This is our curated collection of posts about exits and IPOs for technology startups. Check out our Link List series for other startup topics.
M&A Case Studies: WhatCounts Sale Process. Fred Wilson and David Geller 2011. Do your diligence on the buyer. Only deal with a buyer who shares your values. Get the deal worked out in the Letter of Intent (LOI) stage. “For a relatively small company to be acquired it’s safe to estimate something between $50-$100K in legal fees.”
The Economic Logic Behind Tech and Talent Acquisitions. Chris Dixon, 2012. A big company can build a competing product in-house, but then they run the risk of delays, cost-overruns, and failure. After adjusting for these risks, it’s often cheaper for a big company to just buy the team and product from a startup.
M&A: Talking to Corp Dev
Don’t Talk to Corp Dev. Paul Graham, 2015. “Corporate Development is the group within companies that buys other companies. If you’re talking to someone from corp dev, that’s why, whether you realize it yet or not. It’s usually a mistake to talk to corp dev unless (a) you want to sell your company right now and (b) you’re sufficiently likely to get an offer at an acceptable price.” But see Actually, Founders Should Engage Corporate Development from Jamie McGurk at A16Z.
A Classic Startup Horror Story: the M&A Bait and Switch. Venture Beat, 2012. Paul Graham comments, “This sort of scenario is unfortunately very common. The antidote is never to allow acquisition talks to be the main thing you’re focusing on. We advise startups who get approached by acquirers to treat it as a background process, and not to take things seriously until the very last stage. If acquisition discussions are just a side show, you can easily terminate them if anything goes wrong. Which, interestingly, probably decreases the chances of things going wrong. M&A guys can smell it when you really want a deal, and that makes them want it less.”
Acqui-hire is the purchase of a company mainly for the value of its employees, not its product or technology. It often suggests
Letter of Intent
Brad Feld’s “Letter of Intent” series (2005) provides several useful lessons on the M&A process. - Structure of a Deal. - Form of Consideration. - Representations, Warranties, and Indemnification. - Confidentiality / Non-Disclosure Agreement. - Escrow. - Assumption of Stock Options. - Conditions to Close. - Structure – Asset vs. Stock. - Employee Matters.
Between the acquirer’s letter of intent (“LOI”) and closing the deal, there will be several weeks of due diligence.