9 most important rules to keep in mind when selling a startup
Do not fool me or yourself. Anyone wants to sell their startup. We all rant that we would like to create a company that brings billions of dollars, such as Groupon. But, as a rule, all these statements are lies. Even Larry Page and Sergey Brin were going to sell Google Yahoo for $ 1 million 10 seconds after the formation of the company. But Yahoo said no.
As soon as I create my company, I immediately want to sell it. I have already sold four and invested in dozens of other projects that were at different stages of sale. I must say, the process of selling is not pleasant, rather, it is terrible. Anyone who wants to buy your company, at the time of the first meeting makes a pleasant mine. But the longer you look at the customers, the better you understand which of them can hit your child and who does not. During the entire period of the company's formation (by the word “period” I understand the term from the moment of launching the company to the receipt of cash for your shares) you need to remember the following rules so as not to be beaten like that child. Yes, of course, not just not to be beaten, but broken and thrown out of business.
1. Get ready for sale a year earlier. Start negotiating with potential buyers right now. In the case of the first company, which I sold in 1998, I began to meet with advertising agencies a year before the sale. By the time the negotiations began, I was not ready for sale. I could have sold the company before, but it was still too small. So I just kept everyone up to date and updated the information monthly. Every three months, at breakfast or lunch, I met with customers to maintain business relationships. By the time I was finally ready to sell the company, I had 4-5 potential purchase offers. As a result, I sold the business of a company with which I had never been in contact. But she heard about us, because everyone around was talking about us.
')
2. Rule 20: 6: 3: 1. In 2004, I wanted to sell the company I owned a small part of (psychiatric hospital. And, no, I was not her patient). The founders invested in a fund that I organized. They suddenly received an offer to sell the clinic for $ 10 million. I asked to give me a try to sell it myself.
My friend was engaged in brokerage sales of small companies for 30 years. He told me about rule 20: 6: 3: 1, which worked in my case. First, we identified 20 private firms, state and subsidiary companies interested in purchasing a mental hospital.
Further, the rule worked like magic. We were assigned 6 meetings. Of these, three meetings were serious, after each of which was followed by a purchase offer. We chose the best offer (the amount of which was twice as much as the others) and sold the business for 41.5 million dollars. And this is a company with an EBITDA of $ 1 million.
3. Ask for advice / generate ideas. One of the key tactics is the so-called “leg in the doorway” tactic, that is, the tactic of manipulation. To any potential buyer who suits your business, offer a few ideas on how you can integrate your company with their existing business and generate income, attract new customers, etc. Invite buyers to the meeting (if the ideas are good enough, they themselves will invite you). Tell them about the ideas. Ask for advice on how you would work together on these ideas. Make sure every idea brings them money. Much money. What will it give you? You can become the leader of a company (you can lead it as an executive director, or head of business development, or director of marketing or sales, or technical director). In turn, your customers will receive information from which they will be able to appear before the board of directors of their company.
When I tried to sell Stockpickr.com (we sold TheStreet.com in April 2007), I negotiated with Yahoo, AOL, Google, Reuters, Forbes, and some other companies. Despite the fact that I did not sell the business of any of the companies mentioned above, I still tried to develop the relationship between them and Stockpickr. And this relationship lasts even after StockStickr is purchased by TheStreet.com.
I had a friend who did everything exactly the opposite. He defied every company that could become a potential buyer. Raging these companies, he hoped that, in response, they too would be unflattering about his company and this would attract the attention of the rest of the audience. I can tell you. In the short term, this approach may work. But in the long run, your company will lose much more.
4. Before the start of negotiations, prepare a mathematical formula that will help you evaluate your company. The formula should be very simple, one that both sides will agree with even before the concrete figures are known. For example, you can say "we value our business at the level of 6-fold future income, provided that we have your customers with us." If customers say "no," you can always agree and answer "well, half as much." here, most likely, you will hear "yes". Or you can do as we do if theStockpickr.com is sold. When concluding a deal, we estimated how many users we can attract if we have the authority of the company that acquires us on our side. As soon as we agreed on the company's valuation method, it was the turn to calculate the cost in real terms (this is where the real negotiations began).
