Are you prepared for an acquisition? Having a great M&A advisor and finding potential buyers is one of the first steps in the acquisition process. If your strategy is not well designed and you don’t have control of the acquisition process, your startup could be undervalued, and you won’t receive the amount it’s worth. Or the deal can fail miserably.
So, how do you keep control of the startup acquisition process? You need to ensure your team is aligned with the same goal throughout the acquisition process. Let’s learn everything there is to know about acquisitions and how you can stay in control.
What is a Startup Acquisition?
A startup acquisition is a process of purchasing a company.
Established companies would often rather acquire startups instead of starting a new company from scratch. While even some startups are busy in an acquisition mode to roll up their space and improve their own metrics and value. It can be a complicated process. There is a lot on the line. It isn’t always quick either.
Planning, an efficient team, and aiming for a common goal between acquiree and acquirer are key to a successful acquisition process.
What Makes a Successful Startup?
Having a great product or service are not the only things that make a promising startup and attract acquirers.
Some of the hallmarks of a successful startup that is poised for acquisition include:
- A strong team
- High-quality accounting
- A good corporate structure
- Healthy finances or having a good plan in place to get there
- A practical and well thought out marketing and sales plan
- Something unique and defendable
- Attractive metrics
If you want to hold onto your startup and reject the idea of an acquisition, it will take time to take a reasonable portion of the market and many funding rounds before going public on your own. This grind is why many entrepreneurs are comfortable making a profit by merging with a large corporation.
For example, when Instagram had virtually no revenue, Facebook purchased the app for $1 billion and is known as one of the most significant acquisitions in our day and age. While experts in the field thought that Zuckerburg was a fool for making such a deal, they didn’t see Instagram’s potential. Today, Instagram is worth $100 billion. Large businesses don’t just acquire startups in an effort to eliminate competitors. They do so because they understand it is of value to them. Often in ways others don’t see being obvious at the time.
Starting the Acquisition Process
Staying in control of the acquisition process is dependent on how you start. As with anything in business, when you have a solid foundation, less can shake things up to where you don’t feel like you have control of the process. So, how do you get started?
- Positioning the deal: There is little difference between pitching to investors and pitching your startup to acquirers. Your job is to show value in your company and effectively show growth opportunities in the market. Position the deal by finding the critical selling points and capitalizing on those points, and making your company more attractive.
- Market expansion: If your product can be expanded into other markets to generate future revenue, you need to provide the data, the current market health and direction, and how the expansion ties in with your existing business model.
- Establish its success: A larger company may integrate your technology or products and teams with its own, or it may be looking for independent companies to add to its portfolio. The better your company can stand on its own, the wider the variety of bidders you can attract.
Preparing for the Acquisition
This part is a no-brainer, you need to prepare. Just as you would spend countless hours planning for an investor meeting and fundraising round, you should plan for the acquisition. It’s never too early to start. In fact, you ought to be planning your end game before you even start. You might not be experienced in all the financial and legal stuff, so to keep control of the acquisition, you need to know everything there is to know about your startup and who the acquirer is. As well as recruiting experts to help fill in any gaps and provide support.
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