The Toughest Sell - A Founder's Guide to Startup M&A
Derek Z H Yan

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Table of Contents


Table of Contents        3
Foreword        5
Part I: Before You Begin - The Things They Never Told You        8
1. Chances Are, It is Already Too Late        9
2. Stop Dreaming: An Exit Won’t Save You        11
3. It’s Never About You: M&As are a Buyer’s Game        13
4. Caught Off Guard: Handling M&A Inquiries Before You’re Ready        15
5. Manufacture an M&A Market When There is None        18
6. Know Thyself        21
7. Sell for the Right Reasons        24
8. Rewire Your Brain: Getting Into Exit Mode        29
9. Prepare for the Most Likely Case of No Acceptable Offer        32
10. Valuation Fantasies and the Art of Disappointment        34
11. Get Your Personal Finances in Order        38
12. Herding Cats: Aligning Spouses, Cofounders, Investors, and Employees        40
13. Paint the Walls: Nobody Buys a Fixer-Upper        47
14. Come Up with an Outreach List of Potential Acquirers        50
15. Outbound Slide Decks: Incomplete Canvas with Details To Be Filled In        52
16. Should You Hire a Banker?        54
17. Find a Law Firm Who Knows M&A        56
18. Get Your (Data) Room in Order        58
19. Checklist Before Engaging with Potential Buyers        59
Part II: The Opening Moves - Finding the Signal from all the Noise        60
20. Don’t Forget You Still Have a Company to Run        61
21. Engage Inbound, Lean In and Learn        62
22. The Inside View from an Inbound Reach Out        65
23. Activate Outbound, Plant the Seed        67
24. The Inside View from an Outbound Reach Out        69
25. Expect Radio Silence from Outbound Reach Outs        71
26. First Meetings Are Typically Smoke Tests        72
27. Second Meetings Are When Things Get Real        75
28. Should You Run an Official Process?        77
29. Common Pitfalls in the Opening Game        79
Part III: The Middle Game - Finding Calm in the Midst of Chaos        80
30. The $$$ Expectation Alignment Conversation        81
31. Initial Due Diligence        85
32. Key Employee Interviews        88
33. Surviving the Middle Game        90
34. Staying in the Race        94
Part IV: Managing a Losing Position - What to Do When All Hope is Lost        97
35. It’s Not You, Not Your Bankers, Not Your Board, It’s the Market        98
36. There is No Shame Approaching Your Competitors        100
37. Act on What You Learned        101
38. Managing Stakeholders When You Can’t Sell        104
39. What Not to Do        106
40. It’s Okay to Shut it All Down, But Do it On Your Own Terms        108
Part V: The End Game - Execute, Execute, Execute        109
41. Pre Term Sheet Negotiations with the Buyer        110
42. Term Sheet Received - Where to Go from Here        115
43. Term Sheet Signed, Start of a Thousand Paper Cuts        120
44. More Negotiations with the Buyer        131
45. 280G Analysis        133
46. What to Do When the Buyer Stops Answering Emails        135
47. Final Definitive Agreement        137
48. Final Approval Process        140
49. Where the Deal Could Still Blow Up        141
50. Closing It Out        144
Part VI: Aftermath - Finding Closure        147
51. Finding What Brings You Joy Again        148
52. Thank Those Who Helped You Along the Way        149
53. Your Best Days Are Ahead        151
Epilogue        152


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Foreword


First, let me congratulate you for picking up this book. It is incredibly hard to start a business, and chances are, you have already accomplished this difficult part, making you one of a handful who sign the front of checks instead of the flock who sign on the back of checks. However, starting a business is trivial compared to finding a buyer for this business. Perhaps best explained as an analogy, starting a business is like launching a rocket into space, while landing a business is like quite literally, landing this very rocket back to its launching pad in one piece. Now it is fair to say that finding a buyer is not the only outcome for a business, there are other avenues such as staying independent, bringing in additional investors, or if all the stars align, having a successful initial public offering. And I would wholeheartedly recommend you to try to pursue any and all of those paths before embarking on a journey on finding a buyer, because the last path will be more likely than not, the most difficult and treacherous part of your entrepreneurial journey, if not of your entire living existence. We all had the experience of really enjoying the first one and half hour of a movie, where everything was great except the ending which only consists of the last five minutes completely ruined the experience. Navigating an exit is just like that grand finale of this epic movie, everything that you worked so hard up to this point could all go up in flames with one wrong turn or an unforced error. I know because I felt like there were a million things I would have done differently when I found the buyer of my business.


At this point, you might be confused on why the word sell has not yet come up at all. Because after all, isn’t finding a buyer for your business the equivalent of selling your business? If there is only one thing to take away from this book, and that would be the proverbial “companies are bought, not sold”. And to put it in quite literal terms, when you are selling your business, the only one who matters is the buyer. This is quite contrary and counterintuitive to all the other things that you had to sell in the past. As an entrepreneur, you have to sell your vision to prospective investors, product and services to customers, and culture and values to employees. However, when it comes to selling your company, the burden of proof is so high that a buyer needs to be so convinced that just merely, investing or partnering with your company, purchasing your product or services, or if it comes to it, replicating what makes your business successful in-house are insufficient that they need to buy your entire business - its entirety which includes all of its assets and liabilities, its people and their flaws, its revenues and expenses, its vision and shortcomings. And quite frankly, the market for buying businesses is orders of magnitude lower versus the market of buying your services or products. Many entrepreneurs make the mistake of viewing this process like pitching to investors and getting a term sheet. This couldn’t be further from the truth. Investors get incentivized for writing checks, on the contrary, very few, if at all, have what it takes to pull the trigger for buying companies. Buying companies takes a long time and costs a lot of money, the key decision maker from the buyer side must also vouch for not partnering, investing, or replicating your business but instead to buy it outright have to put her neck on the chopping block to be your advocate, knowing full well that more often than not, mergers and acquisitions (M&As) don’t work out the way they intended and she will likely need to go find another job in a year or two. Your job as the entrepreneur on the sell side is to go to the ends of the earth and find this person, and have her convince you that you need to be selling your business. That’s what it takes.


Now you may already have a term sheet in hand, but let me be the bearer of bad news, term sheets are rarely binding and the buyer can walk away without consequences at any point before a definitive agreement is made.  So unless you have a certified cashier’s check that’s ready for deposit in your hand, I urge you to read on and at least familiarize yourself with all the pitfalls and potential deal breakers in this process. Speaking from personal experience, the real heavy lifting begins after the term sheet is signed, risks and traps are plentiful, and more often than not, deals don’t close and parties walk away.


You may be a seasoned serial entrepreneur who has already reached financial freedom and is about to exit your fifth company. Even in such a case, you know how critical the final act of finding a buyer is and every company you start is different and hence the exit is also different. So hopefully this book reinforces some intuitions you already had, but hopefully even gives you a couple new ones.


The deal only closes when the money is in the bank, but oftentimes, you as the entrepreneur will not get all the cash upfront, you may get a bunch of stocks, or the buyer may even put in an earnout in place. All of which I will try to cover in simple readable language that doesn’t require a finance degree. I for one hate books that are overly verbose and filled with jargon, so this book was written with the intent of being direct, to-the-point, and grounded in my own experience and experiences from other entrepreneurs.


My cofounder Borui and I tried to sell our company back in 2021, and wished that this book existed. Initially I thought it would be a straightforward sales process as our company was fairly successful and reputable in the consumer photo AI space. We were breakeven with a highly technical team, over a million daily users, and our software stack was powering the camera and photos applications of the worlds’ largest Android OEMs like Samsung, LG, Lenovo. We had inbound interests over the years from various tech giants, pre-IPO unicorns, and later stage startups. Nevertheless, it took almost five years to eventually find the right buyer. There were not many books written on the subject of selling a business, I read most of them or gave up reading the rest. Out of which, there are only one blog post and two books that I do recommend you to read that serve as good cross references when it comes to M&As. The blog post is from Bilal Mahmood, who sold his analytics startup to a public company in 2020: https://bilalmahmood.medium.com/how-to-sell-your-startup-744805fb59ab. As for the two books, the first is Exit Path by Touraj Parang, who was a serial entrepreneur and at one point ran Godaddy’s Corp Development Division. The other is The Magic Box Paradigm by Ezra Roizen. Ezra has been a banker for over thirty years and has a ton of experience both on the buy and sell side, he and his partner Keith McCurdy were our bankers when we sold our company. 


Throughout the journey and with much reflection, I realized that the sad truth is that companies that intentionally engage in a sales process often end up dead. The skillset and mental fortitude required of an entrepreneur during a M&A is completely different compared to that when running a business. Every tiny decision never mattered so much and at the same so little during an M&A process. While every entrepreneur’s exit journey is different, there are overlaps and common threads in the exit game, so I try to distill all of it into a book. Not everything applies in your own situation, but at least hopefully the hellish pain that I and my cofounder Borui endured in those trying years can serve as a cautionary tale for those of you who have now decided to sell your business.


Good luck, because you will need it, lots of it.
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Part I: Before You Begin - The Things They Never Told You
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1. Chances Are, It is Already Too Late


I was recently talking to a college friend who was a fellow entrepreneur, and he asked me about exits. 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 which he put in 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. And if his description of his circumstances were reflective of how dire the situation was, the Zoom link that he sent for us to have the meeting on started a countdown at the thirty nine minute mark, 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. 


Hey X,


I thought about your situation a bit more over the last few days and unfortunately don’t have any good solutions. I’m sorry.


The best case in this scenario is to consult with a good bankruptcy lawyer to minimize the exposure to you personally while winding down the business. Unfortunately this is not an area that I’m familiar with, but I would talk to a lawyer.


Lmk if you ever want to chat,




The cavalry wasn't coming, he 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 entertain an offer. Realistically when it comes 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, and almost all of them run out of cash before finding a buyer, even those that raise hundreds of millions of dollars, those with sizable revenues and great products and services. 


In the following chapters, I will try to outline a set of action items that ideally needed to be completed before engaging with a potential buyer, but most important of all, understand that market is not something that you have control over, and you need an ample amount of time (at least a year of runway) in order to even entertain possible exit strategies. Historically, most of the acquisitions are from inbound interest, and if not all of the acquiring companies have had a prior relationship with the business acquired whether it’d be partnership, investment or being a customer. And more often than not, there is no way for you to engineer an inbound interest, all you can do is have everything ready to go when you get that inbound email asking about potential partnerships or M&As.
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2. Stop Dreaming: An Exit Won’t Save You


Hopefully your situation was not as dire as my friend’s from the last chapter. Nevertheless, you might be staring at a runway of 6 months and the prospect of raising money is not great; you might be working on your business for years and realize it would never be the impactful company you thought it would be and instead would like to do something else; you might have worked on your business for decades and would like to retire; you might have seen a competitor getting acquired for a king’s ransom and would like to test the market; you might be staring at an intriguing inbound email asking about partnerships or acquisitions that you never anticipated… Whatever your current situation is, let me again tell you in the most polite way possible, pulling off an exit still may not be for you.


If your business is at the brink of running out of cash, the solution is to look for ways to reduce your burn or look for capital injection or increase revenue. Profitability is not a constraint for a successful business, in fact, there are many successful companies (even public ones) that never turned a profit, so if your business is growing like crazy, you should have no issues pitching institutional investors or growth-focused private equity firms, you should not be selling your business in such a case as the ultimate outcome would be far worse. Regardless whether your business is experiencing hypergrowth or not, exploring M&As in a cash crunch rarely works out mainly because there just isn’t enough time. If the target acquirer is a large cap company, 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 needs to be disclosed to the interested buyer, they will quickly find out that the business is running out of cash and in no time they could hire all the out-of-work employees for a fraction of the cost. 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’s true that in the past, if your company is made up of specialized talents, there had be acquihire offers, with the rise of agents and AI, the premium paid for such talents have degraded greatly and at least in 2025, there are very few acquihire M&As in the market.


Now in the case if you want to go do something else because your business is plateauing or you want to retire, there are certain revenue thresholds that have to be met in order for one particular type of M&As to make sense. Lower to middle private equity firms need at least a $2-$5 million EBITA (earnings before interest, tax and amortizations) if your company was bootstrapped. And typically the cutoff of annual recurring revenue needs to be at least over $10 million with strong gross margins and proven track record for a growth equity firm to be interested. If you haven’t hit these numbers, your goal is to focus on improving your business so that your metrics at least clear these thresholds before exploring M&A. And if you already hit these numbers, congratulations, I would advise you to not sell the company but instead hire a management team and get distributions off of dividends. Now if you are stuck in a market where the competition is fierce and the profit margin is low, private equity would not be an option, then in order to pursue an exit, you would need to commit at least another two to three years of your life to not only find a buyer, but also stick through a retention period as no buyer in the right mind would buy a sinking ship where the captain is about to jump. 


Now every so often, we see an acquisition headline in the newsreel, and sometimes it is a company in your space, might even be your direct competitor. Chances are, if your direct competitor just got acquired, you should have gotten some signals way earlier as the buyer of your competitor would have checked your appetite for a deal as well. Nevertheless, in such situations, one likely scenario is that there is one less buyer for your business in the market, as the acquiring company will be spending time to digest the deal and integrate the team, very rarely does a company have the bandwidth to make acquisitions in the same space at the same time. Your job now as the entrepreneur is to gather all the facts and quickly come up with a strategy on how to thrive or survive in your business, if the market is consolidating quickly, an inbound email may come to your inbox at any moment.


Finally, if you are staring an inbound email from an interested buyer asking for a coffee chat, be warned that the very same email is likely sent to all your competitors as well, and the base case is that the sender is gathering information in your space and after a couple meetings where they learned everything they needed to know, they will stop responding to your emails. Now there is the rare case where the CEO or founder of a company you admire reach out to you or had an intro from your investor, in such a case, expect the interest to be genuine, but also stay even-keeled as any shrewd buyer would talk to multiple potential targets, and deals can fall apart at any moment, even after you had dinner with the acquiring company and had signed the termsheet, nothing is guaranteed until the definitive agreements are signed and the money is in the bank.
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3. It’s Never About You: M&As are a Buyer’s Game


At a high level, before even contemplating exploring an exit for your business, there are three essential ingredients for engaging with potential buyers. You must have a buyable company, materials for due diligence, and actionable inbound interests. There is some similarity with pitching investors for funding, but the fundamental difference is that when pitching investors, it’s all about your vision and your company, and when it comes to finding a buyer for your company, it’s all about their vision and their company. The buyer needs to be convinced that by having you and your entire company absorbed into her organization, it unlocks a new market, addresses a key technology gap, or increases potential earnings in a big and massive way. In the exit game, it’s not about you, it’s never about you. The buyer has to be the one who convinces you that you need to sell the company, never the other way around. Just like the old verbiage, “people love to buy but hate to be sold”.


So what exactly does being ready mean in this type of dynamic? Well, first and foremost, you should have a relatively clean company with proper governance, free of litigations and legal disputes, clean cap table, and metrics all going to the right. You should also ensure that you have a long enough runway of at least eighteen months to cast a wide net of all potential interested parties. At a high level, understand that people rarely want to buy a fixer-upper in business, and heck, you worked so hard on your business that you do not want to be offended with an insulting offer just because one of these things you didn’t do right, and a lot them are relatively easier to fix before you engage with buyers. I will go through some of these topics in detail in later chapters.


Secondly, you will need to have a comprehensive set of slides, product demos, dataroom and other materials to share with potential buyers. You do not need to have every ready on day one, but things could move very quickly and time is the killer of all deals, so you do not want to be the one holding up the deal because you are waiting on some tax returns from a few years back or incorporation document that you have to call the Delaware incorporation office during business hours to send over to the buyers legal.


