Most startup exits are through acquisitions. And while the internet is full of advice for pre-exit founders, there’s very little content to guide them through life after the buyout — even though they and the employees they’ve hired are often more than two they work for the buyer for up to three years. . An acquisition is, of course, an exciting event, but it’s hardly the happy ending that the “founder’s journey” story might suggest.
During my career, I have experienced 11 different acquisitions from different perspectives: as a founder, investor and board member. I recently went on a listening tour to compare my experiences with the post-acquisition stories of a wide range of acquired founders. While I’m not at liberty to name names or specific deals (as a rule, founders don’t tell bad stories about their new employer), I can gather the honest perspectives I’ve heard and combine them with my own experience. a general guide to the purchasing process.
The psychological transition from founder to employee can be difficult, and the later years can be devastating compared to startup life. You’ll have pixie dust on you for a while – “founders who built X and sold it for $Y” – but you’ll soon be judged on how you work with others and achieve success for your new employer did You may also face the wrath of your new peers who have also worked hard for 10 years and have nothing to show for it. You will be tempted to think that everything the buyer does differently is inferior – but resist the urge. You sold for a reason. Be kind about the differences and learn from the experience. Find something that you can only learn or do as part of this larger company, then do it with purpose.
The most common theme of these conversations was simply, “I wish I knew then what I know now.” Knowing your leverage, your acquisition style, and the key points to lean on will help you maximize employee success and happiness in the long run. You have to be prepared by yourself and the employees who follow you.
How much can you shape the result?
Much more than you think.
There are two types of gear available for purchase. It is the first negotiation tools, which determines who wins the exchange points. It is the second gear of knowledgeit’s about knowing which issues you can win without risking compromise.
There is little you can do to change your negotiating leverage – you either have a competitive acquisition process or you don’t. However, you can change the gear of your knowledge. Contrary to what a buyer might say, most points are not deal breakers. You just have to know what to ask for – you might be surprised how often a buyer will agree to it, but only if you ask.
KYA: Know Your Buyer
Assessing your buyer will help you and your staff prepare for what lies ahead.
Current Prime Minister and Startup: Obviously, the older and older the buyer, the more cognitive and cultural dissonance you will experience. You can’t change that, but you can lead your team with emotional intelligence. The buyer grew up for a reason. On the other hand, acquiring a startup can feel completely natural culturally, and you’ll find similarities in everything from technology tools to HR policies.
Dealing with post-purchase integrations: When I was at Cisco in the early 2000s, we did 23 acquisitions a year. Be aware that some buyers are pros; some don’t. Either way, make sure you know what the “day after” is going to be. Get the buyer to explain their plan in detail because it raises many issues that are important to you, your employees, and your customers.
Acquiring culture: You may feel like two or three years will go by quickly, but it won’t. It’s important that your employees enter a culture where they feel at home. You are driven by the momentum of acquisition, so remember to ask yourself if this is a company that adequately reflects your values. Don’t just talk to the acquisition team and the deal sponsor – ask to talk to the CEO of a startup they’ve bought before.
Know why you got it
There are five types of shopping, and knowing which model you fit into will inform your approach:
New products and new customer base: You know more than the buyer and they can easily destroy what you have built, so you have to fight for the independence of the business unit. These acquisitions are as successful as they are unsuccessful. Examples include Goldman Sachs and GreenSky, Facebook and Oculus, Amazon and One Medical, and Mastercard and RiskRecon.
New product or service, but same customer base: Most purchases fall into this category. Founders should commit to faster integration, as this will ultimately lead to greater success for both parties. Integration makes returns difficult – but your first priority is to prevent returns. Popular examples are Adobe and Figma, Google and YouTube, and Salesforce and Slack.
New customer base but same product category: In this category, you know the client and not the buyer. Maintaining a high degree of independence in the short term is critical to the success of this acquisition. Be prepared for knowledge sharing and end-to-end integration. Examples include PayPal and iZettle, JPMorgan and InstaMed, and Marriott and Starwood.
