The vast majority of startup exits come from acquisitions. And while the internet is full of advice for exit makers, there’s very little to help guide them through their post-acquisition lives – even though they and their new hires will often stay two to three years and -work hard with the owner. . Discovery is exciting, of course, but it’s not the end of the excitement whenever the “founder’s journey” story might suggest.
Throughout my career, I have received 11 different awards from many perspectives: as a developer, investor and Board member. I recently went on a field trip to compare my experiences with the recovery stories of many people who have found foundation. Although I am not at liberty to name or go into specific businesses (as a rule, manufacturers do not report bad news about their employer), I can summarize the positive opinions I have heard. then combine them with my own experiences to create something. general guidelines for the acquisition process.
The mental transition from founder to employee can be difficult, and the following years can be dull compared to early life. You’ll have pixie dust on you for a while – “the people who founded X and sold it for $Y” – but soon you’ll be judged on how well you’re doing. and others to make you successful for your new employer. You may also be resentful of your new peers, who have worked hard for 10 years with nothing to show for it. You will be tempted to think that everything a recipient does is inferior – but resist this urge. You sold for a reason. Be grateful for the differences and learn from the experience. Find something you can only learn or accomplish as part of this great company, and do it with purpose.
A common theme for these conversations is the short: “I wish I knew then what I know now.” Knowing your strengths, what kind of availability you are in, and the key points to push will help you increase success and ultimately employee happiness. You use it yourself – and the staff who accompany you – to prepare.
How much can you customize the result?
More than you think.
In buying, there are two types of leverage. The first is materials, which determines the winner and the deal breaker. The second is knowledge leveragepredicated on knowing what problems you can overcome without breaking the contract.
There is little you can do to change your negotiating power – you either have a competitive edge or you don’t. However, you can change your knowledge. Contrary to what the owner may say, many points are not deal breakers. You just need to know what to ask for – you may be surprised that the owner will agree, but if you ask.
KYA: Know who got you
Assessing your buyer will help you and your employees prepare for what lies ahead.
Start vs. Obviously the bigger and older the recipient, the more understanding and cultural dissonance you will experience. You can’t change this, but you can guide your team with psychic intelligence. The owner got a big reason. On the other hand, acquiring from a startup can have a positive impact from a cultural perspective, and you will see similarities in everything from technology tools to HR policies.
To manage the contribution after it has been received: When I was working at Cisco in the early 2000s, we ended up getting 23 in one year. Note that some acquirers are profitable; some are not. Either way, make sure you know what happens “the next day.” Force the buyer to explain their plan, because it will raise many issues that will affect you, your employees and your customers.
Recipient’s culture: You might think that two or three years will go by quickly, but it won’t. It is important if your employees get into a culture where they feel at home. You’ll have to spend a lot of time getting it, so remember to ask yourself if this is a company that reflects the extent of your values. Talk to more than just the acquisition team and the contract sponsor – ask to talk to the CEO of the startup they’ve already acquired.
Know Why You’re Got It
There are five purchasing models, and understanding which model you fit into will inform your process:
New products and new customer bases: You know more than the acquirer and they can easily mess up what you built, so you should fight for business unit independence. These acquisitions fail every time they succeed. Examples include Goldman Sachs and GreenSky, Facebook and Oculus, Amazon and One Medical, and Mastercard and RiskRecon.
A new product or service, but the same customer base: Most acquisitions fall into this category. The founders should help in the implementation of the application, because it ultimately achieves success in both directions. Consolidation disrupts cash flow – but the first thing you need to do is avoid cash flow. Notable examples include Adobe and Figma, Google and YouTube, and Salesforce and Slack.
New customers, but same type of product: In this type, you know the customer and the buyer does not. Maintaining a high degree of independence in the short term is essential to the success of this acquisition. Be willing to share knowledge and ultimately integration. Examples include PayPal and iZettle, JPMorgan and InstaMed, and Marriott and Starwood.
Same product and same customer base: A buyer wants your customers to do business and possibly eliminate you as a competitor. You will be completely integrated into the person who receives it from the service, and quickly give up your personal identity. Examples include Plaid and Quovo, Vantiv and Worldpay, and ICE/Ellie Mae and BlackKnight.
Acqui-hires: You’ve built a team so well that another company is willing to buy the company to take them public. Be sensible – this is a great way out for you, and an unnecessary purchase for the recipient. In this category, there are many examples to be counted.
What to ask for
At the time of purchase, it is easy to focus on business areas such as price, working capital maintenance, escrow, and reimbursement. You should get that, but your experience from the next two to three years will depend more on how things work after you get it. In a fast-paced business, buyers will tell you not to worry about these points – but you should. Here are the main non-contractual points you should consider:
Employee Fees: You should set up the employee benefits before you get them because it will be difficult for the owner to change them later. Your employees receive a starting salary, which should be higher when the equity ratio is deducted. Be aware that the deal may still fail, so do some debt benchmarking and wait to implement it until you’re sure the deal will close.
User name: You will need to list your employees and their owners and payroll. As a startup, you may be focused on equity and options, but an owner is focused on financial returns and other benefits. Learn the difference between the names before making a chart, because big companies often depend on everything from the amount of money and the benefits of participating in executive meetings to them. Be strong advocates for your employees – you have knowledge about them, so use it.
Reservations: Recruiters want to retain early stage employees, and you have the power to decide who is in the retention bucket. However, it’s a double-edged sword because your employees have to stick around to get another paycheck. Try to keep the time under two years, because three will be a long time. Instead of expanding the pool further, you should negotiate a second retention bucket that you can use to retain key employees who may want to leave shortly after being acquired.
Estimated budget for projects: You think about raising money from serious investors, but think only about the company’s budget. Most large companies use budgets and headcount as their management system, so negotiate both for your first year. You will need the freedom to act, and you will not spend time preparing for any new charges – it is likely that new people participate that are not part of the first acquisition.
Government: Who should you tell? Your new manager’s level and competence are the most important factors. You can’t escape the corporate budgeting process, but it’s better to have just one person to agree to. If you are an independent business unit, negotiate for a Board of Directors from the owner. It’s a new process for consumers, but it’s a good way for you to confirm its style and function. Finally, avoid matrix reporting at all costs, especially if you have money.
Cost: Consumers choose them because they combine price and performance, but your job is to avoid them. This is easier said than done, but you won’t be free to complete the purchase when you first get it, and unexpected forces will disrupt the best-laid plans. You can crush it with income and lose a lot, or measure all your goals, 12 months later. It will be your call, but if you have the opportunity to get 25% more in money or settle 10-15% more in advance, I will take less money in advance.
Draw your Board
Many acquisitions begin with informal expressions of interest, and executives have a duty to share them with the Board. Some are easy to dismiss, but others trigger fears: Do you want to sell? Don’t want to go too far? What price will you sell?
This is where you will find your real investors. Everyone understands that investors in Series B at a price of $ 125 million will not be interested in selling $ 200. However, the real job is to find the best for the company, considering the producers, employees and shareholders. This is where you will be happy that you have chosen good partners as investors in your room, and independent Board members can provide a particularly valuable voice.
If you decide to get involved with an owner, then executives with M&A experience can hire you there. If you’re not the CEO, get help. You don’t want the whole team involved, so have them appoint one or two people to the M&A committee and put them on speed dial. You’ll avoid a lot of small mistakes – and at least have the board members already convinced when you come back with a letter of intent.
Selling your company is the price of an iceberg, and the more you know about the purchase life before you start negotiating, the happier you and your employees will be for the next two to three years. There is a huge shift in mindset and work ahead, and you can influence many of them by using this example to know when and where to communicate.