And very lastly, but probably the most important and necessary constraint of all when it comes to M&A readiness, is that you are only ready to engage with a potential buyer if there is an actionable inbound interest. The two keywords here are actionable and inbound. You may have gotten an email for a junior corporate dev from a large corporation or an analyst from a PE firm looking to connect over coffee with the real intent of studying a market, those typically would not lead anywhere as they are not the actual decision maker. Actionable also means that there are clear understandings of the terms. Is the buyer buying you for cash, stocks, or future considerations? For all I know, and I do know, the buyer may want all of your assets, your cash, your talent, all for some private common stocks that would never liquidate. The buyer may be looking at this deal as a way to extend their runway. Oh plus, they will lay off a bunch of the team and those who want to stay will need to take a pay cut. Actionable also doesn’t mean that there needs to be a term sheet right off the bat, in fact, that is something you want to avoid as signing a term sheet typically means an exclusive period which means you are locked in to the terms dictated by the buyer without actually testing the market. Worse yet, the termsheet is often non binding so the buyer can just walk away at any point with no repercussions.  What is necessary is to have a mutual understanding around the rough range of considerations that the buyer has in mind, and proceed only if that matches your expectations. 


To summarize, if there’s one thing to take away, it is that you are not ready for an M&A until you have actionable inbound interests. Let's take a look at some of these inbound reach outs in the next chapter.
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4. Caught Off Guard: Handling M&A Inquiries Before You’re Ready


Back in 2015, deep learning as well as low level web abstractions were still nascent technologies. At the time, when our company Polarr started, very few companies had built production level software with deep neural networks or WebGL shaders. We had found a niche use case where sophisticated photo editing capabilities like denoise, segmentations, and erasing objects could run directly on the web browser, enabling us to quickly get our product into the hands of users on Chromebooks, which had very little disk space and random access memory (RAM) that prohibited users from installing Adobe suite of photo editing software. We were also able to ship our software to iPhones and Androids all using the same codebase without doing much development on their native stacks (Objective C for iOS and Java for Android) as we leveraged web technologies to deploy across different hardware platforms. We launched our iOS version of Polarr Photo Editor in mid 2015, getting over a quarter million dollars in 48 hours. At the end of 2018, we raised our Series A at a valuation of $44 million dollars with Draper Fisher Jurveston (DFJ) leading the round with a total funding of $13.5 million up to that point. We had partnerships with the largest Android Original Equipment Manufacturers (OEMs) as well, licensing our software to power most of the Android phones camera and photos applications. With the influence we had in the market, so did we get inbound interests from various potential buyers. We were riding high, and below was one of the emails sent to us that would be forever etched in my brain. Borui is my cofounder at Polarr.


From: *** <***@***.com>
Date: Wed, Jul 1, 2020 at 8:17 AM
Subject: FWD: Intro request *** <> Polarr | re: Photo Editing
To: Borui Wang <borui@polarr.co>


Hey Borui, hope your well, we are big fans of what you have built!!!
See the below message from Mike, as he mentioned, we are currently pretty shit at photo editing and need to get way better (and have plans to), we would love to chat to you about potential deep partnerships to service our customers (the 99% of the world who are not 'creative professionals'). I think we could do awesome things together.
I would also like to entertain a potential acquisition, however, I think you are doing so well and growing so fast there is no way we could afford you (or that you would want to sell :).


Cheers,


***
Co-Founder & COO




When *** reached out, his company was already worth $6 billion. As I’m writing this book, their current valuation is at $49 billion and about to go IPO. I think part of the reason why I’m writing this book, was because of how unseriously we approached this opportunity and the lack of experience we had when it comes to dealing with such a serious acquisition inquiry. ***’s company had all the attributes of a high-growth gunsling company that was going to make the biggest impact in the technology space. They had just closed a massive round and were expanding their offerings and identified that photo editing was something that they were weak at. He had also reached out to our board member and lead investor Heidi Roizen for an introduction. *** had even forwarded the email exchange he had with his lieutenants on the urgency of acquiring us. 


The worst part, was I thought I was busy with something else and had Borui soloing this meeting with *** and his cofounder, we never replied back on their followup emails or question of potential acquisition. Our response was worse than politely declining the acquisition offer, and I still have nightmares on how royally I screwed up this whole once-in-a-life-time opportunity. I vaguely remember my meeting with Borui the next day and I nonchalantly asked him how the meeting with *** went, and Borui just mentioned that *** and his cofounder were pitching this acquisition and asked him point blank what our expectations were, and he did not have an answer. We were young and arrogant and laughed it off and forgot to follow up. Little did we know that a year later when we decided it was the right time to entertain M&As, ***’s company had already bought two fledgling startups in the space and was busy with integrations. We tried again in 2024 where we did get a meeting with his cofounder, but at that point, their company was so large that we were delegated over to committee and we went through a series of due diligence, but because our technology and product were no longer strategic for them and also because they had wanted the entire team to move to their headquarters on a different continent, the deal never materialized. 


This was the most expensive tuition I had to pay as a startup founder. When faced with a serious and actionable inbound interest from a decision maker, the first thing to do is to think critically of the opportunity. Very rarely do startups ever succeed, and even more rare is making it without some type of partnership or merger. The misconception in Silicon Valley is that these types of inbounds are distractions. This could not be further from the truth. You as the entrepreneur’s job is to maximize returns for all your shareholders, and every acquisition offer needs to be taken seriously. With hindsight, what we should have done was to show up at the meeting together, listen and ask thoughtful questions, and when asked what the expectation was, reply with a genuine answer like “we never thought about an exit, but given the gravity of the situation, we will go back and discuss and get back to you asap”. And even if an M&A doesn’t make sense, reply promptly with a message politely declining the opportunity and ask to keep in touch in the future. There is a saying in the valley, friends come and go, but enemies accumulate. It never hurts to have an extra connection, you never know when it comes to be useful. While the opportunity with ***’s company never materialized, the extended due diligence with his company in 2024 did enable us to receive an inbound interest from our eventual acquirer in June of 2024, the company that eventually acquired us. If we didn’t engage in the conversation with *** and that due diligence didn’t take half a year, we would likely have folded the company. So you never know what comes out of these kinds of engagements.


Now there are instances where there is no actionable inbound interest, does that mean you can’t pull off an exit? Not necessarily, it just means the game is exponentially harder, and you will need to manufacture these inbound interests, which we will look at in the next chapter.
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5. Manufacture an M&A Market When There is None


Now everything I will cover in this chapter you will need to view at a long time horizon, mainly because it takes a long time to build a company, a brand, or a technology that is acquisition ready. Now as written in prior chapters, acquisition ready is far different compared to fundraising ready. In a lot of ways, the burden of proof is much bigger, and a herculean effort is needed in order to generate interest from buyers when there is none. 


The first place to look is from existing partnerships and networks. Depending on what type of business you are in, there is a good possibility that you have large enterprise customers if you are in the SaSS business, you offer your services through a platform if you go direct to consumers, or you have partners in adjacent space. Write down a list of people and their companies who might be able to make introductions to the right person within those organizations. For us, there was a period of time in 2022 when inbound interests all dried up and we had to rely on outbound reachouts. We wrote down a list of all of our customers and contacts from various partnerships, and approached them with very customized story lines on company updates and some vision about a more tightly coupled integration plan. Because Samsung, OPPO, LG were large customers of ours and we had multimillion dollar contracts with them, they were always game when it came to providing product/technology updates, or inquiring their needs. The goal for these types of meetings is not to ask whether they want to acquire your business, typically, that would have the opposite effect when there is no actionable term sheet that they need to match or discuss. Telling them that you are for sale only hurts your position and puts you in a weaker spot even if they have the intention to buy your business. The goal is to instead ask questions and gather as much information around what their roadmaps are, what ways they are looking for help, and how they are deploying resources. Then take these feedback back to the drawing board and suss out how the signal from the noise. Are they serious about a certain strategy, and if so, is there a play that you have that could make you an attractive acquisition target. Bear in mind that these are all long shots, don’t be discouraged after you talk to a dozen companies and get a dozen different ideas. See if there is a common thread, and perhaps commit some resources to build a proof of concept and request follow up meetings to see if they lead anywhere. If you are lucky, one or two of these engagements may lead to partnerships and integrations, and very rarely, if these partnerships prove to be core to their business, they may just straight up ask you if you are interested in an acquisition. Nevertheless, throughout this process, and contrary to popular belief, the correct strategy is to not pitch the company as a company that’s looking to be acquired, but as a partner that can accelerate the acquirer’s business. The idea of an acquisition needs to come from the buyer, not you. Why is it not a good idea to just say you are for sale? Firstly, companies buy other companies because they have a genuine need for your company that they couldn’t develop in house or get through a partnership, or if they want to prevent their competitor from acquiring this business, neither is the case here. Secondly, you want to approach M&A from a position of strength, and that is when you are being perceived as a company that is doing well, and does not need an exit. By broadcasting to the world that you are for sale when there is no willing buyer, it almost insinuates that there is something wrong with this business and this at best would get you a fraction of the considerations you normally would get if you didn’t broadcast that you are for sell, and worse yet, it could turn away even an interested buyer. Finally, the majority of M&As happen between companies that had a prior relationship together, savvy buyers want to try before they buy, and the best way to gauge is via a prior relationship. So if the goal is to sell, start building those relationships, look for partnership opportunities, and do not mention that you are for sale.


Now there are other ways to establish yourself in the market through product and thought leadership. The prioritization here is to build a great product or service that your customers love. And if truly the products and services address a real pain point for a large number of customers and are bringing in value, potential acquirers will take notice. Large companies have special functions like corporate development where their main job is to study certain markets and look for potential acquisition targets. If your products are raved by your customers, they will speak for themselves in the market, and the inbound emails will come in. Now chances are, you may be struggling with a product that is struggling to find product market fit, you may be through a number of pivots, that still doesn’t prevent you from making noises in the market. Share your story and vision with news outlets, write blog posts, speak at conferences, and provide regular LinkedIn updates. You never know who will read or watch the content you create, which could lead to a coffee chat or some inbound inquiry to learn more about your business. In early 2024, after my company pivoted to the prosumer space from mass consumers, I made a series of LinkedIn updates broadcasting to my network a new product that we developed that even though was in its infancy stage, it used a technology stack that was unique and had lots of positive feedback from early beta testers. These posts led to a cold inbound from a company that previously passed up on us during the negotiation phase a year ago, which led to an eventual term sheet. Even though the second term sheet was not much better than the first one we received from this company, it goes to show that product updates in professional networks do go noticed, and could lead to inbound interests.


The last and possibly the least effective way where you don’t have a professional network or couldn’t get press to write about you is to hire bankers or enlist help from your investors to make intros and build new relationships. Let’s first talk about bankers. Now depending on how unsuccessful your business is, there may not be any banker who wants to take you on. Before they engage with you, they would often do a due diligence on their own of your product, company, cashflow and technology. They would only work with you if they believe there is a decent chance that there is a buyer for your business. If you have a short runway, non-differentiating technology, or in the middle of a lawsuit, they will turn you down. And if they do decide to work with you, they typically have a commission plus retainer model where they take a percentage of the final cash value of the considerations plus retention, as well as a monthly fee for working with you to find the right buyer. They typically are well connected with other corporate devs inside big companies, though this would be as far as they could get you. Most of the times they would send a short deck about your company and get polite nos. And if you are lucky, there could be a meeting between you and the corporate devs along with a few product or engineering people, where they would try to pump information out of you, and try to extract domain insights to help them with their offerings. Nevertheless, in order to sell, you have to build these relationships, so be sure to connect them on LinkedIn and stay in touch with any updates you have on your company or products and services. Finally, when all else fails, you could turn to your investors for help. The important thing to note here is do all your homework before approaching your investors. Who is the person you are trying to build a relationship with, is she a connection of your investor, do you have a customized blurb along with materials to share? Understand that your investors sit on numerous boards, meet with other entrepreneurs, and source deals. Make the work easy for them by explicitly giving them everything you need in order for them to help you. Don’t expect investors to magically make strong introductions to a bunch of interested buyers. It works the other way around when your company is crushing it and the buyers are all trying to reach you through your investors, but not when you are struggling and trying to sell the company and let your investors take the reins.


Now all of this may sound hard, and they are, expect exiting a business to be the most trials and tribulations you ever experience as an entrepreneur. There will be moments when you don’t want to get out of bed in the morning, where you just want to walk away from it all, but one thing that I found helpful was to write down the core principles and beliefs, which we will dive into in the next chapter.
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6. Know Thyself


Before jumping into making the decision of going after an exit or staying independent, it is critical to have a set of core beliefs, principles and circumstances that you believe to be true when evaluating an M&A opportunity or running a full-on process. Now the big caveat here is to write down your core values, not what others expect to be your core values. Everyone is different, but for me personally, I felt that when I wrote down my list, the decision was made for me.


1. Taking care of our employees and investors


Throughout the history of my company, we fired more than we have hired, and I remember each one of the firings, and wished the outcome was different. Everyone who ever worked for us was willing to bet on a couple grad students who never started a company before, took a pay cut and worked unbelievably long hours. During the pandemic, we made two mass layoffs, reducing our overall headcount from around sixty down to seventeen. Those days were hard, and I made a mental note to myself that unless absolutely necessary, I would not do another mass layoff at Polarr. In 2021, when it became clear that the market was shifting and what we worked on was no longer a focal point for consumers, I was faced with the decision of perhaps doing another round of layoffs and pivoting the company into doing something else completely different. We had employees who were with us at the very beginning, folks who started as new college grads with zero experience and were now worldclass experts on their respective fields who were also mothers and fathers with mortgages. The most important thing to me was to ensure that the team would be taken care of and were at least given the option of staying at the current job or exploring the market, instead of being shown the door. Plus, because the company had plateaued in terms of revenue and growth, we were also not being competitive with the market in terms of compensation, and it was important to me that we could be in an environment where everyone was working on interesting problems, well paid and had the best health benefits and work culture.


Speaking of investors, I am still in awe at times on who in the right mind would write giant checks (combined $13.5 million) to a couple grad students who had never started companies, not only that, helped Borui and I every step along the way in terms of strategy, execution, hiring, firing, and the plethora of issues we had to deal with when starting and running a company. These investors work sometimes as hard as we do and don’t get paid until the company actually experiences a liquidation event. To me, it was morally imperative that we don’t lose their money (or at least not all of it) even if it meant going to the ends of the earth. Because after all, they were the ones who believed in us when no one else believed. So instead of potentially losing everything through another pivot, I needed to make sure that we could at least return cash back to the investors.


2. Making a bigger impact


We started the company back in 2015 and experienced hypergrowth in the first five years. But soon after raising Series A it became evident that the businesses that we were in, mass consumer photo editing software as well as enterprise licensing had a very low total addressable market and we needed to pivot into something else that had more potential. While we tried to go into social media and collaborative creator economy, those markets also cooled during the pandemic. So at the time, even though we were flush with cash and also had a healthy revenue stream, the focus was turned to optimizing for revenue and reducing cost. I remember there was a period of time in 2021 where every day the meetings revolved around how to squeeze an extra dollar here or there with our consumer apps with ads and click-baits, and the once clean, easy to use product was pretty much unusable because of all the paywalls. At that point, I realized that this would be the only path to stay in the game if we didn’t do another pivot or join forces with another player. You never win from cost cutting, you win from making bold long-term bets. In order to do so, it would mean spending more money or a drastic change like an M&A.


3. Taking responsibility as a husband and as a dad


I started Polarr in April 2015, my wife and I were married in October of the same year. At that time, in order to save on rent, we lived with a roommate, and didn’t get our own place until summer of 2017. I could count with a single hand the number of vacations we took as a couple since starting Polarr to this day, and during the first seven years of our marriage, I was always coding, talking to customers, or putting out fires at the company we missed out a whole lot of time together. We lost our first child through a miscarriage in 2018. Our son was born in October 2020 through a terribly complicated pregnancy that we were prepared for the worst and spent a good chunk of time making periodic visits to Stanford Children’s Hospital leading up to his birth, thankfully he’s super healthy and there were no issues at all. But becoming a father and having a life that wholly depended on me changed my perspectives on a lot of things. One was that companies can succeed or fail, bought or sold, but there is only one life and it was more important to me how my wife and my child viewed me. I cared deeply about how they felt, and wanted the best for them but also be there for them. I had heard of serial entrepreneurs who were wildly successful and were on their seventh company, but were also on their fifth marriage. That was not something that I admired, maybe partly because my own parents were divorced when I was young and my father was rarely around when I was growing up. In late 2021, Charis and I found out that a second baby was on the way, and that was when I put my foot down and decided it was the right time.


