Selling your startup is one of the most momentous occasions in a CEO’s career. The stakes are high; for most chief executives, it’s a once-in-a-lifetime opportunity, and you’ve only got one shot to get it right. But getting acquired is a complex process. A successful sale takes a lot of work and many months of preparation, all on top of the normal work required to keep your business running smoothly. Without adequate preparation and resources, you can risk losing valuable employees, missing deals, ending up with the wrong buyer, and leaving a lot of money on the table.
Those were the concerns that would occasionally keep me up at night when I was in the process of selling Newsletter2Go, the company I co-founded. Fortunately, the sale was a success; we found an incredible buyer and partner in Sendinblue, a digital marketing platform where I now serve as CEO of North America and VP of corporate development. Throughout the M&A process, I learned countless lessons about how to navigate a successful sale firsthand — a few of which I learned the hard way and all of which l wish I’d known right from the start. So, here are five of the most important ones.
5 Things Every CEO Should Know When Selling Your Startup
- Understand the when and why of your exit.
- Adopt the right mindset.
- Work with an M&A advisor.
- Balance confidentiality with transparency.
- Lay the groundwork for a successful post-merger integration.
1. Understand the When and Why of Your Exit
For such a complex process, the first step to a successful exit is surprisingly simple: Start by getting clear on why you want to sell your company. Your reasoning may have something to do with a shift in personal priorities and motivations. Have you hit your burnout limit? Interested in pursuing a new career trajectory? Maybe your “why” has something to do with the state of the market or how the competition has evolved. Or maybe you weren’t planning to sell but have been approached by an interested buyer and are now considering an early exit. Whatever position you find yourself in, you must define your “why” early and return to it often. You should also consider alternatives to selling your company, from raising funds to buying out shareholders, to ensure a sale is actually the right option for you.
When my co-founder and I decided to sell our startup, Newsletter2Go, we made the decision because we understood that, in order to realize our goal of achieving market dominance in the EU, we would need to merge with a partner to edge out the competition. Reconnecting with that mission brought new clarity to our motivations for selling and helped us make other decisions throughout the M&A process. It also empowered us to better communicate our goals to buyers and ensure that ours truly aligned with theirs. Once defined, your “why” will be your north star, offering direction as you navigate the intricacies of the M&A landscape.
Although defining the “why” of your sale may be relatively simple, determining when to sell can be tricky. You’ll want to begin soliciting offers only once you’ve optimized for valuation. Ideally, this means selling your company at a time when it still has a healthy growth rate. It also means getting all of your company’s accounting and paperwork in order far in advance of your listing. Buyers will need to see comprehensive financial records for the past two to three years or more. Preparing this paperwork early can also reveal opportunities to address shortcomings to further boost the value of your business.
When considering when to exit, analyze the broader market and relevant economies, and act at a time when conditions are in your favor - both company wise and from a macroeconomic standpoint. In market downturns (as we are seeing now for example), when valuations decrease, money gets more expensive and start-ups have difficulties raising money and might have to do a fire sale. At such a time, actively starting a sales process for your company is far from ideal.
In the case of Newsletter2Go’s sale to Sendinblue, market conditions were good, internal KPIs were strong and the main incentive to start a structured sales process was for strategic reasons. We understood that it was important to merge in the near term so that we could get stronger together quickly to be able to compete with U.S. players. Deciding to sell when we did has allowed the business to expand and compete in North America; if we had waited longer to merge with a partner, we may not have had that competitive advantage.
2. Adopt the Right Mindset
Selling your startup can be an emotional rollercoaster; you can secure a great deal only to have it fall through at the last minute. Know that it may take multiple tries to land the right deal. It’s a marathon, not a sprint — pace yourself.
I’ve learned that adopting the right mindset means accepting what is and is not in your control. The timing of the sale, for instance, may not be something you have complete control over. Although you may have an ideal timeline in mind, negotiations can run long, and it’s not always guaranteed that your company will sell within the timeframe that you desire. Although acquisitions typically take around six months to complete, some can take up to a year or more.