Same product and same customer base: The buyer wants to eliminate your customer base and possibly you as a competitor. You become completely functionally an acquirer and quickly lose your independent identity. Examples include Plaid and Quovo, Vantiv and Worldpay, and ICE/Ellie Mae and BlackKnight.
He is hiring: You’ve built a team so well that another company is willing to buy the company to hire them en masse. Be realistic – it’s a nice exit for you and an unusual purchase for the buyer. There are too many examples in this category to count.
When buying, it’s easy to focus on transaction points such as appraisals, working capital adjustments, savings, and compensation. You should get them right, but your experience over the next two to three years will depend more on how things work after the purchase. In a rush transaction, acquirers will tell you not to worry about these points—but you should. Here are the main non-specific points that you should consider:
Employee remuneration: You should arrange employee compensation before the purchase, as it will be very difficult for the buyer to replace them later. Your employees receive a starting salary that should be higher when capital gains are eliminated. Be aware that the transaction can still go through, so do a compensatory comparison job and then wait until you’re sure the transaction will close.
Staff titles: You will need to map your employees to buyer titles and compensation groups. As a startup, you probably focused on equity and options, but an acquirer focuses on cash compensation and other benefits. Learn the differences between titles before mapping, as large companies often base everything from bonus ranges and access to leadership meetings on them. Protect your employees fiercely – you have the leverage of knowledge about them, so use it.
Storage: Buyers want to retain key startup employees, and you have the power to determine who is in the retention bucket. However, this is a double-edged sword because your employees have to stick around to receive additional compensation. Try to keep this period under two years, as three will feel too long. Instead of expanding the retention pool up front, you should negotiate a second optional retention bucket that you can use to hold key employees who want to leave after the acquisition.
Pre-agreed budgets and engagement plans: You thought it would be difficult to raise money from investors, but just wait for the corporate budget. Most large companies use budgets and headcount as their control mechanisms, so negotiate both for your first year. You want the freedom to execute, and you don’t have to spend time pitching each new hire — possibly to new stakeholders who weren’t part of the initial acquisition.
Management: Who do you report to? The success and competence of your new manager are the most important factors. You can’t escape the company’s budget processes, but it’s better to convince just one person. If you are an independent business unit, negotiate for a board of senior executives from the buyer. It’s a new setup for buyers, but it’s a smart way to match form with function. Finally, avoid matrix reporting at all costs, especially if you have income.
Income: Buyers prefer them because they match price with performance, but it’s your job to avoid them. It’s easier said than done, but you’ll never be as free to execute post-purchase as you are pre-purchase, and unforeseen forces can derail the best-laid plans. You could deduct it from revenue and lose gross margin or be 12 months late on all of your goals. It will be your call, but if you can get 25% more in revenue or settle for 10-15% upfront, I would take less upfront.
Engage your board
Most acquisitions begin with spontaneous expressions of interest, and directors are required to share these with the Board. Some are easy to dismiss, but others create an awkward dance: Do you want to sell? Don’t want to stretch? What price are you selling at?
Here you will see the real identities of your investors. Everyone understands that Series B investors at a valuation of $125 million will not enjoy a $200 million sale. However, the real challenge is to find the best risk-adjusted outcome for the company, taking into account the founders, employees and ordinary shareholders. Here you will be happy to have chosen true partners as investors in your boardroom, and independent Board members can provide a particularly valuable voice.
If you decide to engage with a buyer, then directors with M&A experience can take it from there. If you’re not that director, get help. You don’t want the entire Board involved, so get them to assign one or two members to the M&A Committee and put them on speed dial. You’ll avoid a lot of small mistakes – and at least have a couple of board members already convinced when you come back with a letter of intent.
Selling your company is the tip of the iceberg, and the more you know about life after the purchase before negotiations begin, the happier you and your employees will be for the next two to three years. Huge psychological and operational changes are coming, and you can influence many of them by using this model to know when and where to negotiate.