For me, an exit was never about money, it was never about fame. In fact, there were very little negotiations of the terms with our acquirer when they presented their offer. And at the moment of writing this very sentence, it has been two weeks since the deal closing, we have not put out a joint press release announcing the joining of forces. For me personally, it was just three things, taking care of our employees, making a bigger impact, and being a better husband and a father. Now it doesn’t take a Wall Street quant trader to figure out that the market was not going to wait for me to realize these core beliefs, and the right offers would never come when you needed them the most. Nevertheless, once you have written down your core beliefs, let’s take a look at how you could decide whether now is the right time to find a buyer for your business.
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7. Sell for the Right Reasons


This was the biggest mistake that I made as an entrepreneur, and one that I find most entrepreneurs make when they are on the startup journey. You often hear the advice from fellow entrepreneurs or venture capitalists that entertaining acquisition offers are a waste of time, and some VCs would go as far as saying that if they see pitch decks that include exit strategies, they would flat out not invest. I get it, you want to change the world, you want to make an impact, you want to build the next Google or NVIDIA, I was also like that years into building the company. But one big oversight in that argument is that we do live in a capitalistic society, where everything has a price, and almost anything can be bought, especially businesses. So you may not sell for a million dollars, but what about a billion, what about a trillion? While selling a business so that you will never work again in your life should not be the main reason you start a company, because you will be terribly disappointed into this journey, what is real is that often in order to make the biggest impact, to do what’s right for the investors, employees and shareholders is to take M&A inquiries seriously. You may not want to sell today, but things could change in a month, a year, so on. Plus, are you not even slightly curious about what the other side has to offer, do you really think you have everything figured out, worst case, use the 30 minute meeting to find out more about the proposal, their view on the market, and just listen.


So what exactly are the right reasons to explore M&A? While every entrepreneur’s journey is different, I will try my best to put down the list of factors that I believe should nudge you to engage in an exit discussion, and for you it could be a combination of these factors. 


1. The right offer comes along


Every now and then, you catch a lucky break. It might be because you are in the right market at the right time, it might be because some key exec woke up one day and decided that your company was strategically positioned to solve her needs, or it might be because someone is just feeling charitable. Whatever the reason is, your duty as the entrepreneur is to seriously explore this offer, discuss it with your board (that might just be you if you are a solo entrepreneur) and act on it. Reason being, these kinds of right inbound offers are very rare and improbable to manufacture. If the offer is good, just think about the possibilities of stopping renting and putting a downpayment on a house, fully funding your kids’ college tuition, paying off all your debt, and taking your spouse (finally) on a date. You often wouldn’t be able to do that until your company gets to a much larger scale. The offer also doesn’t just mean a price tag, it could mean a bigger platform, more customers, better distribution, more resources or a number of other things. All of which could mean that you get to realize your original vision much faster and your customers get a better product or service at the end of the day. I sometimes find that fellow entrepreneurs get too attached to things like titles (no, you will not be the CEO after the exit, and titles don’t matter at all) or sense of control, in fact most of my entrepreneur friends say that they enjoy working as a founder because they don't want to work for someone. This couldn’t be further from the truth. As an entrepreneur, you work for your customers, your employees, your board and your shareholders. Having a single boss would actually simplify things a lot. Moreover, as an entrepreneur, you often have to deal with a bunch of things that you don’t like on a day-to-day basis. For me, that would be working on budget, projections and board presentations, those are things that unfortunately cannot be all delegated to someone else. After an M&A, things that are not core to your business can often get managed by a specialized personnel in the acquiring company, freeing you to do things that you actually enjoy doing, for me that would be product and engineering discussions.


2. You are out of your depth


When Google bought YouTube for $1.65 billion in stocks in 2006, YouTube was facing deep legal threats from major media companies because of copyright infringement issues from user-posted content that had over 100 million video views per day. At that time, YouTube was barely two years old. Its founders Steve Chen, Chad Hurley and Jawed Karim were excellent technologists, but did not have the background or resources to deal with all the legal woes that YouTube was facing. Instead, the price by which Google paid at the time which appeared to be exorbitant turned out to be a great acquisition, where Google had both the financial resources as well as the legal expertise to resolve all the issues YouTube had. According to 2023 data, YouTube accounts for around 15% of all of the internet traffic, and would be worth over $300 billion if it is an independent company.


So chances are, as entrepreneurs, if you are faced with an impossible issue, there is another company that can help you with it because it has the resources and the expertise and sees value in the product or services that you are providing. Had YouTube not sold, it would be unclear whether it would be the dominant force it is today on the internet. 


3. Your company is growing way too quickly


The perfect time to sell is when you hold all the cards. For a startup, you hold all the cards when your company is growing like crazy. So why sell now? Well, firstly, the valuation you get from an M&A will probably be the highest you will ever receive, because after all, why would anyone sell when VCs are dying to cut their own checks. But more importantly, it’s about managing risks, there is always the possibility of your users going to another platform, a bigger player taking notice and competing against you in this space. In the business world, even cash in the bank is not a sure bet (yes, we had all of our money in Silicon Valley bank and couldn’t move it out when there was the run on the bank in March 2023). I could be the spokesperson of a company that experienced hypergrowth with all the inbound interests from VCs and acquirers and then seeing all of that teeter off in the period of a couple months because of a shift in market sentiment, and mind you we were still growing. When you are growing at a blistering pace, you expect to continue to grow at a blistering pace, but that’s often not the case. Finally, while you are growing and firing on all cylinders, chances are, there are a bunch of areas in the company that are not structured correctly to handle all this growth. It could be your sales team, it could be your engineering infrastructure, it could be anything. Infusing the company with cash and hiring a bunch senior executives with shiny CVs may actually do more damage than not. That happened to me. I personally wasted over half a million dollars on executive recruiters getting a team of senior folks into the company, where none of them remained in their roles after two years. Now with hindsight, lots of the issues with scaling I saw could have been fixed by partnering or being acquired by another company. The inbound interests were all coming from companies that were years ahead of us, and often had the right personnel and infrastructure in place for us to thrive. So if anything, take this as a cautionary tale that one way that is often overlooked to fix your growing pain is to explore M&A.
 
4. Your growth is plateauing


Revenue growth stopped for us around the 2020 mark as the world drifted into chaos. While we had explosive growth in user count where at one point we had over 6.5 million monthly active users for our consumer applications, revenue stagnated from 2019 to 2024 as our enterprise customers started cutting their R&D budget. We had started in 2015, and the clock was ticking in terms of getting the company back on a trajectory of explosive growth. Without growth, there was no funding, and retaining ambitious key employees also became a challenge. As our employees grew with the company, they expected to take on much bigger challenges and more responsibilities. In YCombinator terms, this is called a tarpit where a business seems attractive at first but is actually very hard to succeed in or escape once you have entered. Sometimes you can pivot out of one, but many times you can’t. This doesn’t mean that the business doesn’t have value, it just means that it probably shouldn’t have received venture funding and should instead be a bootstrapped or lifestyle business. Other times, having the right partnership or being acquired could be the silver bullet to unlock growth again, or at least have a recalibration of expectations and get a new set of board members who look for different metrics aside from growth.


5. Consolidation in the market


In early 2022, I accompanied Charis for a number of obstetrician check ups as we were expecting our second child in the fall. Every time when we were in the waiting area at the doctor’s office, I would overhear the receptionists talking about NFTs and how some among them made a killing trading a token. To be fair, this was in Palo Alto, the center of technology innovations, but still, the level of craze for this stuff was infectious and it seemed like every other company was issuing their own tokens. Around May time frame, the market for NFT started buckling, and with the collapse of Terra and Luna as well as rise in interest rate, eventually trading volume fell 90% from the peak. At the time around the birth of Chelsea our second child, the receptionists were no longer talking about NFTs when we went for check ups. 


In such a market downturn, when venture funding dries up and many projects lose liquidity, only a handful of platforms with deep warchests may remain. If your company is unfortunate to have the shorter end of the stick with a limited runway, the only way to survive is to consolidate with other platforms that offer similar services. You may not get a good offer in such a case, but it’s still better than running out of cash and declaring bankruptcy. During such market consolidation periods, opportunity arises for savvy acquirers that can take advantage of the low asset prices and come out on the other side when the volatility ends in a dominant position.
  
6. Founders, investors or employees in need of liquidity


The struggle is real, as an entrepreneur, you can only live off of minimum wage for so long before life responsibility hits you. When I started the company in 2015 I was single, by the time I decided to exit in 2021 I was married, with two young children, and also a mortgage. Many of my employees also were in similar situations. And it would be impossible to provide any meaningful liquidity unless there was a new fundraising round or an exit. A lot of my founder friends who have raised multiple rounds are in the situation of being equity rich but cash poor. Some have a net worth of over a hundred of million of dollars on paper but are living paycheck to paycheck because their equity is illiquid. This could also apply to VCs. Some firms may get pressure from their limited partners (LPs) for liquidity for whatever reason, and in such cases the investors would want to convert their preferred stocks into cash and pay off their LPs. In such a situation, one path is to raise money and sell stocks through a secondary market for employees, founders or VCs, but if the venture capital market is soft or non-existent, the only option may be an exit. This was precisely the situation for my company in 2021, the capital market was not there for our business, and we needed liquidity for our employees in order to retain them for the future.


If you are finding a buyer for your business not because of any of these reasons listed above, I would love to talk to you and find out why. Because in most cases, it would probably not be wise to sell your business other than for the reasons listed above. But if you do decide to explore an M&A, let’s look at how to get into the right headspace in the next chapter.
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8. Rewire Your Brain: Getting Into Exit Mode


Working through an M&A as an entrepreneur is a completely different beast compared to the regular day-to-day of running a company. It requires a whole different set of skills and also a completely fresh headspace. In Scott Belsky’s book, The Messy Middle, Scott describes building the startup like running the first forty-one miles of a marathon, where exiting the company is like finishing the last mile. Talking to any marathon runners, they’ll tell you that it’s a completely different sport. 


It’s a rollercoaster, for a minute you might be thinking that you would have paid off all your debts, your children are taken care of for the rest of their lives, and you never have to work for a living for another day in your life… The next, you realize a deal would not happen and you would become unemployed and your children would no longer have health insurance. One moment you might be on top of the world with a term sheet and showered by charm and fancy dinners, the next they might not even talk to you and stop responding to any messages. Now put that on repeat for a dozen times stretched out over the span of a couple years. That is the reality once you step into the arena of an M&A. Nothing ever quite prepares you mentally for this whole ordeal. The right expectation should always be that the base case is that the company would not be sold, not even for a dollar, and you’ll just have to continue on with the original mission alone. And if you don’t have the luxury to stay independent, then that outcome would be the baseline to work with (winding down, returning capital to investors, pivoting, etc). As entrepreneurs, we are naturally optimistic, but during the M&A phase, the best state of mind is to always assume no deal will ever happen. This would lead to much healthier expectations and sanity throughout this journey. 


Another thing to accept is that exiting instead of running is now the new reality. And instead of holding someone else accountable if a sales target is missed or a particular engineering bug gets shipped to production environment, in an M&A, you have to take full responsibility for getting everyone, that means you, your employees, your investors and your shareholders all on the other side. Your board, investors, or advisors are not going to introduce you or find you the buyer on your behalf, they will likely not interact with the buyer at all, and frankly, it is not their responsibility. Your bankers (if you can afford one) are also not going to find you the best deals. Nobody knows your business better than you do, and the expectation from the buyer is that they want to interface with you directly during this process. The bankers do help when it comes to guiding you through the entire M&A process if you don’t bother doing research on your own (or read this book), working through some of the tactical parts of the deal, and finally negotiating the terms. But ultimately, the buck stops on you as the entrepreneur, as you will be the one working through this process with the buyer, articulating why joining forces make the most sense, how a future together look like, getting ahead of all the diligence and rallying the troops, and making the final decision on whether to accept the offer. It is fine to ask for help, but take responsibility, you started the business, you ran the business, it is you who needs to exit the business.


Upon deciding to exit the business, one of the biggest things that I struggled with was reconciling with the fact that I was no longer building a company that I wanted, but instead one that the buyer wanted. And early in the process, there was this churn in my stomach when I was meeting with buyers and re-orienting the company to their needs that I was the world’s biggest sellout. This couldn’t be further from the truth. First of all, no one really even cared about this, it was all in my head, it was my ego. I needed to reconcile that in order to sell the company, I had to give up control of certain aspects of the business in order to make it attractive to the buyers. This could even mean abandoning the original mission because the buyer saw something else in your business that is more valuable to their strategy. The takeaway is to not dwell on the past, don’t fret over decisions that were never made or a mistake from years ago. Put one step in front of the other, have an open mind, find out as much you can from potential buyers, and see how a fit could make sense.


Moreover, let go of the expectations that were set upon you by others. Yes, when your investors wrote you the checks, they saw something in you or the market you were in, and believed you and the team had what it took to be a huge business. But markets change, things don’t work out, and companies fail all the time. Just look at a company like Google, with the near infinite resources that they have, how many internal projects were killed and billions of dollars wasted (Stade, Shopping Express, Google+, etc). Companies can be created or shut down, they can be bought or they can be sold, but don’t let your worth be tied with the worth of the company. Because your happiness is never a function of that. Even if you sold your company for a billion dollars, there are those who took their business to an IPO and made tens of billions, and then there are those entrepreneurs who made hundreds of billions, there is no end, and someone who sold their business 100x more than your exit price is not a 100x better person than you are, so just let go of these expectations, the bottom line is to find a fit that makes sense for your team and ideally walk away with it where every shareholder is happy with the final result. 


In addition, a few more tactical things as you commit to an exit. Your previous roadmap will no longer matter, and may in fact change based on feedback you receive from the potential buyers. Sometimes buyers may want to first engage with a partnership with you to understand more about what it feels like to work together, and they will provide guidance on what product line or integration matters the most to them. So the bottomline is, don’t overcommit on a particular strategy, and have enough flexibility so that you can engage in some of these partnerships.


You will also need to make some tough decisions that you put off for a long time before engaging in an M&A. Buyers are shrewd and can see through organizational issues, product mismatches, poor resource allocations all during the due diligence. The best time to clean the house is before engaging with the buyer, all of these issues would become detrimental to your engagements and negotiations. Just like when preparing to sell a house, fix all the things that you know are wrong with the house. In the M&A world, nobody wants to buy a fixer-upper, or at least, nobody will ever pay a good price for it. So if that means cutting off an underperforming product line, laying off an entire team, cutting spending on a particular area, do it right away. It will help your business even if you don’t end up finding a buyer.


During the M&A phase, you will also likely become unreachable at times to your team. You won’t be able to tell them what’s going on, and that could be against your company’s cultural values. But understand that this is completely okay and good for the team. There’s just way too much context and complexity when it comes to navigating a M&A, and it’s best to keep this information privileged and have lieutenants that you can trust to still keep the business running day-to-day. The main reason being, an exit likely won’t even happen anyway, so no need to tell the team unless it is a certainty.


Lastly, as I alluded to multiple times in this chapter, accept the fact that you likely will not find a buyer. The M&A world is all buyside driven, and you may have the most fantastic business with the best cash flow, the best technology or product, sometimes there are just no buyers, and that’s the sad reality. So let’s take a look in the next chapter for planning on contingencies when you can’t find a buyer or do not receive an acceptable offer.
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9. Prepare for the Most Likely Case of No Acceptable Offer


If finding a buyer for a company were easy, then most businesses would not go out of business. Accept the fact that an exit regardless of the size is the outlier, while winding down or filing for bankruptcy is the norm. So the most important thing to plan for when embarking on an exit strategy is to plan for contingencies in case you can’t find a buyer. Or perhaps let me be precise, you might receive an offer for the assets including cash, excluding any of the liabilities, with an unbounded indemnity term for you and the investors, all for a pat on the back, some private stocks that will never liquidate into cash, and good will for the future. Without having planned for these contingencies, you may end up spending years looking for a buyer. I know we did, it took us almost four years from the moment we decided to sell until we finally closed the deal. And if you don’t have a break-even business, you will run out of money before anything materializes.