Many companies that buy Google or Yahoo, receive compensation at the level of market value. You can, of course, use this approach. However, it is very important to coordinate compensation and estimated coefficients in advance. In this case, you can always say that you are worth more than the last company that was sold to company X, because ... (and you can continue to list the reasons), and you can negotiate more value.
5. During the negotiations, it is not just numbers that will be discussed. As soon as you agree on the numbers, and the board of directors of the acquiring company approves the purchase of your company, the transaction will be concluded. Now you will need to list all the questions you are interested in: salary, options, options for employees, the expiration date of the capital freeze, office, relocation, other expenses, liabilities, additional remuneration, etc. The list should be as big as you can make it. Your list should be greater than their list. Larry Brilliant, former head of Google's charity foundation and former executive director of Softnet, once told me: “here you can donate five cents to get ten.” Or something like that. In any case, you can get more than what you originally expected.
6. After negotiations, the most painful part begins. The deal is concluded. And maybe not concluded. You are now working for the company that bought you. And maybe not working. The deal can be broken at any time. Whatever you do, at this moment it is better to keep your mouth shut. Also make sure that your lawyer works tirelessly. Ensure that your company's comprehensive due diligence is complete by the time the Agreement of Intent is signed. Due diligence should not cause the buyer to back down. One company once tried to lend me money between the moment of signing the Agreement of Intent and the date of the transaction. NEVER take that kind of money! Another company wanted me to sign a hiring agreement. IN NO EVENT do not sign such agreements. Make sure the mechanism for selling your shares is transparent when it comes to such a transaction. Much can go wrong. This topic can be devoted to a separate article. A good lawyer will not hurt you in any way. In this case, you should know more than your lawyer, but this task is not an easy one.
Do not forget to continue to develop the business even after the conclusion of the transaction, until the moment of signing the contract. Continue to build strategic relationships. Send a weekly press release to the managers of the company that bought you to show how great you are doing the job, and let them know that you are continuing to negotiate with other companies (which can turn into a potential purchase, in case of failure).
7. Express yourself. As you begin to discuss any development strategy with the company (before an agreement is reached), continue to help its managers with everything you can. Advise them how to improve the site, even if you have to introduce them to your competitors. Make friends with the executive director. Invite executives to a game, or dinner. Take a vacation with them and their families. Phoned your contacts in the media to write about a company that buys you a good article. Attend their charity events. Become their psychologist, which you can call at 4 in the morning. Promote your ideas that you can realize as soon as you are taken on board. I did this every time I sold my companies. I was involved in this process.
8. Continue to build a business. What if you are at the very beginning of your journey? I recommend you to read the following interesting articles:
• Easy way to excel as an entrepreneur
• 100 rules of the entrepreneur
The methods described in these articles will allow you to attract customers and bring your business to the stage where you can sell your company.
9. The most important: Try not to make mistakes. Stay in the game and you can sell your business. This is the key point. Read my article 9 simplest ways to fail in business . Read it and try to avoid such situations.
Suppose you made a deal to sell a business and you need to wait a month or so for your lawyers to dot the i's. At some point in time, such stress can come upon you that you will become paranoid. This is the law of the universe. Not a theory. All you have to do is go to the nearest shooting gallery, or hall, and throw out all the negative energy there and relieve stress.
On April 15, we invite you to take part in the GoTech section of the RIF + CIB forum “Who do corporations want?” . Beginning at 12.30, pension “Forest Dali”, Hall 8, Section 79.
The section invited experts who are engaged in the search for projects and the introduction of new technologies in large companies. Panelists will talk about how, where and who they are looking for in the market. And what opportunities it opens for startups.
