December 22, 2015
Most startup founders hope they grow into a major global brand and achieve a great a vision for humanity. However, very few get to achieve this goal. A vast majority fail within a year or two. Many others get acquired by bigger companies. In fact, with startups experiencing high failure rates, getting acquired by bigger companies is something many startups dream of. Unfortunately, such acquisitions rarely go as planned and hoped for by the founders. A major reason for this is the lack of experience of many startup founders which makes them fail to get a great deal. Here are the fundamental principles to getting your startup acquired:
Market the Startup Effectively
It is almost impossible to get your startup acquired if it is not known. If you are planning to have it acquired it is important that you market it as much as possible. In that way you bring it to the attention of companies that could potentially acquire it. Effective marketing will attract many such potential acquirers to your startup. This is advantageous because it allows you to choose the one with the best terms. The case of Zite, an app for reading news, is a good example. It had a well marketed and colorful launch that was covered by major US news outlets and newspapers like The Wall Street Journal. This brought it to the attention of CNN which acquired it just six months later for $25 million.
Have Excellent Products/Services
No matter how good your marketing is, it will not amount to much if your startup’s products and services are poor. Potential acquirers often go for startups whose products and services are likely to give them a competitive edge over their rivals. For example, even though not a market leader, Elastica had built a name for itself as a major innovator of excellent cloud security solutions. Keen to cement its position as a market leader in the same field, Blue Coat acquired Elastica for $280 million (only eight months after Blue Coat Systems itself was acquired by Bain Capital for $2.4 billion).
The acquisition of BigMachines by Oracle also shows how easy it is to get a great deal if the quality of your products/services is high. Renowned for its excellent CPQ cloud products, BigMachines did not have a problem getting acquired for $500 million (five times the value of its revenues). Oracle was desperate to steal business from its top competitor Salesforce.com, so acquiring a company whose clients were primarily Salesforce users was no coincidence. These two examples prove that with excellent products it is not only easy to get acquired but also easy to get a great deal.
Work with Many Buyers Simultaneously
Buyers usually have more leverage on many terms of the startup acquisition. By keeping negotiations open on many fronts, you strengthen your hand in the negotiations. As potential acquirers compete for your startup, they make their terms better thus allowing you to get the best deal.
Make Your Vision Clear
Chances are high after your startup has been acquired you will be absorbed into the acquiring company as an employee. If you don’t have similar vision you will find it extremely difficult working in the new environment. Having a clear vision for your startup allows you to choose companies that share that vision.
For startups, getting acquired may mean many things. It could represent an honorable exit, a chance to make money or a way of speeding up the achievement of your vision by using infrastructure already set up by bigger, more established companies. Regardless of the reasons behind the acquisition, the tips discussed here will help you have the acquisition done successfully and on terms that are favorable to you.
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