When we first started responding to inbound inquiries for M&A in the September of 2021, we thought a deal would be done by Christmas. At the time, we had inbound inquiries from five big players, two of which were public companies. And when none of these conversations led to an actual term sheet and also after talking to about two dozen companies that were part of the outbound reach out arranged by our bankers, it was the August of 2022 and it felt like we had wasted a year of our lives where instead of building products and delighting our users, we were busy talking to a bunch of companies and hacked a bunch of random prototypes based on the little signals each company provided. This felt like a gut punch, where Borui and I were faced with the reality that we might have to wind down the business or continue on indefinitely until the M&A market thawed. And worse yet, we were so confident that we would be able to sell that we told our employees early on and some actually went and exercised their shares that they expected to have a handsome gain with an imminent close. We ended up doing a mass layoff, and deciding to pivot the company and work on a brand new product based on the market feedback. The common misconception when it comes to finding an exit is for the founders to set a deadline. Now unless there is an unbreakable constraint like cash balance, in which case you should you will likely not find a buyer anyway, deadlines don’t really make sense in the context of an M&A. The decision to buy a company lies in the hand of a buyer, and for there is no way that you as the seller can enforce a deadline unless it is a bidding war amongst multiple buyers. Unfortunately there are just way too many factors in play internally for a potentially interested buyer to pull the trigger, so the best approach to an exit is to not have a firm deadline, as likely you’ll blow past it anyway, which potentially lead to churn and other undesired consequences. Furthermore, when you give potentially interested buyers a deadline to submit offers, the default response often is no. There needs to be a bunch of meetings and people who sign off on an acquisition and a coordinated effort in diligence from finance, legal, engineering, product, and etc. Most companies just don’t have this type of bandwidth to pull off a quick acquisition. Plus, during the negotiations, the first offer is rarely the best offer, there will be multiple rounds of negotiations and sometimes you have to be willing to walk away before the right offer comes in place. So it is best to remove a time constraint in the equation so that the relationship develops organically and the best possible offer gets made.


It’s important to plan out what to do when you think you have reached out to every potential buyer and couldn’t find anyone who is willing to provide a term sheet. Ultimately there are two paths, continue on to build the business or wind it down gracefully and set up employees so they can be successful at their next jobs. If your company is making positive cash flow, then continuing building is not a terrible option at all. You have the options of buying out your investors with existing cash, and or future considerations, stepping down from your role as the chief executive and hiring a professional exec to run the business, or sell it to a private equity if it’s generating healthy and repeatable profits. If you bought out your investors, you will no longer have the expectation to grow, and you could re-orient the business into a lifestyle business where you make a handsome return without doing much work and go focus your energy on something else completely different. Depending on how much profit your company generates, this could be a decent outcome for everyone involved. 


One of the most difficult contingencies is to go back to working on the business with the same governance structure as if nothing happened if there are no acceptable offers. If you are pressured to sell by your investor board members, once you decide to sell, it almost becomes a one-way door that regardless of whether you can pull off an M&A, the right thing to do is to provide liquidation for the investors with existing company cash or through a new round of funding, or for you to step down from the company. Personally, I feel it is too difficult to continue on with the same governance structure if I could not deliver on a M&A when the investor board member expects liquidation.


Now if the company is losing cash and has a negative cash flow, then the question comes down to when is it the right time to throw in the towel and whether the responsible thing to do is rip off the bandaid and wind down the business gracefully. While there have been instances where businesses turn around when they are down to their last dollar through some brilliant maneuver by the chief executive or somehow pulling off a fundraising round to inject fresh capital, those are extraordinarily rare, and to me, the responsible thing to do would be to return the remaining capital to investors and treat the employees with respect by providing them with a severance and help them to find their next jobs. Accept the fact that the majority of businesses fail, and there is no shame in accepting responsibility and confronting reality head on. Even though your company fails, your reputation will be preserved and your investors and employees will respect you and will likely work with you on your next venture. 


Now that you have written down your contingencies in the case a buyer cannot be found, you can now realistically think about and manage what expectations you have from the M&A.
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10. Valuation Fantasies and the Art of Disappointment


We have all seen the headlines on TechCrunch - a couple college dropouts hacked together an internet startup, became an overnight success, and was bought for a billion dollars. This happened to Instagram, Twitch and YouTube, all turned out to be wildly successful acquisitions for the parent companies, and could happen to you as the entrepreneur of a fledgling startup that would also one day be worth billions right? At one point, Borui and I when we were young and naive, and when the company seemed to be having some traction, we too had such unrealistic expectations. I remember when we interviewed job applicants and the question of a potential end game was asked, the default answer we had was we wouldn’t sell unless it was for a billion dollars. Thinking back now, it was just pure immaturity and lack of understanding of how the market worked. Both of us were new college grads with no prior startup experiences, we did not know anything about how exit worked, and below are some frameworks for thinking about valuation for an exit.


Typically M&As from a buyer perspective fall into one of the following categories, and the price tag put on each are drastically different. They are acquihire, asset sale, multiples of revenue, and finally strategic. Every transaction is different, and your deal could be a blend. Majority of what makes the headlines are the billion dollar strategic acquisitions, though the burden of proof to pull this type of deal off is much much higher and hence the premium. Though, regardless which bucket or blend of acquisition the deal gets categorized, the amount of work needed for a deal to happen from both the buy side and sell side don’t change much, hence making deals are hard, even if it’s a small acquihire or asset sale deal.


Acquhire


So what are acquihires? As the name suggests, "acquire plus hire", basically means the buyer is hiring the sellers en masse as their employees. From a buyer's perspective, there may be a pressing project with a large number of open-reqs in a particular domain that the hiring manager is struggling to staff in a short time. In such a case, often what is the easiest is to go to the market and identify a team that works in this space and have the necessary skill sets, and then bring this team on to fill the headcounts. For these types of acquisitions, the buyers only care about two things, your team is willing to work at the acquiring company for at least two to three years, and your team can pass their technical interviews. Not all team members are equal in value in such a transaction, a premium is often placed on senior engineering, design and product leads, while functions like marketing, HR and management are stripped out or carry negative values in such acquisitions. Since the glut of hiring craze mid pandemic in 2021 and with the rise of AI coders in 2025, acquihires are becoming more and more rare as big corporations are often slashing headcounts and trying to be more efficient. While what was previously a still respectful offer of around one to two million dollars per technical headcount back five years ago are now almost non-existent. However, at the time of writing this book, generative AI is the hottest sector in all of technology. If in fact your team is full of Stanford or Berkeley PhDs in Computer Science and AI, you could still have a sizable windfall for an acquihire-type of transaction, where each PhD could fetch multiple million dollars. 


One thing to call out here is that when it comes to an acquihire deal, the buyer does not care about the original vision of the company and overselling your aspirations about what a future looks like after the acquisition could potentially hurt or jeopardize the deal. The buyer would want to wind down your company and pull all your existing products, the expectation becomes that your team focuses solely on delivering the objectives set by the acquiring company. Just like when you get hired to a company, while what your prior experiences will play a role in pegging which level you get hired in, once you start work, none of what you worked on in the past matters at all. So as an entrepreneur, when evaluating such offers, understand that the considerations would likely be a multiple of the number of product managers, engineers and designers, plus you likely would not receive much money from closing, as the buyer would typically use an instrument called retention, that is paid out over time based on your commitment for continuous employment. That could range from two to three years, and rarely beyond three years. The interviews conducted here would also be very rigorous. Your team would be expected to pass the technical interviews as if they were applying for these positions as a regular applicant. Do not be surprised if some team members fail the technical interview and do not get included as part of the acquisition. Furthermore, if a handful of the team cannot pass, the deal could fall apart as well. So be sure to prepare your team for coding interviews when the time comes. Also, think hard on whether you and the team would want to work at the acquiring company for at least two years. If the answer is no, it’s not worth wasting time going through a process with this buyer. This would be literally the first question the buyer asks every single employee, and it would be a shame to do a bunch of work only to get to the middle when the buyer pulls the plug because they realize they can’t hire your team members.


Asset Sales


In some cases, because of a plethora of reasons, a buyer may want to buy certain assets of your company while omitting others, mainly to protect themselves from unknown liabilities. The assets could be your products, technology, intellectual properties, trademarks, contracts with your customers, or even the laptops you are working on. Now again, asset sales rarely yield a life-changing outcome for the entrepreneur as you notice that equity is not listed here as an asset that the buyer is interested in purchasing. For such transactions, the payout is usually very low while you as the seller still have to carry the risks from potential litigations and liabilities since the buyer essentially takes what is of value from your business and leaves everything else behind. This is almost equivalent to you going to a furniture store that is about to close and then pick and choose anything that is of value to you. Now there are times when this is the only path to land a company, but understand that this outcome would yield very little or potentially in most cases a loss for the investors and shareholders. And to add insult to injury, an asset sale is considered an income to your business as the seller. This means that the proceeds would be subject to corporate income tax before any distribution can be made. So essentially, any money that is paid out by the buyer becomes double taxed before they even get into your hands. Furthermore, they may not offer employment to you or the team members depending on what assets the buyer is after. This could be good news to you if you have no intentions of working for the acquiring company. Nevertheless, this would be a terrible outcome for your team if they are being let go from the transaction. 


Multiple of Revenue


Depending on the size of your revenue, EBITA and how repeatable those revenues are, there is a class of acquisitions from private equity firms that make acquisition offers directly as a function of your revenue. The threshold here for annual recurring revenue (ARR) is typically at ten million dollars or the EBITA at at least two to five million dollars with three to five years of continuous growth or repeatability. In good economic conditions, the multiples could be three to five times while in poor economic conditions it could even be around two times. If they move forward with such acquisitions, the private equity firm would typically make major reorganizations or bring in professional executives with the intention of making the business more profitable and efficient. For the entrepreneur, often there is no obligation to stay at the company post acquisition.


Strategic


Finally, this is the class of acquisitions where your equity as a startup founder could really liquidate into life-changing money/stocks. In the case of a strategic acquisition, the buyer has a specific vision for the future where you and your company serve an integral part of putting that dream into reality. The buyer believes that your company is already an industry leader in its respective space and the missing ingredient for unlocking a particular market segment. The buyer values you as founders, the team, the product, technology, users, and brand that they are willing to pay a king’s ransom to bring you on board. In some cases, it could also be that the buyer does not want their competitor to have you joining forces. Now, based on this description, you can already sense at what scale your business has to be operating in in order to have this level of sentiment from a strategic acquirer. These acquisition offers often cannot be engineered and only happen organically from the buy side as one day the executive at the acquiring company comes up with the idea of acquiring you. When this happens, don’t overplay your hand as they will be talking to your competitors as well. Also, know your worth as their first offer will never be the best offer. And often, in such cases, if you get the sense that the interest is genuine and is coming from a key decision maker (like say the CEO?!), then take the meeting seriously and talk to your board and cofounders to align on everyone’s expectations on what offer makes sense for such an exit. Now the math to justify a strategic acquisition is often fuzzy and at best back of the envelope. No one can predict the future, and when it comes to the private market, things fluctuate all the time and valuations could drop tenfold when all of the metrics of your business stay exactly the same just because the macroenvironment changed. Typically, the offer is calculated based on a combination of your company user and revenue metrics, and more importantly the growth rate. This type of transactions are atypical, as more often than not, the buyer is selling you the opportunity and trying to convince you to do this deal. The main thing to watch out here is to first have a worth that is grounded in reality and make sure you have buy-ins from all your key stakeholders. Rejecting offers without informing the board could land you in hot waters because of violations of fiduciary duties. Secondly, the strategic acquirer may not be a large publicly listed company. Do your homework to see if they even have what it takes to pull off a deal. Are they offering a full private stock deal that may never liquidate into cash? So not everything is rainbows and butterflies when it comes to a strategic acquisition.


The best leverage you have when it comes to getting to your desired worth is by having multiple bidders. In the M&A business, if there is only one potential buyer for your business, your worth is ultimately how much this only buyer is willing to pay for, and that is your market value. Now this rarely happens when multiple companies simultaneously produce competing offers and get into a bidding situation, often there is just one buyer, and that is also completely normal and fine. Because, after all, just like marriage, you can only marry to one person. You simply need just one offer, the right offer. So the second best leverage you have is the ability to walk away from a deal you don’t like. Very rarely does the acquiring company offer the best offer with their first offer. Just like the story of the cloud security startup Wiz which was founded in 2020 and acquired by Alphabet in 2024. The Wiz founders initially walked away from an offer of 26 billion dollars in July 2023 from Alphabet because they believed they could eventually IPO and have a much higher market capitalization. They were again approached by Alphabet and Wiz was eventually sold for 32 billion dollars nine months later.
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11. Get Your Personal Finances in Order


Over the years of building your company, you may have been granted additional stock options for the company which you may not have yet exercised. In anticipation of a potential exit, one question that would inevitably come up is whether to spend money and buy those shares. In the United States, shares that are owned for more than one year when liquidated are not subject to ordinary income tax, but instead are categorized as capital gain, enjoying a lower tax rate. So should you buy or not buy the options? Perhaps the smartest decision I ever made in spite of all the mistakes during the M&A process, was to not borrow any money exercising my shares. In 2021, in anticipation of the M&A, I needed to spend a whopping $200,000 to buy all of the outstanding shares, plus pay another $150,000 in taxes (Alternative Minimum Tax) as the fair market price for these shares have increased over time. The honest truth was that I did not have any cash to buy these shares, the only other way was to take out a bank loan.This would have added tremendous strain on my marriage and placed unrealistic expectations for the exit. And in retrospect, even if Polarr had been sold for billions, the decision was still the right one to not exercise and go along with the ride.


So I get this question quite a bit from other founders or early startup employees who are granted options that could be expensive to exercise, but are forced to make this decision because they are leaving the company. I was lucky in the case that I never left the company and therefore was never forced to make the decision to exercise or not. But regardless of whether you are still in charge or about to leave, my advice to you is exercise if you have the money for it and are okay with it all going to zero. The unfortunate truth when it comes to startup equity is that more often than not, it is worthless, and on rare occasions it does become a golden ticket. So I would treat it just like a very expensive lottery ticket. If you are struggling to put food on the table or behind on rent, your money is better served to go and fulfill those basic needs. On the other hand, if exercising these shares does not have the slightest pinch to your personal finances, then by all means, go exercise it, it could make you richer than you ever knew. 


The other important factor when managing finances in anticipation of an exit is to not spend money that you don’t have. As written in the earlier chapters, M&A is extremely risky business, and the right mindset going in is that the company will likely not sell, and therefore, manage your finances as if the company would not sell. Even if it does sell, there is a good chance that your company is sold for illiquid equity that may not turn into cash any time soon. My wife Charis and I always lived frugally through the years of me running the startup, mainly because we were always paid through our W2s and would be considered middle class because of my startup compensation in the Bay Area. We never made any big purchases aside from the downpayment for our house in 2017. And even when the deal was closed and money was wired to our bank account, the biggest purchase we had to date was a second hand upright Yamaha Piano for our kids for $3500. We never anticipated making millions from the exit, and when it finally happened, we were very happy because there was actually some cash to be paid to Borui and I as well as the employees.


Now that we have gone through your personal finances, let’s take a look at aligning all the people on your capitalization table in the next chapter on managing their expectations and communications.
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12. Herding Cats: Aligning Spouses, Cofounders, Investors, and Employees


When companies fail, they are more frequently because of implosions rather than explosions. This dynamic cannot be more true when it comes to an exit, where the stakes are much higher and everyone involved may have different expectations on what type of outcome is acceptable. It is absolutely paramount that all the key stakeholders are aligned going into a M&A and throughout the process, as disputes can at a minimum jeopardize a potential deal, or completely kill the company. M&A is like a trial by fire that’s going to test your closest relationships, and not all of them will make it to the other side, and you may not even see the other side at all.


Spouse/Core Family Members


In my case, and perhaps to you as well, the most important person to align with before deciding to explore an exit was my wife. Charis was very supportive throughout the years ever since the founding of Polarr and leading up to the M&A. When I made the decision to sell, we also had a 1 year old and also a baby on the way. While we never explicitly discussed the company future and exit plan together, when I did tell her that I was going to explore selling the company, I could feel there was a sigh of relief coming from her end that there finally was going to be some potential predictability and perhaps sense of normalcy after years of hard work. Aside from getting support from her on selling the company, she also made it explicitly clear that she had no expectations for any potential payout from the exit. I don’t know how normal this is from other marriages, but because Charis also works and consistently makes much more money than I do working as a hardware engineer at big tech, her stoicism and the stability of her income also freed me from additional pressure to land the company. 


