Notes:
- Embrace the notion of selling a magic box rather than a popsicle.
- ‘We’re an innovatice company looking for the resources we need for growth. Those resources may come in the form of investment capital; they may come through commercial partnerships, or it may be that the best way for us to gain the resources we need to fulfull this opportunity is in full combination with a larger player through an acquisition. We’re opportunistic.’
- There are hybrid models here as well.
- We need a team to unlock the magic box
- If you can create your own stable business and effectively monetize your value = get venture funding
- If you have clear partners that can help with monetization/business growth = establish partnerships
- If you have only created a good idea but don’t have the means/resources to growth = get acquired
- Big companies try to avoid buying startups do to risk - they will only buy startups when they believe theyhave no other way to get where they belive they need to go.
- The only way to get acquired is by having a big idea an idea so big and powerful that the only way the acquiring company feels this idea.can be realized is with the acquistion of your startup.
- PSPs - know where they want to use your startup. You are a means to their ends. The battle is saying just enough to convince them you are aligned and going to expedite their deal.
- If thinking solely about your product, you will not show how your product expedites their goals. Product is an initial manifestation of a larger jorueny, a journey which maps to a massive shift in the market.
- Discussing your product simply as it stands today is like trying to explain an entire television series by only discussing the first episode. The meta narratvie and arc of the story are completely lost.
- VCs - want you to know how to use your startup
- Do VCs want collaborative thinking?
- Show PSPs the water, let them ask to jump in.
- Ask leading questions such as ‘what part of this do you like’
- 4 required functions for a startup
- Build product
- Raise capital
- work with initial customers
- develop relationships with relevant PSPs
- Three type of acquistions:
- Metamorphic: deals that are so substantial, they change or enhance the fundamental nature of the resulting combination
- Transformational: Accelerate the acquirer down an important new path
- Incremental: Combinations that bring operating synergies, but not a great deal more.
- Three motivators for acqusitions:
- Consolidation: More of what we already do but with a new twist or done more effiently
- Scarcity: I know i need this and there isn’t another one like it out there.
- Scale: These guys are big and in combination we can create something, the likes of, the world has never seen.
- If the buyer has a billion customers and the addition of your startup means they can make an extra dollar per month from each of tehm, then in theory the value they’ll place on your innovation will be one thousance times greater than a company extracting one dollar per month across a million customers.
- PSPs (buyers) considerations during an acquisition:
- Buyer utility: impact of the acquisition for the PSP. If they can only achieve this goal by acquiring your startup, you have leverage. If they can achieve this goal, with or without you, they have the leverage.
- Capacity to pay: Stock value = good == buyer can make strong stock offer. Stock value = bad == buyer can’t make strong stock offer.
- Sponsorship, focus, and urgency: Can the buyer get the results they want from this acquistion in another way?
- Cost to own: How much does it cost for the buyer to operate your startup?
- Ease of transfer: Can this easily be licensed/deployed by the buyer?
- Everything about selling a startup is based on the buyer. Every startup is for sale at the right price.
- Sellers (Startups) considerations during an acquistion:
- Enthusiasm: Are you excited about this?
- Options and constraints: If you are able to confidently negotiate with PSPs = you are able to maximize value. Don’t try to make it competitive between PSPs - let them do that. The most common constraint is cash, as cash becomes a concern options begin to narrow. Employees leave when prospects aren’t good.
- Assessment of market conditions: Macroclimate
- Engagement and momentum: How quickly is the startup becoming a market threat?
- Talent and likeability: Is your team good for the PSP or on pace?
- Confidence is inspiring, humility is endearing; arrogance is a deal killer.
- Structuring the narrative for a PSP
- Mission: frames the conversation. Start with some form of ‘to be the…’
- Problem/Opportunity statement: Irrefutable key points.
- Solution statement: How your company solves these key points
- Key elements of approach: Why the PSP is better of acquiring you rather than hiring & building on their own
- Platform: Summary of features for the startup
- Strengths: What does the acquistion enable and for does it enable
- Key metrics: When in the right hands - this really works.
- Unit economics: key metrics
- User praise: exisiting users are saying about the platform
- Media recognition: Look for quotes that speak to the power of this startup
- Market size: Show how big your market is. PSP likely has a different market in mind.
- Market drivers: Market trends
- Competitive advantages: Table showing your approach vs alternate ways of solving the problem. Focus on broad strengths and weaknesses of alt ways of approaching the problem.
- Case studies:
- Core competencies: Why can’t they just build this themselves. What are the hard-to-find skillsets required to pull off this new innovation?
- Deep dive: Product roadmap but don’t come off too wedded to a single path forward. Show open-ended opportunities for future enhancement sor products, opportunities that might comport nicely with the direction the market is going
- Tech stack: Explain how your product works
- Platform components: How does your business work? Include stakeholders & 3rd party vendors.
- Team: Bios
- Status: How much faster both companies could achieve their goal if they worked together as one entity.
- If the value of an asset is hard to determine, then the seller is better advised to let the buyer make the first offer, because if you speak first, you may set the anchor well below what the buyer might have been willing to pay.
- Acquistions are like babies. Each one is a miracle. Fourtunately, they happen all the time.