Chronicle Journal: Finance

How To Sell A Startup For Maximum Profit

How can you maximize your exit when selling your startup?

With all of the time, work and effort put into building your startup, it’s worth ensuring you maximize the sale of your company. In fact, it’s a responsibility. The big question is how do you do it?

Why Sell Your Startup?

There are many different reasons to sell a startup. No matter what the reason and scenario, there are ways to maximize your exit, and you should be using them.

Among the reasons you may end up at a sale include:

  • You built it to sell as your game plan from the start
  • You run out of money and have no choice
  • You run into a crisis that fundamentally changes your dynamics
  • You get an offer that you can’t refuse
  • Your startup has matured or plateaued
  • You want to move on to something new
  • It is the best move to realize the mission and full potential of your venture
Picking The Right Timing

Maximizing the profitability of the sale of your startup is a lot about the timing you choose.

That may simply be before things go south, or further south. It could be ahead of hitting a plateau and future of slower growth, or trends changing the supply or demand dynamics of your business. Sell when it’s hot.

This also has to be balanced with the M&A markets as well. There are moments when funds and other companies are happy to grossly pay for startup acquisitions. They are cash rich, their stock prices are up, or debt leverage is ridiculously cheap. Acquirers may be under pressure to keep up and buy, even if that means paying market multiples that may not seem to be sustainable.

Then there are other phases of the markets and economy when leverage is too expensive, companies are cash strapped, funds and big corporations may freeze acquisition activity. Or they may only be looking for deeply discounted bargains on distressed businesses with hard assets.

It is often at the intersection of these factors that you’ll get the most for your startup.

When The Price & Terms Are Good

When the price is right, or the terms are acceptable, or better than expected it is wise to take the money while it is on the table. It won’t be there forever. Or at the same valuation and terms.

Trying to hold out too long means you are likely to miss it. Things can change a lot faster than you imagine.

Being greedy often ends up meaning you get nothing. It is going to feel a lot worse to have to close the doors and walk away with zero, than to have sold a few days early and missed out on a few extra million dollars.

It is important to realize that this is a lot about getting your shareholders and board members on board too. Far too many founding entrepreneurs have seen great offers sail by, ending up in financial disaster because their investors were being greedy.

It is your job to pick the right board and shareholders, and to set expectations and manage alignment, so that this doesn’t happen. They should be ready to pull the trigger and sign when you tell them, or to go with you when things change and the moment to sell comes earlier, even with a lower price than expected.

Attract Inbound Offers

Inbound M&A offers are often the most profitable.

If you are attracting inbound merger and acquisition offers then it indicates you have something of great value that others really want, and are willing to pay money for.

This puts you in a much stronger negotiation position as well. When you do this, you may not only attract higher valuations, but also have more power in negotiating the terms. Which in turn can be what really impacts the ultimate bottom line.

Another profitable advantage here is less expense, time and work on your end cutting the deal. You can shave a lot of labor and resources compared to running an outbound process.

How do you attract inbound offers? Think of this like attracting your ideal customers. It is about having something they urgently must have and are willing to pay money for. It’s about solving a problem for acquirers and their investment bankers and shareholders.

You can subconsciously position your company for this in many ways through your content. Online PR, blogging, and through fundraising campaigns are some of them.

Run An Auction Process

Whether you are attracting inbound M&A offers, or have run a process that has resulted in some term sheets or LOIs, don’t overlook the benefits of using an auction system to drive up bids, and negotiate the terms you want most.

Some offers will even require you to shop around. While others may try to bar you from it.

For all the work involved you should make the small extra effort to shop around for the most profitable deal. You might be surprised at how much more you can get.

Run A Smooth Process

How you execute on the M&A transaction makes a significant difference in maximizing the profitability of an exit too.

A swift, clean, and quick process means you can get the deal closed before things change. Get it done before the market changes, the fundamentals of your business change, or those of your acquirer change. Every day is a risk. A process that lasts a year instead of a couple of weeks can mean everything is entirely different. Every week means your acquirer is likely to come back to try and renegotiate, and not in your favor either.

The more time you and your team and resources are tied up in the transaction, the more you are bleeding capital that is also urgently needed to keep your company performing its best ever in every department. You may have a dedicated in-house team working on this, or even a costly legal team that is clocking up billing hours each week.

Being prepared to ace the due diligence will reduce these risks and hits to the net proceeds.

Author Bio

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.

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