Chapter 37Act on What You Learned
The whole time you spent meeting potential acquirers and doing due diligence even when you get no offers is never in vain. As long as you are not the only person talking in those meetings, there has to be invaluable insights you drew from the interactions. It could be as explicit as, “here is one area that we are spending a lot of time and resources working on and we could really use some help”, where naturally you should look into ways where your company can serve as the knight in shiny armor that helps address this need. Alternatively, there could be implicit hints and signs where the potential acquirer leans in and asks more questions on a particular product or technology, or they request additional materials or metrics on a certain topic. All of these could be useful as you go back to the drawing board and work through the next iteration of your product and strategy that ideally would have a better reception at the next round of M&A reachout.
At the same time, you have to make the distinction that there are certain things that you have control over and others you have no control over. It's best to focus your time and resources on things you have control over, which could inevitably improve your prospects in selling your company next time around.
1. Things You Can't Control
1. Market Conditions: The market is the market, and it could be a result of global macroeconomics, regulatory policies, change of fiscal or monetary policy by the central bank, or investor sentiments in general. A vertical that was once the darling in the eyes of investors on Sand Hill Road may all of sudden get shunned on because there is a more interesting technology or market out there. This unfortunately is something you have no control over, and it would be foolish to try to spend money or resources creating a market that does not exist. PR firms would be glad to take your money to do blitz campaigns on your company, but most likely they would not get anywhere and the money would be spent in vain.
2. Acquirer Strategies: Buying companies must be the acquirer's idea, you can never engineer a sale as a seller. Just think of the last time you ever bought anything from a cold call. As quoted in the Red Little Book of Selling, "People love to buy, but hate to be sold". So don't expect your target acquirer to all of a sudden change their strategies just because your company is available in the market. That strategy always comes from within.
3. Regulatory Shifts: Government policies around federal subsidies, grants, or immigration policies can have a huge impact on a startup's fortune, but unfortunately is again one of those things that you have very little control over. The best way to handle such changes is to be adaptable and work with the policies as opposed to spending your valuable time to lobby politicians or gather signatures.
4. Executive Turnovers: M&As are a relationship business, and the decisions are made by people. People leave and join companies all the time, which may mean that you have to start a relationship from scratch. This is part of the game, and it's better to accept the fact that a deal will likely not happen when your internal champion leaves the acquiring company. You can try to salvage the deal by trying to figure out the next person in line who would sponsor your company, but unfortunately it does mean you may have to start from the beginning again.
5. Acquirer Culture: Don't expect to change the acquirer's culture when your company gets acquired. In all likelihood, if a deal does happen, your team will be expected to acclimate to the new culture and fit within the existing framework of the company. This is why cultural diligence is a big part of the overall due diligence. If there is a mismatch of culture, even if there is a great value in combining forces, savvy acquirers will likely pass on the acquisition as such cultural clashes likely would result in conflicts and deeper divides down the road.
2. Things You Can Control
1. Your Product Roadmap: You always have agency over what products you work on right now. Companies evolve and pivot all the time. Just because you strike out now does not mean you have to keep working on the same products and technology. Take the feedback you get from the market and recalibrate on products or services that actually had good feedback from the potential acquirers. When we struck out in late 2022, the feedback we got from the market was that the persona we were serving was not appealing, and instead, everyone was looking to go after the professional audience. The potential acquirers all liked our technology stack, but we needed to build a product for customers with higher lifetime values. So that was what we did, starting in 2023, we ended up pivoting and building a brand new product serving the professional photographer audience. This ultimately became the reason we received term sheet in 2024 and eventually acquired in 2025.
2. Your Resource Allocations: Desperate time requires desperate measures. If you are still spending time and money on developing products or services that do not appeal to the M&A market, it would be time to take the medicine and think hard about why you are still working on them. It is never too late to stop working on something, beware of the sunk cost fallacy. Never throw good money after bad money, as investors would say.
3. Quality of Your Narrative: One small reason why you are not getting offers may also be a problem with your narrative. You may be too stubborn on what the vision of the future market looks like, you may miss the cues from the acquirer on what they envision the combined forces should work on. Remember, when the acquirer buys your company, they want you to solve a problem that they have, they don't care to the extent that you care about your vision and mission of the company. Talk to board members and advisors and get feedback on your pitch. Be flexible and thoughtful when questions arise on the joint mission if you are determined to sell.
4. Team Morale: Your team will look to you as the leader for directions and morale. As tough as the M&A market is, do not let the negative energy sip into your team. For all they know, they should keep doing their work and focus on delivering happiness to the customers. Very rarely does it help when you prematurely disclose the M&A prospects to your team. Naturally, your employees would wonder about their own job security and whether the company will cease to exist imminently. Carry out every day as normally as you would and do not let the team in on anything with respect to the M&A.
5. Personal Resilience and Mental Health: It is very normal to not receive a bad offer during the M&A process, it is even more common to get no offers at all. This does not mean you failed as a founder, nor should it affect your identity or values. Be strong and go about each day with the best of your ability. Understand that what doesn't kill you will always make you stronger, and you will be a better founder, executive, and person on the other side. Spend time exercising, eat well, and be part of a community. Catch up with your families and friends that you have neglected for a long time, know that you are loved and valued by others. And finally, just be grateful. Be grateful that you still have agency to decide what you do, be grateful that there are always worse situations you could be in, it will get better, and in a year or two, you will look back to this period and say, "I'm glad I stuck it through".
6. How You Spend Your Time: For me, during the time period when we were waiting on offers for a couple longshot acquirers after everyone else had passed on us, I was completely depressed and there were days I would wander aimlessly about what I should work on. Every time I would try to code, write or learn something new however, I would freeze and then helplessly resort to my vices which was either scrolling endlessly on the internet, or spending hours playing chess on Chess.com. Then I would even feel worse after that where I knew that time should have been spent on more productive tasks. To pull myself out of this. I ended up deleting the chess app on my phone, and also made sure I set a goal for myself to spend a fixed amount of time exercising, reading, and accomplishing a specific goal. This was how I got through the M&A phase, but in retrospect, the right expectation should have been that a deal was not going to happen, and we should have instead still focused on building our products as the primary goal. Working on M&A related tasks should be supplemental to the day-to-day of building the company and products.