As soon as I create my company, I immediately want to sell it. I have already sold four and invested in dozens of other projects that were at different stages of sale. I must say, the process of selling is not pleasant, rather, it is terrible. Anyone who wants to buy your company, at the time of the first meeting makes a pleasant mine. But the longer you look at the customers, the better you understand which of them can hit your child and who does not. During the entire period of the company's formation (by the word “period” I understand the term from the moment of launching the company to the receipt of cash for your shares) you need to remember the following rules so as not to be beaten like that child. Yes, of course, not just not to be beaten, but broken and thrown out of business.
1. Get ready for sale a year earlier. Start negotiating with potential buyers right now. In the case of the first company, which I sold in 1998, I began to meet with advertising agencies a year before the sale. By the time the negotiations began, I was not ready for sale. I could have sold the company before, but it was still too small. So I just kept everyone up to date and updated the information monthly. Every three months, at breakfast or lunch, I met with customers to maintain business relationships. By the time I was finally ready to sell the company, I had 4-5 potential purchase offers. As a result, I sold the business of a company with which I had never been in contact. But she heard about us, because everyone around was talking about us.
')
2. Rule 20: 6: 3: 1. In 2004, I wanted to sell the company I owned a small part of (psychiatric hospital. And, no, I was not her patient). The founders invested in a fund that I organized. They suddenly received an offer to sell the clinic for $ 10 million. I asked to give me a try to sell it myself.
My friend was engaged in brokerage sales of small companies for 30 years. He told me about rule 20: 6: 3: 1, which worked in my case. First, we identified 20 private firms, state and subsidiary companies interested in purchasing a mental hospital.
Further, the rule worked like magic. We were assigned 6 meetings. Of these, three meetings were serious, after each of which was followed by a purchase offer. We chose the best offer (the amount of which was twice as much as the others) and sold the business for 41.5 million dollars. And this is a company with an EBITDA of $ 1 million.
3. Ask for advice / generate ideas. One of the key tactics is the so-called “leg in the doorway” tactic, that is, the tactic of manipulation. To any potential buyer who suits your business, offer a few ideas on how you can integrate your company with their existing business and generate income, attract new customers, etc. Invite buyers to the meeting (if the ideas are good enough, they themselves will invite you). Tell them about the ideas. Ask for advice on how you would work together on these ideas. Make sure every idea brings them money. Much money. What will it give you? You can become the leader of a company (you can lead it as an executive director, or head of business development, or director of marketing or sales, or technical director). In turn, your customers will receive information from which they will be able to appear before the board of directors of their company.
When I tried to sell Stockpickr.com (we sold TheStreet.com in April 2007), I negotiated with Yahoo, AOL, Google, Reuters, Forbes, and some other companies. Despite the fact that I did not sell the business of any of the companies mentioned above, I still tried to develop the relationship between them and Stockpickr. And this relationship lasts even after StockStickr is purchased by TheStreet.com.
I had a friend who did everything exactly the opposite. He defied every company that could become a potential buyer. Raging these companies, he hoped that, in response, they too would be unflattering about his company and this would attract the attention of the rest of the audience. I can tell you. In the short term, this approach may work. But in the long run, your company will lose much more.
4. Before the start of negotiations, prepare a mathematical formula that will help you evaluate your company. The formula should be very simple, one that both sides will agree with even before the concrete figures are known. For example, you can say "we value our business at the level of 6-fold future income, provided that we have your customers with us." If customers say "no," you can always agree and answer "well, half as much." here, most likely, you will hear "yes". Or you can do as we do if theStockpickr.com is sold. When concluding a deal, we estimated how many users we can attract if we have the authority of the company that acquires us on our side. As soon as we agreed on the company's valuation method, it was the turn to calculate the cost in real terms (this is where the real negotiations began).
Many companies that buy Google or Yahoo, receive compensation at the level of market value. You can, of course, use this approach. However, it is very important to coordinate compensation and estimated coefficients in advance. In this case, you can always say that you are worth more than the last company that was sold to company X, because ... (and you can continue to list the reasons), and you can negotiate more value.
