Selling Your Startup

? It’s going to happen - 98% of companies will sell (or merge) in the proptech market. Given the defensive nature of the industry, it’s basically impossible for a point solution to exist.

??The key is understanding when to press on raising more ?? or selling.

Oftentimes, a founder will get more out of selling with the right deal earlier in the lifecycle - because, as you grow, your options for acquisition decrease. ??

For us, our hand was forced... we needed a lot of capital to grow substantial partnerships at a time when the fintech/proptech venture markets were really struggling.

It felt like a hard decision at the time, but in retrospect it was the right decision and actually a pretty easy call.

The Process - How Do I Start?

Step 1?? - you must be all in.?The first step of the process is to get you to mentally commit to this path. After all, no one can sell your company the way you, the founder, can. That is true whether it’s raising capital, hiring a key leader, or landing a customer and it is paramount during the literal sale of your company. You must be all in. You can’t be half-baked, wishy-washy, "maybe we raise/maybe we exit." All in. Period.

Step 2?? - ID your market.?Identify 50 acquisition opportunities, who they are, who the decision makers are, and who your connection points are. Who can get you to those decision makers? Do I use bankers??Whether you hire bankers or not will depend on how mature your business is and your confidence in running a process and your boards confidence. There is no right or wrong but no matter what, you must make sure you stay in control of the sales narrative and the key relationships. We ended up asking our board to let us run the process without bankers for 60 days.

Step 3?? - Outreach - Move fast & set a clear timeline to force focus or clear feedback! We contacted our top 50 targets within 3 weeks letting them know we were running a process and why we wanted to sell. We decided with our board that we would give all prospective companies 60 days to submit a term sheet and we drew a very clear line in the sand. All preliminary offers must be received in writing by X date. This told every prospective group we were very serious and there was a clear process they needed to jump into or not.

Step 4?? - Build relationships and be direct:?The acquiring company is not just buying your product and letting you bail, they are acquiring your expertise, network, passion, leadership, and more. You must rapidly build relationships. Know the decision makers and build champions: Beyond the CEO and board, who is critical to this decision? We want to build champions at all levels of the organization, board, c-suite, and key leadership. To do this, you have to spend as much time as possible building relationships. Run this process like a product discovery process, seek to understand what they like, what they don’t like, what they don’t understand. You have to keep seeking to understand and while doing that, reinforcing the value proposition.

The funnel:?With 50 active targets, we found that about:

• 15 were interested and could maybe pull of a deal but
• Only about 8 could operate on the timeline we gave them. Finding this key group quickly is key, it allows you to prioritize who to build relationships with and where to invest your time
• I knew that truly 3-4 of these 8 were seriously interested. you can tell by the response times, meeting sets, and general communication path.

Going All In - Selecting A Terms Sheets

We were forced to sign an exclusive term sheet. This is pretty common, so you are betting all in on the partner and term sheet you choose. Not all term sheets are equal so here are some critical considerations that played into our decision making:

?? Cash vs Equity

?? Value of the proposed equity?- how much belief do we have in the future of the company were joining. I personally wanted as much equity as possible for our deal because I believed in the future of our product and the combination of our product with BestEggs.

?? PROBABILITY - how likely do you think this deal is to close vs the next term sheet??You are better off betting on a slightly lower value deal with a high close probability than trying to eke out a bit more value with a deal that has a much lower probability of close. How much diligence does the company disclose

?? How in control of the deal are you: Are you profitable and selling is just a choice you can make or is your back in a corner and you’re running out of cash. The aggressiveness for which you maximize deal value greatly depends on your situational strength.

?? How clean is the deal: are there holdbacks, material contingencies, and how do these things affect the deal value?

?? Do you want to work there? Lead there? Values and company identity. Is this place that you want to work??I was surprised at how much you can learn about the acquiring company as you get to know each other. Don’t undervalue this part of the deal! Make sure to take time with the leadership to understand the values and how they play out. Also seek to understand the accidental values, the ones that aren’t on the website but instead are actually how the company operates. What do you like? Dislike? This stuff matters way more than I would have guessed.

Get To Close

Diligence and Legal Docs:

Im going to be brief here but once you enter diligence and legal docs, you have a few goals - but the primary goal is to move as fast as possible and drive the process:

• get documents drafted and turning asap
• disclose everything and turn diligence requests as fast as possible
• push aggressively to close.

You are likely working 80-100 hour weeks for a 2-4 month period of time - if not longer.

Your mindset must be: every second counts.

There is still deal risk and macro markets are constantly shifting, you have to get this done before a material event happens to their company, your company, or just the market.

Manage Yourself Through It:

It’s emotional. You have decided to hand over something you have likely poured blood, sweat, tears, and a lot of coffee into. You’ve taken risks most people wouldn’t dare. For me, I had a panic attack when I started my startup with two little kids and a pregnant wife.

Take care of yourself to make good decisions at speed: It’s real in the normal day to day, it’s exceptionally real during the deal process. Make sure you are working out and sleeping so that you are making clear decisions during the process. You will make some mistakes too, just accept that and move quickly vs getting stuck with analysis paralysis.

Find a Coach: This process is really hard. A coach is helpful because they aren’t your board… which is there to maximize value… and they aren’t your leadership team… which is there to keep their jobs and maximize their individual earnings. There is lots of potential conflict and competing interests. It’s a roller coaster. It’s fighting about indemnification clauses. It’s telling your team that youve decided to sell. It’s wrestling with the question, are you giving up too early? And it’s making sure you take care of yourself - your career - after making sure the board and your team are taken care of.

On The Other Side - Integrating The Companies.

Retain the team at all costs: The acquiring company wants your team and your product to work. We got advice during our process that the #1 indicator of a successful M&A is that the acquired team was still there after a year. We took this so seriously, we set up a retention bonus for our team at the 13-month mark.

Integrating: We decided to not integrate the teams for at least 12 months. This allowed our team to operate independently while beginning to attend the broader orgs meetings and doing meet and greets with other functional leaders and teams. This allowed for a natural getting to know you period for the rest of our org to allow the teams to develop comfort and trust.

Take advantage of resources! Our acquiring company is much bigger and we were able to plug into mature processes that some of our anemic ones desperately needed. This freed up a lot of operating focus for our primary value prop.

Influence the acquirer: I was surprised, our aquiring company has adopted some of our startups operating practices and org design. As a startup, we ruthlessly prioritize, narrow focus, and our product velocity is very strong. I have been surprised at the willingness of the acquiring company to take our energy and system and replicate it in various ways. Acquiring companies are looking for leaders and new DNA to keep improving their overall system.

If you’re a founder or leader considering these opportunities, I’d be happy to pass on whatever helpful experience I can, feel free to reach out!

-David