When comparing these two types of acquisitions, we feel like the main difference is certainly the direction of the company as a whole. Similar to what you would encounter when doing financing with safe notes.
Even during the phase of looking and eventually coming to a deal with a potential acquirer, you still have the responsibility to employees and investors to make the business as successful as possible.
A strategy you could use when reaching out to interested parties, is to clearly lay out general terms before deep negotiations begin. Either that, or discuss the plans that the acquirer has in mind. We would recommend acting in the best interests of everyone involved, as this can help to preserve your reputation for future ventures. Though it may really all come down to how your board votes.
Which Is The Best Route To Take For Your Startup?
The best route to take is primarily to focus on your goals and objectives, and your responsibility for doing what is best for the company. If you’re looking for an easier method of generating as much capital as possible, then you may end up with different types of acquirers bidding for your company. You may also want to keep raising another round of investor money or going public as alternatives options open.
If you are doing well, and you are posting attractive numbers these different types of acquirers will reach out to you and make first contact.
If you’re more concerned with the success and future direction of the business, alongside the job security of your employees, then you might want to strongly consider a strategic acquisition. As previously mentioned, this can be a bit more of a time-consuming task, but could definitely be worthwhile.
You could start by reaching out to other companies and investors within your chosen niche. If they’re not interested, they may be able to point you in the direction of someone who is.
Other Things To Consider
Now that you have a good understanding of the two terms, here are a few more things you might want to consider before picking your ideal scenario:
Your ROI – When looking through offers from potential acquirers, make sure you double check the math. Be careful of selling your business short. Know what you and your shareholders want out of the deal in advance. Know your negotiating boundaries.
Trending Niches – Some niches are highly sensitive. You want to capitalize when your business’ value is at an all-time high. For example, if your business tends to get particularly busy during summer, you could hold out till then before looking for an acquirer. Or your overall market or niche is peaking, and growth has plateaued.
Do You Need Help? - Selling your business isn’t always straight forward. You may need the help of a M&A advisor or investment banker, as well as a legal team to navigate this. These costs need to be factored into your exit strategy, to help you calculate roughly how much you will receive in the end.
Inform The Appropriate People – If you’re set on looking for an acquirer, make sure you tell the appropriate people as the first step. Staff and investors could be among the list of those to inform. Just make sure it is at the appropriate time. The worst way for them to find out about a possible acquisition would be hearing it from someone else. Not only will this damage morale and productivity, it could also have a negative impact on your reputation in general.
The Next Step – Why not start planning your next move before closing with an acquirer? There are a handful of benefits in doing so. You will be more prepared and motivated for the future, in addition to clearly knowing the amount you want to receive (If you’ve accurately planned a budget in advance). This will also allow you to emotionally come to terms with selling your startup, giving you reassurance of the next step.
On the other hand, looking into the future might make you think differently about getting acquired. Having thoughts about selling up after a bad day are all too common. If you struggle to visualize your next project or objective, think carefully before signing on the dotted line.
Strategic Startup Acquisitions Vs. Financial Acquisitions
We hope this article has helped you to differentiate between a strategic startup acquisition and a financial startup acquisition, as well as offering an insight into each. There is obviously no set route for each and every business, so doing your research and evaluating the options are both incredibly important. Regardless of how you plan to search for an acquirer, remember to keep track of fees along the way and never be afraid to negotiate.
Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a foreword by ‘Shark Tank‘ star Barbara Corcoran, and published by John Wiley & Sons, the book was named one of the best books for entrepreneurs. The book offers a step-by-step guide to today‘s way of raising money for entrepreneurs.
Most recently, Alejandro built and exited CoFoundersLab which is one of the largest communities of founders online.
Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding where he was involved in one of the biggest investment arbitration cases in history ($113 billion at stake).
Alejandro is an active speaker and has given guest lectures at the Wharton School of Business, Columbia Business School, and NYU Stern School of Business.
Alejandro has been involved with the JOBS Act since inception and was invited to the White House and the US House of Representatives to provide his stands on the new regulatory changes concerning fundraising online.