7. Get acquired

Disclaimer: Don’t take this as legal advice. We are not lawyers.

Intro

 

  • Software businesses, sites, or products usually get acquired through an auction
  • You will usually get more money from the sale if you choose to stay on with the buyer to manage the site
  • If you choose not the stay on with the company, you may get less money from the sale, and they will want thorough documentation and explanation of how the product works. The amount of clarity you can provide about the site will impact the amount of the sale.

 

More in-depth

 

  • If you’re long technology, the buyer will try to shorten you on your business. If you’re long business, the buyer will try to poke holes in your technology
  • Your strengths should be expressed in a compelling way. But they will want to see your entire hand to assess what your weaknesses are and what you’re not even aware of.
  • Businesses will usually be acquired by competitors that find your product compelling or a company that was to expand into a new area and looks for businesses that are in that space to acquire. If it is a company moving into a new space they will probably want you to stay on board to help guide that part of the business.

 

M&A advisors and lawyers

 

  • There is no such thing as an M&A advisor
  • When you want to sell your company or product, you need to approach a law firm that does M&A. They will have every person in-house that you need for the acquisition.
  • You should research online for law firms that do M&A and represent start-ups and emerging small businesses
  • When you find a law firm, you should not call them. Send them a cold-email via their website.
  • If they like your pitch, they will reply. If they don’t like your pitch, either they won’t reply, or they will tell you that they don’t have “advisors” in-house and that you need to find an advisor first. This is code for we’re not interested.
  • You should choose a law firm that takes a percentage of the sale instead of an upfront fee. They should be working on commission.

 

Seller facing M&A platforms for tech companies

 

  • There are 3 website brokers that you can use if you want to sell your website. You can submit your site to these brokers directly and if they like what they see, they will hold your hand through an auction and acquisition.
    • FE International – For the big authority websites that are worth over $100,000, FE International is the most obvious choice to go with.
    • Empire Flippers – For websites valued above $10,000 and under $100,000, Empire Flippers becomes the best option.
    • Flippa – If your website is worth under $10,000, Flippa would be a good marketplace to sell it on.

 

For full details, check this article from Forbes on How Much Is My Website Worth And How Do I Sell It?

 

Deeper

 

  • Auctions are a wait and see approach.
  • A buyer may lock in on your business and show a general interest in a pass/fail type of way, but once they go into phase 2 they will be grading your business and technology on a scale from A to C.
  • The buyers are usually big and powerful brands. If your presentation to them is very strong, they will probably hit you back with a lot stronger force.

 

If you are more tech-oriented than business

 

  • It is recommended to position yourself as a tech surgeon with limited business experience. It will give a more professional image and may help you to realize more money from the sale.
  • The M&A firm will help to position your business half in a weaker, but polished way. It should be like a technology gift you are selling them.
  • The stronger your team’s technical background, the easier it will be to find an M&A attorney. How long have you guys been doing software? What has your experience been? How much salary have you been earning? 
  • If possible, you may want to position yourselves as a development house to the M&A lawyer. They may see you as a potential pipeline for business.

 

If you are more business-oriented than tech

 

  • Here is some information if your business background is strong but you lack a technical background, or if you don’t have a technical co-founder or product person on staff.
  • For a business acquisition in particular, they will be looking more specifically into your business plan instead of anything else.
  • Not being technical could actually give the buyer the communication they want to have. That is important to keep in mind.
  • The key to selling an internet business is being able to convince the buyer that the technology is sound.
  • If you don’t already have a high- and mid-level understanding of the product, you should have a technical person do an audit of your product to create thorough documentation. It should be high-level enough for you to make sense of it, but low-level enough for the buyer’s technical staff to examine.
  • You also need to show good management judgment. You should have technical people on-call in case of emergencies. Ideally, the developers would be familiar with your product, or at least they should be able to debug your product issues quickly.
  • First and foremost, your product or business needs to be strong to keep the interest of your buyer. However, if your technical skills aren’t strong, you can make up for it with a strong marketing profile. That can be shown by the team’s history of hooking up with other businesses or having articles published through big media outlets.
  • Also, having a strong digital footprint makes your business or product prime real estate. This includes your Google search footprint, publications, social media profiles, and more. They will not only be buying the car you’ve built (the business or product), but also the real estate properties in your name (web items that talk to your brand).

 

Acquisition meetings with the buyer

 

  • Paperwork and documentation will be exchanged over email
  • Meetings will probably be conducted via Skype, Zoom, or some other video conferencing app
  • You may be asked to make the call from ao Starbucks or other public area (where there is open conversation)
  • Unfortunately for you, the seller, the people in the Startbucks might hear what is going on and start reacting. The crowd may start talking to each other about you, and the situation that is unfolding before their eyes. If this scene unfolds, there is a whole array of things that could happen. You will need to get the crowd on your side somehow.
  • The buyer does this because they will learn a lot more about the seller based on how the seller interacts among the mixed crowd in the room. They also want you to be uncomfortable.
  • It will be a complicate situation, which is expected

 

Final notes

 

  • Documentation is a Catch-22. It’s very good to have solid documentation to present, but very good documentation also gets interpreted as having the intention of trying to make more money. And if the technology documentation is strong, they will find weaknesses in your business documentation. And vice versa.
  • In the beginning, you won’t need to present too much documentation. It will just be an obstacle to them evaluating the site itself.
  • Ideally, your attorney would be handling a good part of the communication to make the deal work.
  • It may not be good to express to them upfront that you are seeking out millions. The negotiation has to develop slowly. It’s better to express to them that your technology is strong. “You got to see this” instead of “Show me the money”.
  • Once you find a buyer, a term sheet will be signed by both parties, AND THEN the buyer will want to perform ‘due diligence’ regarding the purchase. And they will try to find all your shortcomings.
  • The documentation they will require usually depends on what your strengths and weaknesses are.
  • You should use the artifacts produced by following this launchpad for the foundation of your business and technical documentation.
  • The structure of the deal is usually set by the buyer. And it will be hawkish in a peace-seeking way.
  • They may want to know if there are any legal uncertainties.
  • They will want to know who wrote the code.

Click done to return to the launchpad.