Some of the loneliest times that I ever felt was also during the M&A, when it felt like nothing was working, and I was on the brink of throwing the towel and walking away from it all. I also realized that there were days when I became completely insufferable where the tiniest inconvenience or annoyance would trigger me to have a complete meltdown. Unfortunately, that’s what M&A did to me, it was impossible not to be emotional about it when the stakes were so high and margins of error were infinitesimally small. Charis was my bedrock throughout that entire time. For things that I couldn’t talk to my cofounder Borui about, or share with the team, I talked to Charis about everything. She acted as a sounding board and a damper to my raw emotions. It would’ve been a whole lot harder to have gone through this process alone.


For Borui, he actually planned on marrying his longtime girlfriend in 2024 and starting a family, but unfortunately broke up in the same year, and that was three years into our M&A journey. I don’t know how much of a toll M&A had on his relationship with his girlfriend, but I know for sure that he too had gone through similar episodes of intense emotional ride of the M&A. One minute we expected the deal to close, the other minute we were informed that they were no longer interested, and the majority of the time was spent waiting for a response or preparing for an all-important make-or-break meeting with the potential buyer. And Borui is a lot less emotional compared to me and does a much better job compartmentalizing different areas of his life to different sections of his brain. He rarely lets work get to him and lose his cool, but still, M&A is a whole different beast compared to running a company.


So perhaps a few words of caution with respect to alignment with your significant others when going this, be transparent but also set the expectation that things will be harder than ever, and if you act rashly, the context is that you are going through an M&A. Be quick to listen and slow to judge, and take a deep breath first before reacting.


Cofounders


The cofounder dynamics is one of the most intricate relationships to safeguard before and during an acquisition. Naturally, there is a power dynamic if founders have an unequal split of the shares, where the person with more equity gets more voting in the case of accepting or rejecting a potential deal. This often is not an issue when the terms are favorable and the spoils are plenty, but would become contentious when the deal is small or when it doesn’t even clear the preference stack. In the case for our company Polarr, such dynamic existed as Borui owned nearly around 33% of the company while I owned 7%, and assuming the considerations barely cleared the preference stack, say there was a $6 million proceed after paying out the investors, it would have meant that Borui would walk away with nearly four times more than I do. And to me, this did not feel fair especially given the amount of effort both of us put in in building the company but also preparing the company for an exit. There was also this other dynamic in place where because Borui had more ownership and also he did not have a family and liquidation pressure, he was more incentivized to keep building the company with the remaining cash if no buyer was found, and I would be faced with the decision of either breaking the bank to exercise my vested options, or potentially walk away from it all with nothing. 


There were a series of conversations regarding how to fairly divide the proceeds with Borui, and they were probably the toughest but the most important for expectation setting and alignment. Now the thing to understand is, for most M&As, especially if the acquiring company intends on keeping the team around, the deal needs buy-ins from all the cofounders who are still working at the company and have significant ownerships. For Borui and I, it was unlikely that we could land a private equity deal because our revenue did not reach the $10 million threshold. Hence, for us, the mutual agreement was that we would come up with a scheme that was fair that both of us would feel comfortable accepting. Here are some practical guidelines for us and hopefully it would also be helpful to you.


Regarding the existing unequal split of the equity portion, we agreed that it was not something that would be worth fighting over, especially given that it would require additional board approvals and lawyers drafting up new vesting schedules. Furthermore, even though we did have a large option pool, our vested shares still dwarfed the pool, and it would not be prudent to issue additional shares to dilute existing shareholders just so that we could settle the scores on the equity portion. We aligned that in the case that if the closing considerations did in fact clear the preference stack, then we would follow the existing waterfall structure, and Borui gets a drastically outsized return compared to my ownership. In addition, as there typically there were two parts when it comes to proceeds for a M&A, considerations, which was cash or stocks paid upfront, and also retention, which was cash and stocks paid after the acquisition, my ask was that my retention amount needed to make up the difference in the closing considerations. Of course, this would still required approval from the acquiring company, but at least we had alignment that an outcome with this type of structure was something that we would both be comfortable signing and committing to sticking together until the end when a buyer was found.


Now the easy part was done, the more difficult discussion surrounded what would happen when the considerations did not clear the preference stack, meaning the common shares get wiped out and Borui and I receive nothing from our equity portion. In such a case, a buyer would still put together an attractive retention package for the team, but how would that get divided, and should equity still be a consideration in such a case. There were a number of heated debates Borui and I had for this particular scenario, where my argument was that retention is a function of how important an individual is to the acquiring company, and not a function of the cap table, which would be underwater and meaningless when preference stack is not cleared. Borui’s argument was that the cap table still is reflective of the importance of the individuals’ values to the acquiring company, albeit only as a proxy. And in these debates, I was grateful that Borui eventually made concessions and agreed with me that retention allocation was a function the importance of the individual to the acquiring company, and for that, because both of us would play equally critical roles in the integration post M&A, and we should get equal amount in the case we were bought but not clearing the preference stack. While the final allocation was slightly different to what we initially agreed upon when we finally sold in 2025 (I made some concessions to the initial proceeds as I was getting paid more than Borui since our Series A in 2019 because I had a growing family, Borui took a higher signing bonus based on the total salary differences we had over those years), past alignment conversations served as the cornerstones on how the proceeds should be divided. So when we finally got down to the numbers, the discussion was smooth and neither of us saw any surprises from where we each stood. I was thankful that we had those heated debates before and during the M&A process as it aligned us to both wanting to get a deal done in anticipation that if a deal did happen, it would have been one that both of us were content with.


The thing to avoid here would be to not let each other know how we felt about how the considerations and retention should be allocated. Or worse yet, when the deal is ready to be signed, surprise each other with demands that could potentially jeopardize the deal. Now, these typically are not issues when a deal of gargantuan returns is on the table and everyone walks away as a millionaire, but the fact of the matter is, majority of acquisition deals do not generate outsized return, if at all, and it’s important to set the appropriate expectations for those cases with your confounders.


Board of Directors


Most of the times the board is made up of the cofounders and major investors, and at times, independent directors as well. The board has a fiduciary duty to all of the shareholders of the company, which is the highest level of care and loyalty in the best interest of the company. Typically in early stage startups, the founder/CEO reports to the board and the board has the power to fire the CEO. 


For Polarr, the board members were Borui, myself, Heidi Roizen of Threshold Ventures, Mar Hershenson of Pear VC and Bangaly Kaba who was independent. Now in the case of an incoming acquisition inquiry or a potential offer, it’s the duty of the CEO to report it to the board and solicit input before acting further. The CEO doesn’t have to follow the board’s directives, especially if the board members do not have certain rights or hold majority of the company stocks. However, it is still paramount to inform the board of any such developments and keep them in the loop. 


We made the rookie mistake initially when *** reached out with an acquisition inquiry where not the entire board was made aware because ***reached out via Heidi, our lead investor and also board member, we did not let the rest of the board members and advisors know of the engagement. This was a big no-no, and could be grounds for breach of fiduciary duties. 


At the end of 2021 when Borui and I decided it was time to sell the company, we spoke to each board member individually before an upcoming board meeting and told everyone our rationale - there were a good number of inbound inquiries and we wanted an exit. Both Heidi and Mar were very supportive, but also gave us the lay of the land that it wasn’t going to be easy even though we thought we had actionable inbound interest. They did not explicitly say what their expectations were from the sale, as both of them were ex-entrepreneurs and perhaps both had the foresight that an exit would be difficult. Nevertheless, they signed off on the plan for us to bring on bankers and begin engaging in the M&A explorations. 


Perhaps the best advice that I got from Heidi during this time was that an exit did not have to be the only option we explored in case the M&A market was cold. She suggested that given we had a very healthy cash flow, lots of cash in the bank balance, and a lean team, we could also look into buying out the preferred shares and continue operating the business or pivot into something else. In retrospect, this maneuver could have helped us in the M&A market, as a cleaner cap table and no investors in the mix could entice more potential buyers to give offers as there would be less friction for completing a deal, but this would also invite unscrupulous buyers trying to exploit us to accept lowball offers or disingenuous modes of working together when there are no adults in the room. 


Anyway, I was glad that we had a board that was involved every step of the way during our M&A process. While they weren’t involved in any of the reachouts or conversations with potential buyers, they did provide us with the right set of bankers and advisors who we leaned on heavily during this time.


Now I should mention there were two other ways the conversation could have turned out when we approached the board for their blessings for selling the company. In one extreme scenario, if the company was burning cash, had no traction, and very short runway left, the board would have responded by prescribing the founders to wind down the company gracefully to minimize litigation risks. Pursuing an M&A under such circumstances would be improbable, and at a very least, major restructuring or layoffs need to take place first to extend the runway. On the other extreme end, if the company was doing really well, making big strides and growing like crazy and the founders asked to explore the M&A market, the board naturally would question the rationale for selling and may instead opt to change the CEO and executive team instead. Unless the acquisition offer provides a return that is tens or hundreds of times higher than initial investment, the board likely would recommend continuing operating independently with or without you as the person running this business.


Investors Outside of the Board


Nothing needs to be disclosed to investors who are outside of the board at this stage. Most of the time, small time investors would follow the lead investor and no action needs to be taken. In fact, preemptively informing preliminary M&A activities would most likely be a distraction as naturally these investors would want to understand the likely returns and the impact to their portfolio and tax situation in the coming year. The bottomline is, however, nobody knows what’s gonna happen, especially at this stage. The right time to inform them is when a term sheet is actually signed, and only at that point let them know the terms and considerations and answer any questions they may have. Now unless it’s a full stock purchase, which would require every shareholder’s approval for the deal to be consummated, typically just the majority of the shareholders are needed to approve a deal. Your lawyers will recommend you to get approvals from all the shareholders, but the bottomline is you only need the majority, and make sure that the major shareholders are well-informed and kept in the loop and as long as they are onboard, a deal can be signed off.


Key Employees


Every situation is different, though the general message to the team should be to not inform the team of any pending M&A activities mainly because in most cases the deals do not happen and they would cause irreversible damage to the trust and morale of the team. Furthermore, When you do start engaging with potential buyers, the company still needs to be operational and deliver operational excellence. Giving the team this additional information would be a huge distraction and cause unnecessary drama as every interaction with a buyer requires an update to the team. More often than not, the information you have is also just a snapshot of what your point of contact provides from the potential buyer, and no one can really read the tea leaves except when it’s a definitive agreement with terms and considerations spelled out. 


The mistake that we made when starting the M&A process was that we disclosed this information to the entire team. This wasn’t done frivolously, as there were mainly two considerations we had. Firstly, we were in the midst of a failed pivot towards building a social product that saw very little traction and was extremely costly to develop, it was clear that this strategy was not working. We needed to do another layoff in the middle of 2021 when we just did one early 2020, and the logical thing at the moment was to go back to double down on the products that were generating meaningful revenue for us, and look for a buyer. We felt at the time it was unfair to the team to announce the layoffs and pivot without providing the necessary context, and there was also a fear of mass attrition coupled with loss of confidence would result in the company’s demise. Secondly, because we did have a number of inbound interests from companies at the time that would require Borui and I to be unavailable for extended periods of time for meetings and preparations, we wanted to be transparent to the team on why we would not be reachable during work hours. 


One other thing that we put into place was a retention bonus that we allocated from our existing cash balance to be paid out at a future date to keep key employees for the M&A. Because we did have a large cash balance, we earmarked a total of around a third of a million dollars to be paid out on May 31, 2023 to almost all employees or the date when the company was sold, whichever came earlier. This coupled with the news that we would be exploring the M&A market as well as another workforce reduction was communicated to the team in April of 2022, which got the team refocused on working on our core products, and we saw no turnover for nearly two years.


Now looking back, the retention piece was not without its own issues. Due to the fact that we did not sell the company by May 2023 (we were way too bullish), we did see voluntary turnovers in 2023 after the bonus was paid out. Furthermore, when we did due diligence with various potential buyers, the topic of this one time payout was scrutinized and reduced our negotiation leverage as the buyers knew that we intended to sell the business, so no lucrative offer was put as a result. In retrospect, the right thing would probably to just communicate to the team that we had to reorient the company back to products that made money and left out the part about M&A. Alternatively, we should have thought much harder regarding the contingencies when the company is not sold when the retention payout deadline is reached. This would have drastically reduced the pressure we faced during the M&A process, and put the company in a better position.


However the benefits that we enjoyed from being fully transparent with the team was that there was a clear sense of ownership and operational excellence from the team. Even though Borui and I were practical unreachable for the majority of the working hours, the team operated independently on the product and engineering goals, and did not need any input from us. 


Other Equity Holders


Finally, we had ex-cofounders who held meaningful shares as well as past employees who exercised their shares when they left the company. In the lens of an M&A, there is no input needed from this group unless it’s a full stock purchase deal, of which every shareholder even if they held one share needs to approve the sale. But very rarely, that is the case. And no communications need to be made to this group until when a deal is about to be closed. Even at that point, a shareholder vote only requires a majority depending on the company bylaw, and most likely these votes would not matter at all. The thing to watch out for is to make sure the discovery as well as engagement with potential buyers are fully documented, as there could be disgruntled ex-employees or cofounders who litigate on the grounds that they did not receive the rightful returns from their shares either they felt the company was sold for too cheaply, or simply because they did not leave on good terms. Thankfully, this did not happen to us, but I have heard numerous stories from other founder friends whose cofounders or ex-employees block M&A deals because of either legitimate concerns or frivolous reasons just to spite them. If you are in the unfortunate situation where you foresee potential blowbacks from ex-employees, the best is to onboard a reputable law firm early during the M&A process so that everything is documented and operated in the bounds of law. 


Now one thing to call out is that you may never reach perfect alignment across all the stakeholders during an M&A, and ultimately, even when a deal is consummated, there are personnel or firms that you may never want to talk to interact with again. The learning here is that we are all humans first. We have our own needs, wants and insecurities. The main thing is to treat each other with empathy, and try to help others out even if it means going out of your way. People rarely remember exactly how much money they gained or lost from a liquidation event, but they will always remember how you treated them. 
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13. Paint the Walls: Nobody Buys a Fixer-Upper


A number of years ago, when Charis and I were in the market for a starter house, we toured a number of open houses. We live in Silicon Valley, so there is never a shortage of potential homebuyers. One of the things we noticed early on was that all of the houses that we toured, even as old or as dilapidated as something built mid last century, all of them had a fresh coat of paint and new set of floors. Majority of them were staged with nice looking furniture and snacks. Now this is an area where the houses always sold over asking with multiple competing offers, sellers and agents still made the effort to stage the house to give potential buyers the sense that the house is move-in ready. 


The same cannot be overstated when it comes to M&A. As a buyer for any business, the ideal is always a zero-risk, turnkey, cash-generating boon that requires little integrations. The only thing that hopefully ever needed to change is the logo on the company product or services. To meet this bar for a startup that is looking to be acquired, this is often tough if not impossible to do especially when it’s unclear who the eventual buyer is going to be. Furthermore, unless your company is growing and generating positive cashflow, you may not be looking to sell anyway. Nevertheless, here are some areas that you can work on so that it is more attractive to a potential buyer. You may find out that you 


Actionable Inbound Acquisition Interest/Offer 


Perhaps the strongest signal you can send to the M&A market is when there is actionable inbound acquisition interest or offer from another company. As explained in earlier chapters, this interest means that there is a concrete offer with terms and considerations all spelled out, and you are willing to accept and work for this company. Inbound emails from big company corporate developers does not constitute an actionable acquisition offer. A great offer from a company that you are not willing to relocate and work for is also not actionable. One other nuance here is that the offer is from an inbound inquiry, meaning you did not solicit or ask a company for such an acquisition offer. This is important because you as the seller have all the leverage when it comes to an inbound inquiry, and the interested buyer potentially has more patience and goodwill to you as you fulfill your duty by finding out the best possible return for all the shareholders. Leveraging off an outbound offer would be unethical and destroy your reputation, and I would strongly advise against soliciting offers and then trying to shop such offers in the market. Furthermore, it most likely could end up in no deal as sellers are more vulnerable in transactions as termsheets are typically non-binding and buyers can walk away from a deal even after an initial terms are agreed upon.


