Chapter 33Surviving the Middle Game

Companies like Apple, Google or Meta typically operate at their own pace and are not swayed by outside influence when it comes to acquisitions unless your company is the talk of Silicon Valley with multiple suitors, and Zuckerberg himself becomes the internal champion for sponsoring a deal. Due to internal processes and bureaucracies, decisions are often made by committees, and oftentimes the delay is caused by scheduling as it takes weeks to get all the decision makers in the same room. Unfortunately, there is not much you can do as the founder in this case to expedite the process. The only thing you can do is to proactively touch bases with your point of contact, and provide any requests in a timely fashion. Do not delegate any of the requests to your bankers or lawyers, do all of them yourself to make sure they are sent promptly and accurately.

If there is another company that is issuing you an actionable offer that you are willing to take, only in this case would it make sense to apply pressure to the tech giants. In all likelihood however, they will not get their act together, and you will have to end up accepting the other offer. Even if you do end up getting a timely offer from the tech giants, understand that this is different from a job offer as the terms are often non-binding and there is still much to do before the deal can actually close.

So the ideal scenario is to engage with these potential acquirers early on and give them plenty of time to do their own due diligence. Let them work at their own pace and at a point where an offer feels imminent from these tech giants, then do you engage with other acquirers who will likely move at a much faster pace.

There is another class of potential acquirers that are tiny compared to the tech giants, but move slowly in a similar fashion when it comes to scheduling due diligence and providing responses. Perhaps it would be helpful to put things into perspective and define what slow is. In M&A terms, from initial meeting to completing the due diligence and getting a term sheet in three months is considered typical, and this process could take as long as half a year or even longer. This speed of course is completely different compared to how quickly businesses are conducted normally in startups.

Understand the fact that the acquiring company has a business to conduct outside of completing the M&A, and as much as they are excited about the prospect of working together, buying a company does not occupy the same mental space as selling a company. The process of deciding to buy a company almost always requires alignment amongst the highest ranking executives at the acquiring company.

As long as communications are on a regular basis and updates are frequently given, then it is best to give the potential acquirer the benefit of the doubt even if it feels everything is moving at a snail's pace. The worst thing you can do at this point is to force your hand by giving the potential buyer a deadline when there are no other competing offers, or lose any negotiation leverage by sounding desperate. Check in on a bi-weekly basis, and let the buyers drive the process.

Only if there is a competing offer that you are willing to take, would it then make sense to inform the straggler that you will be moving on if they do not get their act together quickly. In all likelihood however, there will be no offer from the straggler, and even if they manage to put one together, think twice before contemplating accepting it as their slow pace will likely continue post offer acceptance stage all the way to closing.

There is another class of companies who are either your competitors or operate in adjacent markets that are taking the meetings just to extract information. They actually have no desire to put an offer together. The tell-tell signs for these types of companies are usually that the people representing them at the initial meetings are junior-ranking product managers or marketers. They will typically be very cagey when asked about what they are excited about with respect to a potential M&A. Nevertheless, they would ask very detailed and specific questions about your product roadmaps, metrics, and technology stack.

Unfortunately when it comes to market discovery for an M&A, you will need to take every meeting seriously, even if it means talking to competitors. The best way to guard against divulging trade secrets and other information that may jeopardize your position is to ask for stricter NDA terms, and also withhold top secret information until terms are agreed, or even wait until the money is in the bank.

Typically a competitor would not go through the hassle of spending months on a fishing expedition to extract trade secrets, but if you feel that the acquiring company gives you that vibe, ask for the term alignment early on, and set very clear expectations on certain trade secrets like key algorithms or models will be only handed over when the deal closes.

Companies that are typically in the hundreds of employees or other startups can move a lot quicker when it comes to the M&A process. However, the caveat here is that they are usually inexperienced when it comes to executing a deal, and sometimes, this may be their first time attempting an acquisition. This inexperience could mean a number of things, but pay attention to those to your detriments. First, you need to do as much due diligence if not more on whether the acquiring company even has the funds to pull off a deal. Even if it is an all-stock transaction, understand that you still have to pay your lawyers in cash. Lean on your investors and board members to scrutinize over the acquiring company's books and financial statements. Secondly, the potential acquirer may not be familiar with the acquisition process and over-promise on the timelines and ease of a transaction. If anything, enough time needs to be allotted for lawyers to draft up all the legal documents and to be reviewed by counsels on both sides. Furthermore, there could be holdups from the board, government, banks, app stores (if you have apps), or cloud providers that require additional time. So even though you may be having regular meetings with the acquirer's CEO discussing integrations and strategies, be sure to do your own due diligence and hold a healthy sense of skepticism on anything that is promised to you. Finally, the due diligence process may also be overbearing as the acquiring company scrutinizes every little financial or legal detail that is immaterial to the actual deal. In such a case, always remind them of the overall goal and not lose sight of the prospect of building a company together.

Finally, there is a class of buyers who simply want to get all your assets, intellectual properties, revenue and core team members and not pay a single dime. They will be more excited about the transaction than you are, and often prey on companies that have decent revenue but are stalling out on growth, where they attempt to use their private stocks to purchase real assets. They will promise you of an imminent fundraising round or a potential IPO, when in fact, their CEO is put on a short leash by their board, and is trying anything to boost their top line revenue to keep her job.

Do not fall for this type of buyer. You are better off staying independent or even returning the remaining cash to investors and winding down the company than giving away your company for nothing, where the exploitative buyer takes all of your assets and revenue, fire most of the team members, and you get a pat on the back.

Look for companies that have a track record of hypergrowth and meeting key fundraising and revenue objectives. In any case, if a potential buyer can only buy you based on issuing more private stocks, that should give you pause on the prospect of joining forces. If anything, they should be able to secure debt financing from banks based on their revenue and assets. Alternatively, if they are hitting their growth goals, there should be no issues of first closing a fundraising round and then offering to buy your company. If they can't do either, then most likely you will be the one holding the bag if you sell your company to them.