Market activity, which can play a huge role in the valuation of your business, is also a factor that’s beyond your control. Due to pandemic-driven shifts in the market, along with higher sales multiples in general, Newsletter2Go would have been valued higher today than it was when we sold the business in 2019. As the pandemic forced more small to medium sized businesses to digitize, the value of digital marketing companies catering to them has risen considerably. But this fluctuation isn’t something we could have foreseen.
Understanding and accepting what’s beyond your control will allow you to focus on the factors that you can. This includes doing everything in your power to optimize your chances of getting a good deal. Here, I’ll reiterate the importance of getting your company’s financial records squared away in advance.
And as you prepare for a sale, don’t lose sight of the business itself. To attract the best offers, you want your business to demonstrate continued success. Acquirers have been known to deliberately wait a couple of weeks or months to see how the business is developing before fully committing to a deal. So, don’t take your eye off the ball. Preparing for and negotiating an acquisition takes a lot of work. Bring in the additional resources you need to keep your business on track while your attention is divided. Doing so will improve your chances of attracting multiple potential buyers.
Although you won’t have total control over the timing of your exit, you can exercise some influence over the pacing of your negotiations to optimize for competing offers or the best deal. An experienced advisor will offer invaluable expertise in this area. Be confident in your valuation and your business’ potential so you can make informed negotiations, rather than reactive or purely opportunistic decisions. In the end, you want to be bought, not sold.
You can also exercise some control over your company’s acquisition narrative, meaning how prospective buyers perceive their competition for your company. Let buyers know they’re not alone in their interest in your company by saying, “Let me connect you to our M&A advisor. We’ve had some inquiries the last few months, and we’re happy to add you to our process.” This response gives prospective buyers a sense of urgency and competition, which can drive up the price and makes negotiations much easier.
3. Work With an M&A Advisor
For most CEOs, selling a company will be a first-time experience, which is why it’s important to bring in an expert. Navigating the M&A process on your own can be risky. In the negotiation process, you’ll be going toe-to-toe with buyers who are seasoned acquirors with a team of professionals and experts behind them.
As a private company, your business may have less visibility in the media and analyst world than a public one. It can be hard to garner the attention needed to attract multiple competing bids. Without the support of an expert, there’s a good chance you’ll find yourself negotiating with only one interested buyer, and you may be forced to take or leave that one option. And if that buyer suspects it’s the only bidder, it won’t make a competitive offer. Best to have an expert at your side to help.
The benefits of working with an advisor are manifold. An M&A advisor will support key stages of the exit, from researching and contacting possible acquirers to preliminary negotiations, structuring the transaction, and mediating throughout the process. Advisors are masterful negotiators; having an expert on your side will be essential to ensuring your company sells at the best price. Advisors will help you control the pace with buyers, keeping each prospect at the same stage, which can be a highly difficult task should you choose to go it alone. A
s someone who isn’t directly involved and emotionally invested in your business, an advisor can also bring valuable objectivity to the negotiation process and can help you set realistic expectations. And working with an M&A firm can expedite the selling process. In a world where delays kill deals, closing efficiently is paramount. Advisors will help you overcome common M&A roadblocks, from due diligence challenges to uncertainty in the market, allowing you to keep a deal’s momentum going as you move towards your sale.
It’s never too early to begin your search for an M&A firm. Starting early will maximize your chances of finding an advisor who’s well matched to your objectives and will give them ample time to prepare you for the M&A process. Your M&A advisor will play a pivotal role in your deals, so it’s worth taking the early initiative to seek out the right one.To find an advisor that’s a good fit, look for an M&A firm with experience in your industry. The right advisor will have access to relevant networks and can bring new buyers to the table. You’ll also want to look for a firm that has experience with deals in your expected price range.
When searching for an M&A advisor to support the Newsletter2Go sale, we also added another criterion to the mix: a culture fit. We wanted to feel confident that our advisor was able to genuinely identify with us. As a representative of your company, your M&A advisor should be able to represent your startup’s DNA and important aspects of your personality. With an early start and the right advisor, you’ll be well equipped to navigate the complexities of the M&A playing field and achieve an optimal outcome.