Now, if you do have an unsolicited inbound offer in hand, typically the buyer imposes a tight deadline as well as an exclusive period once you sign the offer, making it close to impossible to get even an interested buyer to spin up a process to issue your company an offer. So the best course of action would be to reach out to partners and potential acquirers who are already familiar with your business, and directly talk to the key decision maker and let them know that you received a good offer to buy your business. Do not disclose the terms but do let them know that time is tight and you will likely take this offer. This would also be an excellent time to onboard an experienced banker who can help you negotiate and discover the true market value for your company. Again, do not take the first offer presented to you, take your time and talk to the board and do your research. We will cover more on the tactics and negotiations in the next section.


Actionable Inbound Investment Interest/Offer


The next best thing if you do not have an actionable inbound acquisition offer is an inbound investment offer. Potential buyers know that once an investor is brought onboard, the cost to acquire the same company would be significantly more expensive and also become more complicated as more stakeholders are involved. So if an exit is something you are considering, see what the capital market first is to build leverage before going into the M&A market. Again, similar to what I explained in the prior section, this investment offer needs to be inbound, actionable and it is best to approach existing partners with prior relationships to explore possible exit plans.


Product/Service/Technology Differentiation and Specialization


When presenting to a potential buyer, while there is no formula for success, typically one thing they always look for is some type of market differentiation. Is there something that is truly special about what you offer to your customers? Is there a close second, or are you one amongst the pack? For Polarr, we worked on a number of products and services over the years. But one thing that remained tried and true was our specialization in leveraging low level web technologies in building highly sophisticated photo editing tools for professionals. While this limited our potential target buyers to a short few, it nevertheless provided us with a differentiation that buyers saw as unique to Polarr. 


While coming up with a thesis around what product/service differentiation your company offers, it is critical to come up with metrics that measure the impact or effectiveness of these offerings. If in fact this differentiation is industry leading, its metrics and downstream customer impact and growth rate should speak for themselves. 


Having this differentiation may require shelving a bunch of products or services that do not have traction or are not central to your core expertise or business. However, one thing to be cautious about is that what a buyer sees as differentiating about your business may not necessarily be what you believe to be. So it is best to do as much homework as possible before doing outbound reach out and come up with potential theses on what joining forces look like, and what unique value propositions your company can bring to the table.


Personnel


Your team plays a major role in the acquisition. What acquiring companies look for are domain expertise, culture fit/add, efficiency, and willingness to work for them down the road. It is important for you as the entrepreneur to identify and reduce or eliminate personnel that do not fit the criteria. For example, supporting functions such as HR and marketing often are not value add in an acquisition unless you are a HR or marketing company. At the same time, for team members that are disgruntled, flight risks, or poor culture fit, it is best to offboard them before engaging with the buyers as such personnel issues could only make things complicated later on. Finally, there may be advisors who are still being issued stock grants, past cofounders who own majority stakes. It is important to be thoughtful and try to clean the cap table as much as possible and also reduce unnecessary advisorships as all of these will come up during personnel due diligence. Even though most of these will not result in any issues for the buyer, it would make the process a lot smoother when everything is tidy on the cap table and it’s clear to the acquirer who and what each person does in the company.


Reduce Your Burn Rate


Finally, and probably one of the most important area to work on, is to reduce burn rate by slashing pet projects, unnecessary marketing spend, and redundant roles. The bottomline is, M&As take time, and sometimes it may not happen in the first few iterations. You as the entrepreneur need to make sure there is enough cash reserve to live and fight for another day. Furthermore, if you are burning cash and the prospect of fundraising is not great, you will be at the mercy of the potential acquirers and the terms will be dictated to you. You need to have the option to walk away from an offer, and the best leverage for that is having a cash flow positive company or one that at least is breaking even.


Now I understand that this doesn’t apply to deep tech companies or those whose business models require raising a ton of cash before they can become profitable, and in that case, it is still prudent to be frugal and reduce cash burn, and also look for bridge loans and alternative financing options like debt to extend the runway so that the right acquisition offer can be found.
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14. Come Up with an Outreach List of Potential Acquirers


Unlike the fundraising game where most of the thousand venture capital firms on Sand Hill Road are willing to hear your pitch, the list is much much shorter when it comes to acquiring companies for your business. If you are lucky, you can have twenty potential targets who are willing to talk to you. The fundamental difference is that for 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 easier 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, assuming you already put down the list of active inbounds as well as those that reached out in the past? 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, you being acquired will undoubtedly have an impact on their day-to-day. One caveat here is if the company is a large customer with sizable accounts, informing them about M&A interest needs to be dealt with care as 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 who 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.


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. Now 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 space 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.


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15. Outbound Slide Decks: Incomplete Canvas with Details To Be Filled In


Contrary to a fundraising deck that includes the vision and concrete set of steps on how you are equipped to get there with an infusion of capital, a M&A deck focuses on the existing body of work and how your company could be the missing puzzle that realizes the grand vision of the acquiring company. Now this is completely unnecessary if all your acquisition interests are inbound or from private equity, but could still be a helpful exercise to help align how you fit into the buyer’s overall strategy.


In the case you are catering the deck to an outbound target who you are trying to convince to buy your company, come up with a few theses on how this specific acquiring company could use your platform, technology, product, or team to reach a certain business goal. Now this is a complete shot in the dark, as what you believe to be their strategy may be completely off base. So the idea here is to establish a common set of beliefs from your slide, that could be a vision for the future, an untapped market that is up for grabs, or a specific pain point that the target company is trying to address that you are uniquely qualified to solve. Put these down as the first set of slides of your outreach deck as the hook to get your acquirer’s attention, and make sure they are customized to specifically cater towards the company you are targeting. 


Once you have your hook slides, put in a few slides that uniquely differentiates your company in this problem space. Make sure they are indeed noteworthy as generic information such as headcount or a vanity metric like number of downloads would get your deck discarded immediately. Put yourself in the situation of a Corp Dev who receives tens of these slides of failing startups who are trying to find a buyer, how do you become the signal from all this noise. Put down things like the explosive growth rate you have in revenue or user traction, user net retention that is above the industry standard, domain expertise of your current team with a number of PhDs in fields that are difficult to hire, or anything else that separates your company from the rest. Typically, unless your revenue is in the hundreds of millions and your daily active users are in the tens of millions, big tech acquirers would not care as your revenue and user base are simply a drop in the bucket to their scale. Instead, focus on growth rate, domain expertise, or unique value propositions that only your company can offer. 


To finish off, add a couple slides on future outlooks and how joining forces would get to the desired destination faster and quicker. Again be specific here in terms of a few bold predictions on how the market is shifting, and why the acquiring company needs you to stay competitive or thrive in the midst of change. Sell the buyer on a combination of fear and opportunities. Once you are done with the slides, practice it with your co founders, board members or advisors and get feedback.


I can’t stress enough on doing homework on the potential target acquirer and try to look for signals from their executive team on what space they are after, what is the problem they are trying to solve, and what kind of investment they are making in this space. Look for interviews and news articles and use the same language as the acquirer. The goal is to invoke interest for a first meeting and tease out if there is a potential for an acquisition. 


See appendix for a sample outreach deck that I used when selling Polarr.
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16. Should You Hire a Banker?


Frankly, bankers are only helpful when you have a great company in a hot space where multiple buyers have lined up with strong acquisition offers. In such a scenario, a seasoned banker can help you discover your true market value and handle all the intricacies of negotiations without damaging your relationship with the acquirer. Very often, you know you are in this situation when an interested buyer reaches out to you through multiple channels and presents you with a verbal offer unsolicited. And if you respond that you have a fiduciary duty and would need to run a process and this does not deter the interested company, then this is the perfect time to hire a banker. 


Ask your board members for recommendations for bankers they have worked with in the past. In the banking business, it’s all about referrals and past clients. Talk to a few bankers and get a feel for the rapport and how well you work together. The first and most important questions you need to figure out is who you will be working with exactly and does this person have the necessary network where she can create a bidding environment. The premium that you pay for bankers is their network to discover the true market value of your company. If you only have one potential offer, then that becomes the market price. You might be tempted to work with a big firm whose named partners have indeed made headlines. Be warned, unless you have a sought-after company with a high price tag, the person working with you might be a fresh out of school MBA who is inexperienced and not well connected. Not to say that you wouldn’t get a great outcome from this relationship, you might not get the level of experience and expertise you expected when the named principals sold you on why you should pick their firm. Secondly, would they still stick around when things get tough and the market turns? Ask about a company that they couldn’t sell, and try to understand how persistent and creative they are when it comes to working with buyers. Bankers have a tendency to boast their biggest deals, which is equivalent to a lottery winner telling you their lottery number. This is not helpful as every deal is different and the M&A market changes on a whim. There is also a survivorship bias as some bankers only take on clients that they know they can make money from, so it’s important to vet for the cases where the deals fell apart and what they learned from them. As much as bankers hate to admit, these happen more often than what is talked about. There are also cases where the bankers give up after a few rounds of outreach or negotiations after realizing that selling a particular client’s company is not an easy lay-up. Sometimes this is not their fault simply because the market is not there, but there is clear evidence that they knocked on every door possible. Finally, can they articulate the mission of your company and understand the intricacies of your business? Ask about the most difficult clients they worked with in the past, what made that experience difficult, and check for references.


Bankers are expensive, and if you have a successful exit, they will make the most money out of everybody on the cap table based on the individual return on investments. Typically, they charge a percentage of the final sale consideration plus the retention package given to the team. Even if you sell to a private company and get paid in private stocks, they would value the private stocks as cash and be paid in cash. And this percentage floats anywhere between three to five percent. Top bankers charge on the higher end whereas up-and-coming or boutique bankers may charge a bit lower. You can typically negotiate these rates, but don’t expect to get it any lower than three percent. Finally, some bankers also charge a retainer fee that could either be one-time or paid monthly. This is to protect them from risk exposure of discovering that a market is not there and cover their opportunity cost from working with other clients. The one-time retainer fees range anywhere between tens of thousands of dollars to hundreds of thousands dollars. The retainer fee could be credited in the final payout when the deal closes. The monthly retainer model is usually applied when the market is weak and the banker needs to do a lot of discovery work to find suitable buyers. In such a case, the bankers almost serve as an outbound Biz Dev who works on creating partnership opportunities and building relationships. Bankers typically never take on stocks and they will get paid first just like lawyers when a deal closes. Send the contract you have with the bankers for lawyers to review before you sign them. Figure out precisely if there are any clauses around termination or tail period. There are instances where bankers do not pull their weight and you need to fire them down the road, so it’s best to make sure those situations are addressed in the contract so it does not lead to litigation down the road.


Now should you hire a banker when there is no actionable inbound interest and you have no prior relationships? I would recommend no, as in such a case bankers would typically rely on their network of Corp Devs and present your company to a laundry list of potential companies that likely have nothing to do with your space or business or you have no interest working for. It’s not to say that you won’t get lucky, but the probability of those conversations leading to a M&A is close to zero. It is best that your money is spent on building products or developing relationships by yourself. In any M&A scenario, the acquiring company would rather speak to you as the founder as opposed to a banker. They want to build rapport and understand if they can trust you and work with you from firsthand interactions. Looping in bankers too early could send the wrong signal and jeopardize your chances. Just remember that there’s nothing that your banker does that you wouldn’t be able to do. They can only help you move the deal along when there is a deal to be had. They cannot create a deal out of thin air. A deal that you are willing to take needs to come from an inbound interest. 
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17. Find a Law Firm Who Knows M&A


While bringing on bankers for a M&A is completely optional, onboarding a competent and knowledgeable law firm who specializes in M&A is absolutely critical for the success of an exit. It’s okay to cheap out on other things when it comes to selling your company, but definitely spend the money to hire a good and reputable law firm that either specializes in M&A or has a dedicated team for doing this. A bad law firm will give you bad advice for critical issues on things like indemnifications and liabilities, or could bill you to oblivion that the transaction proceeds couldn’t even cover the invoices.


The incentives when it comes to lawyers are purely based on the billable hours as opposed to getting the best sales price for the company. Because the payout for the lawyers are not tied to the financial outcome for the stakeholders, even if the deal falls apart and the company doesn’t get sold, the lawyers would still get paid for the hours they worked on your deal. The criteria to look for when vetting for a law firm is efficiency, prior deals, and who you get to work with. A good law firm will assign you a veteran M&A partner who is knowledgeable and efficient, they will set an overall budget, and navigate through the complexities and nuances of the transaction. In a nutshell, the job of the lawyers is to formalize the transaction in a series of legal documents and also ensure all the mechanics and procedures are followed to limit risk exposures and liabilities. Depending on what type of transaction you end up going through, the documents include all the stock/asset purchase agreements, disclosures, employment contracts, stockholder approvals, 280G analysis, and others. 


M&A law is complex, geography-specific (depending on where you incorporated, Delaware has different laws compared to California), and often involves multiple stakeholders with competing interests and tax implications. It’s worthwhile to spend the money on a reputable and experienced law firm, and preferably they have had a working relationship with you in the past. When it gets to the disclosure phase, the acquiring counsel might ask for a wide array of documents and disclosures, and when your lawyers have worked with you, the process can be a lot more efficient as they already have all your legal documents and should be able to quickly respond to any request. Onboarding a brand new firm with no work relationship in the past would lead to a lot of hours spent on reading your data room and past legal documents like certificate of incorporations, fundraising docs, etc.


If you are already represented by a law firm that is reputable, you like working with them, and they have a dedicated M&A team, then it’s best to not switch and continue working with them. Otherwise, ask around for M&A-specialized boutique firms. You typically work directly with the senior partners at these firms and because they solely do M&As, they can be very efficient and knowledgeable and also provide better prices. 


Finally, it’s important to set a budget early on so that expectation is known on billing only on important legal matters and the company or you handling the auxiliary tasks. Those that you could manage yourself include reviewing your own employment contracts from the acquiring company, supplying the waterfall structure from your cap table, or handling the wiring of the final proceeds to respective stakeholders. Lawyers hate to admit it, but you can set a budget with them, and you can also negotiate with them on the rates, so when they provide you with the invoice, study each line item carefully and pay only for the work that they actually did.
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18. Get Your (Data) Room in Order


Perhaps the most important set of documents you need to get ready before engaging with interested parties is your data room. It is a fairly mechanical artifact that contains all of your capitalization table, incorporation documents, material contracts, employment letters, financial statements, debts, etc. Things could move quickly, and you don’t want to be caught flat-footed when the buyer wants to move quickly and you don’t have a complete data room for review. Perhaps the most important piece of document they want to see is your cap table along with the waterfall for liquidation. This would dictate who gets how much in the event of a liquidation and the buyer needs to make sure that the considerations and retention are designed so that all the decision makers for the deal can sign off the transaction and also use it as a proxy to understand the relative importance of employees in the company. Perhaps the second most important folder which in the ideal case is empty is legal proceedings or litigations. Ongoing legal disputes with any company or individual could be the number one reason to derail a deal. The best case scenario is to settle these before you begin the process. Or in any case, make sure you include anything and everything in those matters in your data room. It’s always better to disclose upfront than to have the acquiring team discover on their own later.


The other thing to call out here is that you don’t need anything fancy or dedicated software for your data room. Dropbox or Google Drive is sufficient. Put all the documents in the appropriate folder structure, and when you get into actual due diligence with a company that shows interest who asks for your data room, create a copy and send the copy over. This way, if there are any acquirer specific items that this particular company asks for, you can simply put it in the copied folder.


See appendix for a list of items to be included in your data room.
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19. Checklist Before Engaging with Potential Buyers


The below list is ordered based on importance, please only proceed to engage with potential buyers until ideally they are all checked off.


