A tech company can be sold for various reasons, including anxious investors, worn-out investors, or industry consolidation, among many others. As the company’s executives and founders plan exist, they unavoidably face multiple questions about their approach, strategy, and process. If you intend to sell your tech company, the following are some tips you should consider.
Set Accurate Pricing Expectations
Every stakeholder in the company should accept and understand an honest valuation. At any given time, 15 potential buyers are available on the market for every single business listed for sale. Applying industrial due diligence to set these early expectations helps prevent morale issues and keeps everyone united. However, this doesn’t involve communicating about a price during early discussions with the potential acquirer but sharing worst and best case pricing with the company’s stakeholders, including investors and management. This is specifically essential when prices on several tech deals are not based on monetary metrics like earnings prior to taxes and interest or even gross revenue.
Stage Your Firm and Yourself
Your firm must be presentable before showing it to prospective purchasers, and the due-diligence applications commence. The financial statements should often be current and audited to make sure the whole transactions have been appropriately recorded according to the accepted accounting principles. It is also crucial to assemble and verify all forms concerning workers’ onboarding. These documents include at-will work contracts, confidentiality and non-compete agreements, prior-inventions intellectual property agreements, vesting, options, and equity agreements.
Understand the Effects of Your Funding Options
Several types of investors, including accelerators, angels, crowdsourcing, corporate venture capital, and traditional venture capital, among many others, are available to startups. However, they have different requirements and goals. Growth capitalists respond to restricted partners, whereby most of them are usually institutional investors expecting capital to be locked up for a longer duration. Notably, research indicates that about 70% of business partnerships do not succeed. Smaller investors, including angels and funds comprising lower net-worth individuals, usually have more restricted timelines. Traditional venture investors possess a typical timeline of about seven to ten-year exit if they make early-round investments and shorter timelines if they capitalize in later rounds.
Leverage the Bigger Pool of Prospective Acquirers
Nowadays, potential acquirers’ profiles are changing. Apart from big brands in tech, companies in various industries, including insurance and advertising, acquire tech firms for their products and boost their creative spirit. When you are handling prospective acquirers, avoid being coy. Companies looking for an exit should be determined to possess at least two suitors before focusing on an acquisition process. It is also essential to be cautious about sneaking acquisitions. Serial and experienced tech-company acquirers can alter an initial commercial or strategic deal into a solo acquisition deal. In this circumstance, the target firm quickly capitulates to a settled decision and avoids any form of sale process or market evaluation for other prospective acquirers. Typically, this happens where a potential acquirer is a stakeholder in the target firm. It would help if you were cautious of the rights of the first negotiation and the rights of the first offer.
Leverage Your Consultants Early
Seeking services from an investment banker can become complex. Some bankers who have particular domain experience and knowledge can significantly enhance a deal. However, most work on large dealings ($10 million in income before taxes, interests, amortizations, and depreciation or $50 million in value, as the minimum thresholds). Moreover, finding a banker with connections and industry chops takes a long time and usually needs an extra adviser with a high connection. It is also essential to seek the appropriate legal services. Attorneys with acquisition and tech mergers experience can help conclude whether a banker is vital, and if needed, help find the best candidates. Additionally, your investors, especially venture funds, usually have a say on whether to partner with a financial advisor.
Since every exit procedure develops differently, the template to follow also differs. However, you can use some traits to differentiate the most successful sellers. Understanding the above tips enhances the likelihood of getting to a good exit.
