No one launches a startup with a plan to sell it within a few years. But deep within every founder knows that it’s impossible to stick to a plan or a timeline in the uncertain world of startups.
Startups are by nature fragile businesses. They are surrounded by threats of technological advancements, changing business climate and intense competition.
In this scenario, founders should not hesitate from considering an exit even if the startup is at an early stage. If you feel that things are not going as hoped, finding a buyer should absolutely be in the list of probable solutions.
But deciding to sell is one thing, finding a buyer is another. It’s a tough thing to do, especially for an early stage startup.
The right way to scout for acquirers is to think of them as potential customers. You need to be aware of their needs, expectations, challenges, plans, options and goals. There are two ways to do that: hire a consultant or figure out yourself by speaking to industry insiders. Figuring out these aspects will help you identify opportunities worth pursuing.
A deep knowledge of the market will also help you prepare the startup for a better valuation.
So, if you are preparing for an early exit, here are five points you need to focus on:
Strength of the product
A startup is valuable only of it has a feasible solution for a real world problem. That’s why buyers pay utmost attention to the startup’s offering while taking the acquisition call.
To make sure that the product is up to the mark, founders should ensure that their offering scores well on quality, value proposition and safety fronts. On top of that, efforts should be made to enhance the demand for the solution. This can be done through a well-planned marketing strategy.
“If you don’t have a competitive advantage, don’t compete”
— Jack Welch
In a world with ever rising competition, having an edge over rivals is key to survival. No one else understands this fact better than the corporates. That’s the reason why the cliche question — How is your product different from others in the market? — is bound to feature in all acquisition talks.
Startups can build their edge in one or more areas of the operation like speed of delivery, price, technology, design, scale, customer service and personalisation.
A startup that’s generating good amount of revenue is an easy sale. Many large businesses and PE firms are always on the lookout for such startups. And why shouldn’t they be. An investment that’s already delivering returns is always less risky than the one that might generate revenues in the future.
For the acquirer, strong revenue numbers mean the product has passed the validation stage and is ready to be taken to a bigger market. This saves them from the risk of betting on untested solutions.
Moreover, revenues make your startup stand out amid a deluge of early stage startups looking for acquirers.
Intellectual property can be far more valuable than any business or physical asset. They enhance a startup’s valuation by a multiple time.
Companies value IP assets for a variety of reasons including possibility of exponential rise in its value and the option to derive revenue through licensing. The IP rights also ensure a competition-free market for the startup’s products.
The same is true for data. Operation of any tech platform is sure to generate a plethora of information including the much sought after customer data. This information can be of a lot of value for a company which is looking to expand to the region where the startup is operational.
Quality of talent
Hiring is a tough process, especially in the tech world. Companies or even established startups require multiple individuals with varied skills to build cohesive teams. And this is not an easy task as one wrong hiring can bring down the efficiency of the whole unit.
This is why many companies are now considering acquihire as an option. It’s a process where companies buy out a startup for the talent of its members. Such companies mostly target early-stage startups as they are looking for people, not product and market share.
The benefits of such a deal are not limited to the acquiring party. People behind the acquired startup also gain from the transaction. The benefits are as follows:
1. Acquihire is the best way to secure the future of employees
2. The staff is the biggest beneficiary of the deal as an established business provides higher job security
3. They also get to learn from experienced colleagues
4. Founders get to make a neat exit without any concerns about lingering obligations and responsibilities
How to prep up in all these departments?
An early stage startup can never be good in all the departments. A quick search on the internet on M&A deals would tell you that doing well in one aspect is enough for a startup to get acquired.
Having one strong point, be it a strong team or a good market reach or a unique product, is enough to attract buyer interest.
Apart from the above five factors, having a good social media presence (both of the founder and the startup) and building contacts by attending conferences and seminars is important to get noticed. A product, however good it may be, cannot get a buyer unless it’s marketed to the right audience.
Finally, one should always keep these bases covered. The time to exit can arrive without notice. Doing all of it, from understanding potential acquirers to marketing the startup, can’t be done in a short period. Make sure that your startup is always acquisition worthy.