* Inbound inquiries from companies for deep partnerships or M&A
* Existing partnerships or relationships with companies that can be potential buyers
* Cash runway for at least one year
* Backup plans for when you get no acceptable offers
* Alignment on expectations with your cofounders and the board
* Mitigations of all known issues with your companies that could derail the M&A or affect valuations
* List of potential buyers
* Law firm that does M&A
* Data room
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Part II: The Opening Moves - Finding the Signal from all the Noise
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20. Don’t Forget You Still Have a Company to Run


Perhaps the first thing that you need to do before engaging with any potential buyers is make sure your lieutenants are set up for success so that the company metrics are still going up to the right while the company is exploring M&A. The best way to do this is designate one of your executives to hold down the fort while you and your cofounders attend various meetings and interact with the buyers. The amount of time it takes for meetings is not much, but you will have your hands full from doing market research and preparing for meetings. A lot of these meetings you only get one shot to make an impression, so it’s absolutely critical to prepare to the fullest so that all the demos work as expected, even the most obscure metric about your company rolls right out of your tongue, and you appear to be genuinely excited about the prospect of working together with the acquiring company.


In the meantime, set clear goals and objectives for your lieutenants so that the company still operates autonomously while you and your cofounders become unreachable. Give them the leeway to make their own decisions but check-in regularly to see how things are progressing along. Furthermore, once you tell your board you are engaging in an M&A discovery process, it’s a good time to cancel your regular board meetings and instead offer email updates on the progress as well as key company metrics. Furthermore, withdraw yourself from unnecessary recurring meetings, and stretch out the frequency of your 1-1s. Your calendar should be as light as possible in the coming months to focus on M&A completely.


As mentioned in previous chapters, it is not ideal to explain to the team on why your calendars are blocked off and you are at times unreachable. Even to your closest lieutenants, they should only be looped in when they actually need to be involved in the due diligence or interview process as the possibility of the M&A becomes more of a certainty. Looping the team too early in the process would put them through a rollercoaster ride that they do not have the full visibility and also agency over, and could lead to employee churn if things are not going well (oftentimes they will not) or expectation mismatch when the deal is finally announced. They may be expecting to be raking in millions but instead find themselves laid off and without health insurance. So instead, reset your communication expectations by proactively letting the team know that you will not be available for a lot of synchronous meetings because of some upcoming partnership discussions, but instead communications are transitioning to asynchronous messages which folks may expect slower response rate. Also work with your lieutenants to determine a roadmap for the next couple quarters, and give them the full authority to execute once you sign off on the plan. It will be tough not being able to share this with the team, but trust me, it’s tougher when you do share it with the team, the excitement and anticipation will wear off in a couple days, and you’ll be haunted with the question of what is up with the M&A at any interaction you have with folks you disclosed this with, and they will undoubtedly be disappointed and jaded when they find out that the company did not find a buyer, or what they expected to be a billion dollar exit turned out to be much much smaller.
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21. Engage Inbound, Lean In and Learn


This is the most exciting part of the M&A. To be desired and coveted, to be showered with praises on how phenomenal you and your cofounders have trailblazed a new path, how the acquiring company loves the strategy of combining together to become a multiplicative force, how this is a marriage made in heaven… Take a deep breath, none of this is real, and not all inbound inquiries are created equal. For all you know, the inbound could be just the spur of the moment from an impulsive executive who would forget about this whole idea of buying your company in a couple days and off to chase her next phantom big idea. Or, the inbound could just be from a lowly analyst or junior Corp Dev who is doing market research and wants to get some first hand knowledge from you as the founder. In any case, stay even keeled and put your best foot forward to lean in and learn. As you engage with these inbound inquiries, the goals are to:
1. Figure out if you are talking to the key decision maker for a potential M&A? If not, figure out who is the decision maker.
2.  Once you are engaging with the decision maker, determine if she is interested in collaborations, partnerships or an acquisition.
3. It is fine to engage with a partnership initially, and in fact often times it is necessary before these relationships are borne into an M&A, but make expectations clear to the other party that your goal is an acquisition.
4. I do not recommend aligning on a price this early in the process, as pushing for a price tag without enough discovery could lead to the potential buyer misinterpreting you being primarily pursuing this acquisition for financial gains, or in the other extreme getting into a non-binding exclusive term-sheet period where the buyer has all the leverage and you are prohibited from talking to any other potential suitors.


Let’s walk through a real example. We received the following cold email from *** in late 2021, 


On Sep 29, 2021, at 4:33 PM,*** <***@***.com> wrote:


Hi Borui – 
 
I support our *** initiatives within ***. My team is responsible for the *** Platform shared across all of our *** product offerings.
 
I am impressed by the work you and your team have been doing at Polarr on photo editing. I was wondering if you would be open to have an introductory chat with me and my Director of ***, *** (cc’ed), on the work that you are doing, with the objective of finding potential collaborative opportunities. We would love to learn more on the fun stuff that you are working on at Polarr!
 
Please let me know if you would be open to this and we can coordinate the logistics around this. Looking forward to connecting!
 
Thanks
***




To an untrained pair of eyes, this may just appear to be another one of those cold introductory emails that quickly gets discarded into the trash can, as it is a cold email from an unknown sender completely out of the blue. But, a couple signals to pay attention to, firstly, it did not come from a Corp Dev, it was coming from a Research Manager who has a technical background and his Director was also copied. This also indicates that this likely will be an acquihire scenario as engineering leadership reach outs typically mean they are short on staff and are looking to quickly onboard additional manpower. Product or senior executive level inbound inquiries are more likely to be strategic. Secondly, his role within the *** organization has a clear parallel with the SDKs and services that our company sells, and he has done his research on our product offerings. Lastly, the giveaway here is the word collaborative opportunities. Very rarely on the buy side especially coming from big tech companies do they explicitly mention acquisition in the email, especially coming from a non-Corp Dev role. It is a way to save face in case the founders turn it down right off the bat, where nothing can be learned without even a conversation. In any case, the objective is clear that they are looking at companies in this space and are looking to shore up their bench.


To reply to such emails, keep the message short and also make sure you do some market research on their product offerings and offer ample availability so that a meeting can be scheduled quickly. We replied with the following:


Hi ***,


Thanks for reaching out. We were just looking for AR SDKs to integrate into one of our apps and definitely happy to chat. How does next week look for a call? 


Things will tend to move fairly quickly at this point. Depending on how well the potential acquirer knows about your company, they may email back quickly to ask for a short presentation in advance on your background, team, mission and vision, product roadmap, technical capabilities, and long term goals. You can make modifications to the slides you made from Chapter 15 and customize it to the other party and their products or technology. Set a date that is ideally one week out so that it’s not too far away that they completely forget about this opportunity, or too soon that it sends out the wrong signal that you are desperate to sell. For the same reason, I do not recommend sending over overly-polished M&A themed slide decks prior to the first meeting, as it sends the wrong signals. If they do ask for some pre-reading materials, it is totally fine to put everything in a Google Doc that only includes the things they asked for.


Now chances are you may not get all of these inbounds at once, but it’s good to try to line everything up when you are ready to engage in the M&A market so that all of these conversations happen simultaneously. If you have had relationships with companies that previously reachout about M&A or are completely outbound targets, this is the perfect time to reach back out and ask for meetings (we will talk about it in Chapter 23). Now they don’t all have to happen at the same time, but it would be good to align these conversations so that when the offering phase is reached, all of the due diligence is already complete and you are not waiting for stragglers for them to reveal what a potential offer looks like. Now let’s take a look at what the inside looks like when an inbound company reaches out regarding possible M&A.
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22. The Inside View from an Inbound Reach Out


The only thing that matters in an inbound reachout is who sent the inbound email. The sender dictates how serious an acquisition interest is. Let’s rank them in the order of the most actionable to the least.


CEO/Founder


The buck stops at the CEO/Founder. There is no one else at a company that has more power. So when she personally reaches out to you, either directly, or most likely through a proxy like your board member or investor, much deliberations have already been made to assess a possible acquisition of your company. Likely she’ll jump right into business at the very first encounter, as her bandwidth is often very limited, and the acquisition will be extremely strategic to her current execution plan. When you get an inbound like this, take it very seriously and prepare to give direct answers on whether you are open to an acquisition and what the price tag you are looking for. Again do not give an answer on what the price tag is right off the bat, the right approach is to punt this later by saying that you would like to consult this with the board and run a due process to let the market dictate what the right price is. And if the interest is indeed genuine, in this case, it most likely is, the inquiring CEO/Founder should have no issues with it and could potentially preemptively provide a strong offer. It would be worthwhile to hire a banker to handle the negotiations and also to potentially gauge overall market interest to maximize the return for all the stakeholders.One caveat, if what you are working on is strategic to the acquiring company that their CEO/Founder is directly involved in the acquisition, chances are, she is also engaging with your competitors having similar conversations. So don’t overplay your hand, if the opportunity makes sense and is signed off from your board, proactively engage with the founder and strike the iron while it’s hot.


Board Member/Investor


Sometimes the CEO is too busy or inexperienced in doing deals, and in such cases, she would delegate this over to a Board Member or Investor who is more experienced in M&As. This is the next best thing when it comes to actionability. The board member could also serve as a noise filter and make a recommendation back to the CEO after your initial meetings. Likely this Board Member will be quite involved throughout the process to help out with areas that the CEO delegated over. They could be negotiations of the terms, parts of the due diligence. Still expect the CEO to make the final decision on whether an acquisition will happen.


Product Executive


Typically in large companies, product executives at the VP or Director level have the autonomy to pursue acquisitions. These deals could still be quite lucrative as they likely will be strategic in nature, but could still require sign offs from senior executives in the C-suite. In such interactions, ask your point of contact whether she has done deals before, and who would be the final decision maker. Based on the answer, work towards a strategy to ensure that you are talking to the decision maker, and if she is new to doing this, that’s usually a bad sign and most likely you’ll have to convince folks upper up in the management chain in order to make sure a deal actually happens. 


Engineering Executive


Engineering executives mainly engage with startups when there is an acquihire opportunity where they need to quickly fill-in headcounts that could not be easily hired externally. The deal sizes are typically smaller, and the interview process will be rigorous. They will ask you point blank on whether it’s acceptable to you to abandon your current product and work on theirs. If that’s something you are open to, the process will likely move quickly, and the key decision maker will just be the engineering executives. Again, confirm whether they have worked on such deals in the past, and ensure you are engaging with the final decision maker.


Bankers


Sometimes acquiring companies also hire bankers to inquire potential acquisition targets about possible M&A deals. If the acquirer is specific about your company, likely they would have approached you directly or used a proxy. It’s only in the case where they are looking for a company with a set of constraints, they offload that work over to a banker to identify and engage with companies that meet those constraints. The good thing here is if your product, services, tech or team fit the bill, then things could potentially move fairly quickly and you will be connected with the acquiring company executives. However, also understand that the inquiring bankers are talking to a number of companies, and also, because they are a proxy, they do not have the decision power, and the acquisition thesis could only become clear after the acquiring company executive did her due diligence on your company.


Corporate Dev / Analysts


This is likely the least actionable engagement you will have, nevertheless, it’s important to take such conversations seriously and build relationships. Typically what happens is that certain product organizations have a new initiative that they are inexperienced in and are looking to gather information. They would activate their Corp Dev or Analysts to do market research and probe companies in such space on insider knowledge like market size, customer discovery, technology gap, etc. Don’t give out anything that is sensitive to your business when engaging in such conversations. Explicitly ask the purpose of these inquiries, and treat this as a learning opportunity to understand what the needs of the inquiring company have, and study for possibilities to strike up or be introduced to actual decision makers in the executive team for future conversations.






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23. Activate Outbound, Plant the Seed


This is the most exciting and perhaps the most straightforward step in an M&A. The bottom line is, you spent months if not years preparing for the company to be ready to be presented to potential suitors, now it’s finally time to send out the emails to everyone on the target list (see Chapter 14) and gauge the interest level for your company. The goal of the outbound reachout is to keep it simple and actionable, you can use the templates below for your email.


First, if you have actionable offers, then it’s super simple. Make sure your email has only one recipient. Too many recipients will dilute the urgency and ownership of your reachout.


Subject: [Your Company] M&A Update


Hi [Executive of Potential Acquiring Company], 


I wanted to be the first to tell you that we are starting a M&A process. Recently, our board received an actionable M&A offer, and wanted to run a process and invite you to be part of it as we value our relationship and feel that the potential of teaming up with [Acquiring Company] could create the biggest impact. 


Let me know if this might be an actionable opportunity for you. 


Thanks,


[Your Signature] 
[Your Phone Number]


Now only send the above email if in fact you already have an offer you are willing to accept. And absolutely do not mention who has made this offer to you. This maximizes your leverage and also protects against reputational and legal risks. Furthermore, don’t send the above email if the offer you have is weak or non actionable, and definitely do not lie when you do not have any offers. The above email may all of a sudden become the highest priority task of the recipient, and if that’s the case, she would work overtime to pull in the right decision makers and resources to analyze this opportunity. Expect thorough follow-ups which if you lied, you will need to make up more lies to cover the initial lie. Eventually, everything will come crashing down. So the simplest thing is, just don’t do it, your reputation will be preserved and you will also sleep better.


Alternatively, if you do not have any offers but are starting a M&A discovery process anyway, use the template below:


Subject: [Your Company] M&A Update


Hi [Executive of Potential Acquiring Company], 


I wanted to give you two updates on [Your Company]. 


First is our latest [key business/product update that is relevant to the acquiring company, something that is short and sweet and noteworthy. If the acquiring company cares about a particular market, tell them your ARR or growth rate in this market crossing a key threshold. If they care about a particular technology, mention a breakthrough in your R&D or a big product launch with this technology deployed, etc]. 


Second is that we have decided to fully explore M&A starting this quarter. This isn’t driven by operational constraints (we have a strong balance sheet), but rather our desire to find a larger platform to make a bigger market impact. 


In advance of that effort, I wanted to reach out and see if this might be an actionable opportunity for you, and we wanted to give you an early look at the opportunity. 


Attached is a short deck.


Thanks,


[Your Signature] 
[Also attach a shortened version of the deck you prepared in Chapter 15]


The first key idea is to get straight to the point. Contrary to popular advice from most bankers and advisors, where they tell you to keep the message vague and instead of explicitly mention M&A, to use words like partnership or synergies. I caution against this approach as executives’ time is precious and emails that are vague or take too long to get to the point are ignored or left unread. If you have a relationship with the potential acquirer, don’t beat around the bush and jump straight to the point. Tell them exactly what you are looking for.


Secondly, give the recipient something to chew on. Place a bet on a strategic direction that the acquirer cares about, and put down some milestones that you recently achieved that would get her to read this email a couple times.


