internet-391a8ee83db https://awilkinson.medium.com/the-berkshire-hathaway-of-the-...
- throwaway2037 3y ago> Not only that, but he typically pays below market prices and avoids dealing with investment bankers. Is this true? I don't think so. When they buy a public company, both sides surely have investment banks that help them to correctly value the deal. Also, "pays below market prices" is probably commentary about his value strategy.
- tempestn 3y agoHa, I figured it must be Tiny even before realizing who the author was (or seeing the name in the url). It's tough as a founder who only ever expects to sell one company though. You don't really know how much you're potentially giving up for that easy deal if you haven't tried to solicit other offers. But you can't know of any offer is really real without spending months working on it. I'm really not sure what I'll do when I'm ready to sell. Maybe the perfect offer will just drop into my lap someday; that'd be nice.
- corentin88 3y agoI would add that you need to build a company that will keep running once you’ve left. Otherwise, no one will buy it, or the price will be much lower than you expect.
- poopiokaka 3y agoThis article is a plagiarized copy of one of the “citations”. Pretty sad