Even with significant inbound interest, a startup acquisition has to beat long odds to succeed. Here are the most common mistakes to avoid during your acquisition process to give yourself the best chance of closing a deal.
Hoping for a Great Offer
Mistake: Startups fielding inbound interest tend to focus almost all of their attention on one offer they plan to immediately accept from their most desired potential buyer.
Why: This approach reduces buyer competition and thus your final offer price. It also removes any pressure on the buyer to make a decision. Lastly, it gives the buyer more time to review and request materials, and find a reason to say “no”.
Instead: Try to get any offer you can to begin with, even if it’s not one you would accept. The offer in hand will give you more confidence and pressurize the other genuinely interested buyers in your pipeline.
Low Meeting Volume
Mistake: A lot of startups only talk to ~10 potential buyers during their acquisition process. Usually focusing on the largest tech giants and the darlings of their sector.
Why: Acquisitions have a low probability of success, with less than 12% of Series A (or earlier) startups being acquired. In general, less than 30% of your first meetings will want another follow up meeting. Then less than 20% of follow up meetings will be genuinely interested. This brings you down to 0/10 or 1/10 odds. Thus, only meeting ~10 buyers is not enough.
Instead: Aim to reach 50 first meetings with potential buyers over the first 3 months, this should give you more than a dozen prospects interested in follow up meetings.
Not Enough Time
Mistake: Some startups turn to an acquisition process as a last resort when they have minimal runway left (< 3 months).
Why: You should expect an acquisition process to take at least 6 months, but they are often 9–12 months end-to-end. If a potential buyer knows you’ll be out of runway before the acquisition closes, they will use it to pressurize the price down and you will not have leverage to push back.
Instead: Start potential acquisition conversations when you still have 9 months of runway or be prepared to drastically cut costs to extend your runway if needed.
Acquisitions are a low probability opportunity for most startups, and they are tough to get right. If you want to make it happen for your company, avoid these common mistakes to close the deal with the terms you want.
Thanks to Kaego Rust for their help with this article.
Photo by Kateryna T
Sterling Road invests in pre-seed B2B startups based in the US and Canada.
Full investment process. Contact: ash@sterlingroad.com
