Lessons from Inside Six Startup Exits
The most popular topic in tech might be the coveted “exit.” We read about them every day — whether the pace is speeding or slowing, which companies are potential acquirers and targets, and how entrepreneurs and their investors perform when they happen. But the details are often glossed over: how did it actually happen? What do founders and investors need to do to help get the deal done?
It’s been an exciting year of exits at Maven, and I want to share some insights learned from the acquisition conversations and process. Three and a half years into the life of our fund, we’ve made 25 investments and six of those companies have been acquired. Our team has experienced the unicorn-style outcomes investors dream of, we’ve supported founders racing across the finish line to return just a portion of investors’ capital, and we’ve seen everything in between. Based on my experience with those six companies, here are five things founders can do to help their odds of brokering that coveted acquisition.
- Tech is king: in both the slam dunks and the saves, one of the most important factors is the quality of the team — especially the technology team. Acquirers are looking for technology talent and products that they can’t recruit or build on their own. Having an amazing team of the best engineers who have worked together for a while can be a tremendous asset to the right purchaser. At a minimum, it’s an incredibly valuable backup plan in the event you don’t reach massive success.
- Start partnership conversations early: many of the relationships between our portfolio companies and eventual acquirers started as partnership discussions. Think about who would be interested in your tech team, product, data, or other assets as a partner/ customer/ investor. If you start those conversations early, you will be in a stronger position to build them into acquisition talks when the time is right.
- Financing matters: founders should always be hyper-aware of their burn rate, runway, and upcoming funding needs. A company with a year of capital and a number of funding prospects is in a much stronger position in acquisition talks than a company eking out its last three months of cash.
- Know when it’s not working: it’s ok for startups to fail. We know most of them do because seed-stage investments are very risky bets. Sometimes the market opportunity you envision doesn’t develop, a competitor takes a much stronger position that you anticipated, the timing is just too early, or a myriad of other company-killing reasons. If founders recognize this early and take action, it’s more likely they’ll find a good home for themselves and their team.
- Create momentum: in some ways, acquisition talks mirror fundraising efforts. In the final hours, create momentum to encourage the deal makers to move forward. This might mean engaging with more than one potential acquirer when you’re not in a period of exclusivity. Your investors and advisors can help, so leverage your network. They might have just the right corporate development contact, strategic investor intro, or new idea for a company to target. Another strategy to build momentum is getting senior leaders at the acquiring company involved and excited — once you have support from the top, the deal can often move more quickly.
An acquisition isn’t always the right answer. Sometimes founders prefer to ignore early exit opportunities in the short term with the hopes of building a much bigger company to exit later. That’s risky but can lead to huge payoffs, and we absolutely support those efforts. Other times, teams choose to fight for success until the very end. It can be hard to recognize that something isn’t working and some founders believe they are “giving up” by pursuing an acquihire. If you’re in that situation, it is worth reconsidering. A small acquisition can help founders and their teams celebrate success by joining a great company. Your product and vision can often live on, and perhaps even come to fruition even more quickly with the resources of a bigger company. At Maven, our team strives to be supportive of our founders above all else, so we offer advice and input, then ultimately follow the CEO’s decision. By applying the five lessons above, hopefully you will be a bit closer to that unicorn acquisition of your dreams.
PS: find information on Maven’s six exits here: General Motors acquired Cruise, Ford Smart Mobility acquired Chariot, Cisco acquired Worklife, Square acquired Storehouse, Startups.co acquired Zana, and Life360 acquired Chronos.