4. Balance Confidentiality with Transparency
Maintaining confidentiality throughout the M&A process is critical because you have to share a great deal of private data with prospective buyers. To build the mutual trust necessary to reach an agreement, be open and ensure the integrity of the information exchanged.
At the same time, sharing company data can backfire. Not only can a data leak sabotage a deal, it can have a profoundly negative impact on your business, especially when negotiating with strategic buyers. So, how can you safeguard your data while still operating with transparency?
A typical M&A process begins with anonymizing the initial presentation or confidential information memorandum (CIM) shared with potential buyers. This allows prospective acquirors to determine their interest in the transaction without giving too much away. Interested buyers are then asked to sign an NDA, binding those involved to confidentiality.
Beyond an NDA, sellers can explore additional safeguarding methods such as exercising caution around sharing company details. Sellers should redact specific names and round any dollar amounts when sharing customer and vendor financials. Sometimes competitors will express interest in acquiring your startup. If they request confidential information, it may be wise to consider an exchange wherein the competitor shares the same information you are sharing with them.
When selling your startup, you’ll also be tasked with balancing confidentiality and transparency with your employees. Rumors of a potential sale can be concerning to employees, opening up room for unproductive speculation and pulling them away from the work at hand. The last thing you want when your company is under scrutiny from a prospective buyer is for the company to experience a sudden dip in performance. And if information of a sale finds its way to customers, additional conflicts are bound to arise. Customers may have doubts about the company’s ability to maintain service levels post-merger and, in some cases, may even seek to renegotiate existing contracts.
These potential problems underscore the importance of limiting knowledge of a sale to shareholders and top managers, a common best practice in the M&A process. At the same time, maintaining a company culture of trust and transparency is essential. During the Newsletter2Go and Sendinblue merger, we took care to keep everything highly confidential. Newsletter2Go was doing well at the time and didn’t need to be sold; we didn’t want employees to worry, so we kept everything under wraps. When we finally announced the acquisition, it was a big surprise to our teams, and it took everyone some time to feel comfortable with the new situation.
I’ve learned that in some cases it may be best to communicate the possibility of a sale at a high level to your teams in the early stages of the process, clarifying what’s driving that possibility and owning that narrative internally. And while you may not be in a position to share specific details until after the deal has been fully executed, you have ample opportunity to continue to build trust and exercise transparency after the sale has been finalized. Consider assigning a dedicated point person or internal PR expert to manage employee communications following the company-wide announcement. This person can help ensure that all pertinent information is communicated to your teams and that no employee questions are left unanswered.
5. Lay the Groundwork for a Successful Post-Merger Integration
A successful integration takes some preparation, beginning with expectation management and assigning clear responsibilities. In my experience, onboarding additional talent to ease the integration proved to be essential. In addition to assigning one person to lead and oversee the integration process, I recommend hiring an external coach with integration expertise or recruiting the help of an experienced internal team member. Bringing in a dedicated expert early in the process is key.
This was a lesson we learned late in the game. After eight or nine months of navigating cultural differences, we sought the help of a coach who ended up making all the difference. If we had brought someone on earlier, we could have avoided some of that friction. In addition to bringing in outside guidance, we also worked with our HR manager to strengthen our approach to change management.
As two companies merge, differences will undoubtedly arise. Through a workshop, we were introduced to the concept of practicing awareness as a means of reorienting our thinking about these differences. Underpinning this practice of awareness is the idea that as companies integrate and differences arise, you don’t necessarily need to adapt to operate in exactly the same way or even accept another way of operating as superior. But you do need to be aware and respectful of different modes of operating. By cultivating a practice of awareness, you can begin to understand different approaches as a product of people’s lived experiences and culture, instead of taking those differences personally. This revelation can prove to be instrumental to a collaborative, cooperative merging of company identities and practices.
Sell With Confidence
At the outset, the prospect of selling your startup can be daunting. But with the right approach, you can get acquired with the confidence that your business was sold at the right valuation to a buyer capable of catapulting the business to market leadership. With the right mindset, a clear “why,” and ample support and planning, you’ll be well equipped to maximize your sale and move on to the exciting opportunities it will afford you.