Chapter 1Chances Are, It is Already Too Late

Recently I received a LinkedIn message from a college classmate (let’s call him Colton, not his real name) whom I haven’t talked to for over a decade asking for a chat. I knew he went on to start his own company shortly after graduation in the hardware space and experienced lots of earlier traction through partnership and press coverage. A few minutes into the conversation, he told me that his startup that was once the darling of news outlets and raised over a $1 million in venture funding now had around $300K in debt. The worst part was that all of the debt was placed on his own collateral - it was about to default in two weeks. He had laid off all of his full-time employees and currently only had two contractors working for him. He needed help finding a buyer for his company, ideally completing everything within two weeks so he did not have to declare bankruptcy in court. He wanted to know if I would be interested in acquiring his startup. And if his description of his circumstances were not reflective of how dire the situation was, the Zoom link that he sent for us to have the meeting on started an automatic countdown to end the meeting, because he was on the free plan and it had a forty minute limit. The very last words that I was able to squeeze in before Zoom kicked us out was that I would send him an email with some practical advice.

It was one of the most difficult emails to write, but the content of the message was simple.

The cavalry was not coming, Colton needed to get his affairs in order and try to limit the damage. I did not even mention M&A as a possible option in his situation. The truth of the matter was, even if he had an acquisition offer in hand, two weeks would be far too short of a time window to complete the deal. Realistically when it came to finding a buyer for a business, even if it were a firesale, it would take months if not years of preparation beforehand.

Most entrepreneurs make the mistake of turning to an exit as a last ditch hail mary to save the business from bankruptcy or as a means to exit the company completely, but unfortunately almost all of them fail because the company runs out of cash before finding a buyer or the founder quits along the way, even those that raise hundreds of millions of dollars, or with sizable revenues and great products and services.

When founders ask me about the minimum runway for an exit, I often advise that they need cash to stay afloat for at least one year, ideally eighteen months to go through an M&A process. If they don’t have this runway, the most important thing to do is to reduce expenses, increase revenue, or seek outside investments. M&As are all about relationship building, and unless there is already a strong business connection with the acquiring company and a personal relationship with its executives, building such a relationship in order to execute an acquisition takes a long time. The analogy I like to use here is akin to getting married with someone, except there is a twist, the person you want to marry needs to first propose to you, plus they need to convince their parents and potentially all of their extended family that marrying you is the best idea since sliced bread. And by the way, your prospective extended-in-law families are not that gullible or friendly.

You could try to woo a large cap public company to solicit acquisition offers (which is impossible unless there is a competing offer in hand), but oftentimes just getting a meeting in place with all the key stakeholders could take weeks. Furthermore, because the decisions often require a committee consensus, the amount of due diligence requests coming from various departments ranging from product, engineering, marketing, finance, legal, etc would take months on end. Plus, because everything including the balance sheet needs to be disclosed to the interested acquirer, they would quickly find out that the business is running out of cash and they could hire all the out-of-work employees without paying you a dime. The incentives are simply not there for the buyer when you are selling a business that is going out of the business. Moreover, while it was true that in the past, if your company was made up of specialized talents, there were always acquihire offers from big tech companies in need of talent, with the rise of AI agents, the premium paid for such talents had degraded greatly in recent years, there were very few acquihire M&As in the market.

Nevertheless, almost all consummated acquisitions were from inbound interest, and if not all of the acquiring companies have had prior relationships with the business acquired whether they would be partnerships, investments or being a customer. There often isn’t a way for you to engineer an inbound interest without an existing offer, all you can do is ensure you have enough cash in the bank to fight another day, and build relationships early on with anyone who could be a potential buyer down the line.