5. During the negotiations, it is not just numbers that will be discussed. As soon as you agree on the numbers, and the board of directors of the acquiring company approves the purchase of your company, the transaction will be concluded. Now you will need to list all the questions you are interested in: salary, options, options for employees, the expiration date of the capital freeze, office, relocation, other expenses, liabilities, additional remuneration, etc. The list should be as big as you can make it. Your list should be greater than their list. Larry Brilliant, former head of Google's charity foundation and former executive director of Softnet, once told me: “here you can donate five cents to get ten.” Or something like that. In any case, you can get more than what you originally expected.
6. After negotiations, the most painful part begins. The deal is concluded. And maybe not concluded. You are now working for the company that bought you. And maybe not working. The deal can be broken at any time. Whatever you do, at this moment it is better to keep your mouth shut. Also make sure that your lawyer works tirelessly. Ensure that your company's comprehensive due diligence is complete by the time the Agreement of Intent is signed. Due diligence should not cause the buyer to back down. One company once tried to lend me money between the moment of signing the Agreement of Intent and the date of the transaction. NEVER take that kind of money! Another company wanted me to sign a hiring agreement. IN NO EVENT do not sign such agreements. Make sure the mechanism for selling your shares is transparent when it comes to such a transaction. Much can go wrong. This topic can be devoted to a separate article. A good lawyer will not hurt you in any way. In this case, you should know more than your lawyer, but this task is not an easy one.
Do not forget to continue to develop the business even after the conclusion of the transaction, until the moment of signing the contract. Continue to build strategic relationships. Send a weekly press release to the managers of the company that bought you to show how great you are doing the job, and let them know that you are continuing to negotiate with other companies (which can turn into a potential purchase, in case of failure).
7. Express yourself. As you begin to discuss any development strategy with the company (before an agreement is reached), continue to help its managers with everything you can. Advise them how to improve the site, even if you have to introduce them to your competitors. Make friends with the executive director. Invite executives to a game, or dinner. Take a vacation with them and their families. Phoned your contacts in the media to write about a company that buys you a good article. Attend their charity events. Become their psychologist, which you can call at 4 in the morning. Promote your ideas that you can realize as soon as you are taken on board. I did this every time I sold my companies. I was involved in this process.
8. Continue to build a business. What if you are at the very beginning of your journey? I recommend you to read the following interesting articles:
• Easy way to excel as an entrepreneur
• 100 rules of the entrepreneur
The methods described in these articles will allow you to attract customers and bring your business to the stage where you can sell your company.
9. The most important: Try not to make mistakes. Stay in the game and you can sell your business. This is the key point. Read my article 9 simplest ways to fail in business . Read it and try to avoid such situations.
Suppose you made a deal to sell a business and you need to wait a month or so for your lawyers to dot the i's. At some point in time, such stress can come upon you that you will become paranoid. This is the law of the universe. Not a theory. All you have to do is go to the nearest shooting gallery, or hall, and throw out all the negative energy there and relieve stress.
On April 15, we invite you to take part in the GoTech section of the RIF + CIB forum “Who do corporations want?” . Beginning at 12.30, pension “Forest Dali”, Hall 8, Section 79.
The section invited experts who are engaged in the search for projects and the introduction of new technologies in large companies. Panelists will talk about how, where and who they are looking for in the market. And what opportunities it opens for startups.
- What companies want to get from startups, and what they are ready to offer in return?
- Entry point: who and how to find and interest in a corporation? How is the search and selection of an interesting project, expertise, observation.
- Tools to work with a startup? Corporate accelerators - what they give, what goal? Joint go-to-market.
- How the work is built within the corporation - the stages of cooperation (observation, mentoring, pilot, investment, M & A).
- Corporate venture funds: how are they arranged? What are your goals? examples of transactions.
Source: https://habr.com/ru/post/300064/
All Articles