The Story Behind Favoriot - Part 12: The Dream of M&A Exit

Understanding why many startups opt for an M&A exit and what factors drive this decision

I’ve often found myself reflecting on the ultimate goal many of us have when we start a company: the dream of a grand exit, perhaps through an IPO, where our company becomes publicly listed and the rewards are beyond anything we’ve imagined.

The reality, though, is much more complex, and for most of us, reaching that point requires navigating a winding path filled with challenges, decisions, and often, compromises.

When I first started out, the vision was clear – build something valuable, scale it, and eventually take it public.

I remember the excitement of those early days, the endless discussions about Series A, B, C funding rounds, and the belief that if we just worked hard enough, smart enough, we’d be among the fortunate few to make it to an IPO.

But as time passed, I realised that this dream, while achievable, was far from guaranteed.

Many companies don’t make it to that stage, and instead, find themselves considering other options, like mergers and acquisitions (M&A).

The reality is, getting to an IPO isn’t just about having a good idea or even a great product. It’s about building a company that generates substantial revenue, has a stable income, and has operations that can scale globally.

This requires not just innovation, but consistent execution over many years, often under immense pressure from investors and competitors. And even then, the odds are still slim.

I’ve seen many founders, myself included, face the tough decision of whether to continue pushing toward an IPO or to consider selling the company.

Selling, especially to a larger corporate entity, can be a very attractive option, particularly when the pressures of scaling become overwhelming. But selling is not just about cashing out; it’s about finding the right buyer who sees value in what you’ve built – whether that’s your technology, your team, or your market presence.

One of the first things you learn when you start exploring M&A options is that the reasons companies acquire startups are varied.

Often, they’re interested in your technology because it’s something they don’t have the resources or expertise to develop in-house. Building new products, especially in cutting-edge fields, is incredibly challenging.

It requires not just technical knowledge, but the ability to iterate quickly, learn from failures, and pivot when necessary.

Large corporations, with their layers of bureaucracy, often struggle with this, and for them, acquiring a startup that’s already proven itself can be a much easier path to innovation.

I’ve also seen companies acquire startups primarily for their talent. In today’s world, finding skilled people – those who not only have the technical chops but also the startup mindset – is incredibly difficult.

Big companies know this, and sometimes the quickest way to bring in fresh talent is to acquire a startup where that talent already exists. This is often referred to as “acqui-hiring,” and while it might not be the dream exit every founder imagines, it can be a viable and profitable option.

Another reason companies might acquire a startup is to gain access to a market they’re not currently serving. Startups, by nature, are nimble. We can pivot quickly, explore niche markets, and move into spaces that larger corporations might overlook or deem too risky.

But once a startup proves that a market is viable, larger companies often want in, and buying a startup can be their fastest route.

On the darker side, there’s also the possibility that a company might acquire a startup simply to shut it down. This might sound counterintuitive, but in highly competitive industries, it’s not uncommon.

A large corporation might see a startup as a potential threat, not because it’s currently taking market share, but because it could do so in the future. By acquiring the startup and then closing it, they eliminate the competition before it becomes a real problem.

Reflecting on these possibilities, I find myself asking, “What would I do if I were in that position again? Would I hold out for the IPO, or would I sell to the highest bidder?” The answer isn’t straightforward.

It depends on so many factors – the state of the market, the strength of the company, the offers on the table, and personal circumstances.

There’s no one-size-fits-all answer, and each founder must make that decision based on their unique situation.

I remember a time when I was approached by a large corporation interested in acquiring my startup.

They were impressed by our technology and saw it as a perfect fit for their portfolio.

Was this really the right move? Would selling mean giving up control over something I had poured my heart and soul into? And would I be happy working within a large corporation, where decisions might be made by people who didn’t share my vision?

Looking back, I realise that exits, whether through an IPO or an acquisition, are just one part of the startup journey.

They’re milestones, not the end goal.

The real value lies in the experiences, the lessons learned, and the impact you make along the way.

If I had to give advice to other founders contemplating their own exit strategies, I’d say this: don’t rush the decision.

Consider all your options carefully, think about what you want not just in terms of financial rewards, but in terms of your personal and professional growth.

And most importantly, be true to your vision and your values.

The right exit will come when the time is right, and when it does, you’ll know it.

In the end, whether you exit through an IPO, an acquisition, or simply by moving on to your next venture, what matters most is that you’ve built something meaningful, something that made a difference.

And that’s something no exit strategy can ever take away from you.