Chapter 14Come Up with an Outreach List of Potential Acquirers

In 2018, when my cofounder Borui and I were raising our Series A financing, we reached out to thirty-eight venture capitalists, met twenty-eight of them for a first meeting, of which around a dozen had a second meeting, and finally had one offer of which we signed from Draper Fisher and Jurveston (DFJ, now Threshold VC). The whole fundraising process was completed in a couple months. M&A is a completely different beast. Unlike fundraising where most of the hundreds of venture capital firms on Sand Hill Road are willing to hear your pitch, the list is significantly shorter when it comes to acquiring companies for your business. If you are lucky, you will have twenty potential targets who are willing to talk to you. The fundamental difference is that for company buyers, they are looking for a specific combination of strategy, product, technology and team that solves an immediate pain point. This need is so dire that they have already exhausted other potential options like building in-house or partnerships.This is why outbound inquiries typically never result in anything. The acquiring company is too busy executing, or even if your company helps them get to their goal faster, you are not differentiated enough or have enough street credit for them to take notice.

So how do you come up with an outreach list? Start with companies that you already have a strong relationship with, whether that’s your customer, partners or suppliers. Focus on those companies that are familiar with your offering and team. Write down the person who you have a personal relationship with and who could vouch for you internally at the acquiring company. Statistically speaking, if you do not have any inbound interest, those companies that have had a relationship with you would be the next best shot in landing your company. If anything, you could almost bank on a meeting from your contact, because they have a business relationship with you, where a liquidation event for your company undoubtedly would have an impact on their day-to-day. One caveat here is if the potential acquirer is a large customer with sizable accounts, soliciting them about M&A interest needs to be dealt with care. Sending such a signal could trigger them to look for other suppliers to derisk you from being acquired and hence losing this customer for good. The litmus test here is to gauge how critical you are to their business, if your business vanished tomorrow, would there be severe headwind for their business. If the answer is yes, then you have leverage and they should be in the game for M&A, and chances are they will pay top dollars for your service. But if not, it’s best to exclude them from the outreach list as the risk of losing their account far outweighs the possibility of getting acquisition interest.

The next set of folks to put down are those that have a strong personal relationship with you and also hold executive positions in large cap companies that potentially have overlapping theses. Now these personal relationships should be those who have worked with you in the past and have high regards for you. They may not be the right person to lead such a deal, but they can route your material to the right department and put in a recommendation. Weak introductions via weak connections are worse than having no introductions. Such introductions could often backfire and jeopardize a potentially synergetic strategic partnership. It is better to leverage your existing network who already have strong connections with the person you are trying to connect to make an introduction than reaching out directly.

Lastly, it’s coming down with a list of potential acquirers that have an exposure to your space and who could potentially benefit from acquiring a combination of your product, team, or technology. Once you get here, be liberal with the list of companies especially if you are in a competitive space like AI or SaSS. Do your research on which companies are making moves in the news. Moreover, big tech companies like Google, Apple, or Meta will almost always have a team that works on a similar or adjacent space, so if they are not already on the list, put them on and you can always rely on your network or investors to find a contact from these trillion dollar cap companies.

Finally, should you put down your competitors on the reachout list? Depending on how desperate you are to land the company, I would refrain from having them on the list unless you are willing to sell for cheap. Reaching out to a competitor asking to be acquired will never fetch a respectable offer, and almost always they will take this opportunity to extract as much proprietary information as they can. So unless you are determined to sell for scraps, do not approach your competitors.

Now let’s work on your outreach deck.