Finally, I would not recommend doing a mass email campaign to any and all companies that may have anything to do with your company with the above template for an outbound reachout even if you already have a strong actionable offer. It firstly sends the wrong signal that this could be interpreted as a firesale. Moreover, M&As are built on trust and relationships. For a company that does not have a relationship with you to begin with, I would try to first work on establishing a relationship with them first before approaching them with a solicitation for M&A interest. Quality trumps quantity in the M&A game, it’s always better to be selective and personalized when it comes to outbound reachout.
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24. The Inside View from an Outbound Reach Out
Depending on how strong your relationship is with the outbound recipient, the way it is handled would in turn be dramatically different. Let’s rank them from the strongest to the weakest once again. The key assumption here is that you either already know the recipients personally, or you can be introduced by someone who has a strong relationship with the recipients. Sending out cold emails does not work for M&As, this is different compared to any other type of sales as M&As require a much higher standard of trust and are built on prior relationships. Cold email outreach implies desperation and would never yield an outcome that’s acceptable.
Direct Personal Contact 
Due to the fact that M&As are built on prior relationships, how seriously your contact pushes your inquiry forward within their organization would be a function of how high she ranks within the acquiring company and how strong your relationship is with her. Nevertheless, because this is an outbound inquiry, unless you have leverage via an existing actionable offer, the likelihood of this conversation turning into a M&A offer is miniscule. Moreover, if your contact is not in a product or engineering leadership position (director or above in publicly traded companies) with strategic influence, it’s better to resort to an intro through your investor or board to someone with that decision power. When the outreach email lands on her desk, if this M&A is actionable for her own organization or team, then it’s most likely to lead to more conversations and can become fruitful. If not, the best your contact can do is to forward your email to other product organizations or the corporate development department who serves as a catch-all for these types of inquiries, and at that point, there is little chance that this could become actionable. Hence, it is absolutely critical to ensure that the person you are reaching out to is already in a product or engineering leadership role where this opportunity is actionable for her own organization, so it’s best to do your homework early on to identify and build such relationships early on before activating these conversations.
Intro to Senior Executive
Just like in the previous case, the onus is on you to first identify the right company with strategic alignment, and then find the right senior officers or executives with strong connections to your board or investors that would be open to an initial meeting. Do not expect your board members to do all the work for you when it comes to identifying the target company and the right contact. At a minimum, you need to figure out exactly who the key contact is, study her LinkedIn mutual connections, and if your board members are not connected, prune the connection list to see if their partners or associates are connected. Next, provide the blurb about the company and why an initial discovery meeting is warranted, and then check-in with your board member and ask if she would be comfortable in making an introduction. This is absolutely critical as your board member will not have as much context about your business or the angle you want to approach the key contact, and very likely if you delegate this completely over to her, she might be busy and not do it in a timely fashion, or identify the wrong person or approach with a weak angle that would jeopardize any potential M&A with this target company. So, at a minimum, do the work. Now if the introduction is strong and the senior executive has the right fit with your company, you will get a first meeting.
Intro to Corporate Dev
Corporate Developers’ job is to meet and identify potential interesting acquisition targets and serve as the gatekeeper initially and lubricant in latter stages when it comes to a merger and acquisition. However, they work for their business units and typically do not take on meetings unless they are directed by their BU leads on doing discovery for a certain company or space. When you reach out directly or through an introduction to a corporate developer, depending on how keen she is, she could do a first read of your material and do some research and make a determination on whether there is a potential fit or not. If she thinks the opportunity could be interesting, then she would forward the intro material to her respective BU leads, and solicit for feedback. In the rare case that a particular BU is interested in learning further, the corp dev would schedule the first meeting and serve as the initial phone screen for an interview. Now this type of reachout is typically the least effective because corp devs see these types of M&A solicitations all the time, some from founders directly, some from personal connections, and a lot of times from bankers. Just like the HR of a company that is hiring, except in this case there are no explicit job postings, the probability is close to zero for a potential match when it comes to sellers approaching buyers. Hence, as explained in earlier chapters, M&As are a buyers market, companies are bought, never sold.
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25. Expect Radio Silence from Outbound Reach Outs
Now as exciting as your outbound email may sound, that the darling startup that was never for sale is now finally on the market and contemplating offers, and that everything is already in motion and not acting now will cause the potential buyer to miss out on the opportunity of a lifetime… Take a deep breath, the base scenario is not that you will get an avalanche of nos, it’s worse than that, it’s you getting no responses at all from all of these outbound emails. These could even be folks you have had a relationship with, folks who have partnered with you and you thought would at least take a meeting. But the unfortunate truth is, people’s priorities change, and whatever your company is working on may no longer be the missing puzzle for the target acquiring company’s big strategy. Plus, their roles may have changed, and they may not be in a position to be helpful this time around. 
Instead of having your ego bruised, understand that this is the norm when it comes to M&A inquiries. Strong connections may jump on the prospect of partnerships, but M&As are a different beast, and often require a huge amount of effort to pull off. It’s completely normal to get anywhere between one to two responses for every ten outbound inquiries. Do not be discouraged, in the end, you only need one yes. And if you are having trouble getting replies, try to iterate on finding the right contact or connection, or recalibrate on whether the target company still makes sense. It might be because you are not hitting the right targets, it could be because the connections are not strong enough, or it could mean that the material you are sending needs further tuning. When we did our outbound reachout, we had perhaps a dozen iterations on the introduction slides based on the market response. And when these continuous pings don’t work, leverage your board or investors to see if alternate contacts can be reached out. Another possibility is to hire a banker if you are having trouble getting responses. Now a great banker should have a rolodex of contacts of various high ranking executives at companies you are trying to break into, and this would be a place where the money is worth spent on hiring a banker who is well-connected and articulate to look over your pitch and do the outbound on your behalf.
Finally, it could be that the M&A market is simply not there, as we saw in 2022-2024 in tech, and if that’s case, instead of pitching for M&As, ask for a call to see if there’s anything that you can offer in terms of help in exchange to learn what are some strategic initiatives the target executive is thinking about or working on. People tend to love to talk about themselves rather than to listen to your pitch. And if you can get a meeting, then it’s a great opportunity to build relationships and understand ways to potentially break in and perhaps carry out a M&A in the future.
Finally, M&A journeys are never linear, as long as you have a great company, a great team, the opportunity will eventually present itself. The goal of the outbound reachout is to plant the seeds for target companies, you never know down the road, one of these seeds could germinate and become an inbound inquiry for a M&A.
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26. First Meetings Are Typically Smoke Tests
Congratulations, you got a first meeting with a potential acquirer. Hopefully this will be the first of a series of meetings that eventually result in an M&A offer. As you progress through the process, you will realize that every subsequent meeting carries a higher significance than the previous one. This will be the most important meeting you can have with the target company, until the next one.
You and your cofounders should attend the first meeting. And sitting across on the other side of the table could be anybody ranging from the company’s CEO, key executives, down to just the Corp Dev. Install the correct video conferencing software ahead of time and make sure the right permissions are given to the software. You’d be surprised how many companies do not use Zoom and you have to spend the first few minutes installing WebEx and figure out how it works. Ask for an agenda if it’s an inbound inquiry. If it’s an outbound inquiry, provide an agenda and be sure to cover topics like overview of your company vision, products, differentiating tech, unique value prop, and joint opportunity.
There will be a lot of information exchange in the first meeting. If the buyer reached out to you, expect them to spend time to pitch the opportunity and talk about in detail how you fit into that thesis. Quick to listen and slow to speak, ask clarifying questions that show you are engaged and excited about the opportunity, but also show that you have unique insights on the potential challenges and tailwinds in the prospective plan. 
You will be expected to talk about your company irrespective of whether it's inbound or outbound. Depending on where the audience asks questions, spend more time dwelling on those topics rather than trying to cover everything in a short time.
Quality trumps quantity in these high level interactions. Through the interactions, demonstrate that you are thoughtful, articulate, and strategic. That you are the domain expert in the space you are operating, and no one comes close.
Here are some questions that will always be asked at the initial meeting, make sure you prepare for them, or refer to the sample answers I provided. Some bankers like to keep the answers ambiguous when it comes to talking about the purpose of these meetings and refrain from mentioning words like M&As or acquisitions and instead mask them with words like partnerships or strategic alignment. I disagree with this approach, as it should be crystal clear why these meetings are happening in the first place and it’s better to just jump right into the endgame. This saves time on both sides and allows both parties to talk frankly. The worst case scenario is to say you are looking for a partnership when it gets interpreted literally as a partnership where you end up spinning the wheels and not exactly get to the outcome that you actually want.
Q: What exactly are you looking for? Why are we having this meeting?
A: We believe that there will be consolidation in this space and we are uniquely positioned with an opportunity to team up and create a new platform or market that best serves our existing and future customers.
Q: Do you have a timeline for the M&A?
A: (Answer truthfully truthfully here, if you have an exploding offer, let them know, otherwise, answer the following) We do not. We are looking to find the best fit and would love to have deeper conversations with the responsible teams to see if we can develop a thesis together.
Q: What is your expectation for the M&A?
A: (Do not provide a number, that’s for later after diligence is done) We do not have a number in mind if that’s what you are asking. Again, we have a fiduciary to the company to discover the best possible opportunity. And we can certainly have this conversation once we align on the strategies and also this is something that I will need input from the board.
Q: Who else are you talking to at the moment?
A: Sorry, I wouldn’t be able to disclose this information just as this conversation is only between us.
Q: Tell me about your team?
A: (You have to emphasize on the domain expertise here) We have a team that is uniquely qualified in their respective domains and are considered experts in their respective fields.
Q: Tell me about your proprietary algorithm/tech.
A: Here is a high level overview on what it is. If you would like to dig deeper, we are happy to do so during the due diligence phase under a mutual NDA.
It’s unlikely that the first meeting will get into the weeds about any particular trade secret or IP, but buyers do have more leverage during M&As especially if you are pitching the sale, and in such a case, you would need to provide some high-level view on what it is. Nevertheless, it is totally okay to play the NDA card if they press on specifics. 
Now as the meeting is wrapping up to a close, take the opportunity to ask questions on their strategic initiatives, or views on a potential M&A. For interactions with large companies, expect cagey responses that could be seen as non-answers. This is completely fine, as long as they got the message that you and your cofounders are smart, capable and hardworking, and your company is a potential fit, that’s all it matters. Your job is done for the first meeting. There may be a set of action items for you from the first meeting. Make sure to summarize them at the end. They could be answering a particular clarifying question on metrics, providing supporting documents, reviewing a mutual NDA, or scheduling a subsequent meeting. It’s always better to end the first meeting with action items than not, it shows that the other party is interested. There are times when the other party ends with saying that they like to huddle internally first before providing future action items. In this case, politely respond by saying that you will circle back in a couple weeks if you do not hear back from them and check in. 
Likely this will be the only meeting you would ever have with this particular target company. You may think you crushed the meeting, and walk away with a lot of confidence. Nevertheless, M&As are a long shot business, even if you do everything right, the buyer holds all the cards, and sometimes they just do not want to do an acquisition. This is the classic case of it’s not you, it’s me. So treat it as a process, give your best shot, and pat yourself on the back after each meeting. Have low expectations, and you’ll be set up for success.
Now there are rare instances when a potential acquirer comes in hot and the first meeting stretches from an half hour intro to a full-on three hour meeting, and at the end the they are discussing about putting an offer together. Do not let this get over your head, any M&A offer is typically exclusive and non-binding and jumping into one this early would put you in a world of disadvantage. This means you cannot talk to any other buyers and you also give them the right to walk away from the deal at any time. Let them know that you are eager to continue the conversation, but politely let them know that you do need to work with the board on anything related to the terms, and it’s best to align on the terms when both strategic alignment is in place as well as majority of the due diligence is complete.
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27. Second Meetings Are When Things Get Real
Most M&A-themed conversations do not get beyond the first meeting, so if indeed a subsequent meeting gets scheduled, it is a huge deal. The stakes just get higher and higher starting at this point. Even if the other party were a competitor trying to get the lay of the land about your company, typically they would simply request some materials after the initial meeting and ghost you afterwards. And if you are speaking to big tech companies, typically getting all the stakeholders in the same room requires a ton of coordination and weeks in advance for the scheduling, so unless there is something actionable, a meeting would not be scheduled. 
A bunch of additional materials may be requested from the potential acquirer before making a decision on whether a second meeting is warranted. They include, and are not limited to, prior fundraising and valuation documents, an org chart along with a roster that describes each employee’s role as well as prior experience, company P&L statements from the last three years, product growth and retention metrics, product roadmaps, technology stack, overall architecture amongst others. Some may even request access to your data room at this point. Before handing shipping these materials off, be sure to execute a mutual NDA from the acquirer. It is typically better to request the NDA from the acquiring company side and make suggestions to that as opposed to requesting one from your lawyer. This ensures the process has less back and forth, and you can get to the meat of the discussion without spending weeks of negotiations over an NDA term. Be liberal when it comes to providing supporting docs once the NDA is signed, withholding requested info could lead to the potential buyer losing interest or misinterpreting you as being not serious about the deal. The fact of the matter is, the advantage is always on the buyer in terms of having an information asymmetry. 
As an aside, if the potential buyer is eager to share their financial statements, forecast or future roadmap this early on in the process, this actually spells as a red flag as they are more desperate to complete this deal than you are. You are in a great situation if they are rich in cash or have great future prospects like an imminent IPO or funding round. However, more often than not, the reason why the potential buyer is eager to share all this info at this stage unsolicited could mean that they are desperate to complete a deal for the sake of doing a deal (the board has given a directive to expand to a certain sector, or in order to raise funding they need an acquisition in your space), or in the worst case scenario, they are looking to do a rollup, where they issue you a bunch of private stocks in the hopes of absorbing your revenue and cash balance.
So, at this point, expect the actual decision maker to be present in the meeting, as well as those whose input would matter for this M&A subject. If it is a highly strategic acquisition, expect a C-level officer to be part of the conversation along with her lieutenants, most likely one of the lieutenants will end up driving the conversation on at this point if you are engaging with a big company. Typically, the way to gauge that is if the acquiring company has a head count ten times or more that of yours, then a lieutenant (typically a VP of product) would manage the process, and if the acquiring company is not ten times bigger, then typically the CEO herself or COO or CPO would be your direct point of contact. In other cases, if the acquiring company is one of the magnificent seven or equivalent large cap tech companies, you will be working with a Director of VP who is likely to be the person absorbing your company into her org.
Expect the corp dev to play a secondary role starting at this point. Depending on the seniority of the attendees from the other party, the conversation will be highly strategic and forward-looking at one end of the spectrum if the C-suite executive is in attendance, while tactical and deep on the implementation side if the most senior ranking people are engineering or product managers. Treat this just like a highly technical job interview, everything is fair game. Company metrics, customer personas, user journey, user interviews, UI/UX, positioning can all be asked from the product side. Technology stack, engineering tradeoffs, implementation details, specific usage of a framework can be inquired from the engineering side. 
Ask for an agenda in advance to prepare for this call, and spend ample time to prepare and practice for this high level due diligence. Figure out before hand between your cofounders who will field which questions, and make sure everybody gets a chance to present if there is a presentation portion. It is not a great sign when only one person speaks during this meeting. 
Questions from the potential buyer could become more pointed at this point regarding deal expectations, again, refer to the previous chapter and punt this over to your board. The goal again is to maximize information exchange, and ideally line up all the M&A conversations so that offers are made around the same time, or at least enough conversations are already had, so that when an offer is made, other companies are in a position where they have what they needed to also make a competing offer.
The meeting typically ends with the buyer asking for a few days to huddle and sync up on their thoughts before discussing the next steps. If everything goes well, there will be a meeting scheduled to discuss financial expectations in parallel with a formal due diligence process. This typically will happen very quickly. It could even happen at the end of the meeting if the buyer is super motivated. 
You may be asked for more supporting materials right after the meeting. Most likely the data room will be requested at this point if it hasn’t been already.
If you don’t get a response within a couple days, however, likely you will not hear anything back for weeks, or it could be some vague response like certain folks are on vacation, they remain excited about the opportunity, but please stay patient. Normally a decision is made right after the meeting and tasks are set in motion if the potential buyer would like to proceed further. If a consensus cannot be reached, or the consensus is a ‘no’, then typically the internal champion from the buy side would take the action item to inform you of their decision. However, there is no longer an urgency on their side to inform you this and this task gets deprioritized to the bottom of her list, hence you won’t hear back for weeks or at all even with persistent pings.
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28. Should You Run an Official Process?
In M&A terms, an official process typically means setting a timeline and reaching out to all likely buyers and soliciting interests/offers. However, it only makes sense to do them in two particular scenarios, let’s look at them. 
1. Firesale
One type means the founder or a banker sending out an email merge to a mass list of email addresses of chief executives and corp devs soliciting a request for interest with a deadline that includes a blurb about the company looking to get acquired. This email includes a short presentation about the company on the financials, governance, personnel and technology, and some inexperienced bankers or founders would even include a line or two about the company having fictional strong interest in the market from other potential buyers or even blatantly lying about having offers.
The truth of the matter is, if indeed there is an actionable offer for this company, the founder would be wise to be strategic and pick only a handful of companies that would be interested in putting in an offer. And with that, the email will lean heavily on prior relationships and utilize strong introductions if the relationship is weak. It wouldn’t be sent via a mail merge. Plus, if there is strong interest already, why purposely put your company in a weaker position by broadcasting that you are soliciting offers.
This is usually done when a company is running out of cash or the founders have decided to quit. If you are in this position, you are looking to get any offer in the hopes of softlanding the company. It would take a miracle to actually get an offer from this exercise, and my recommendation is, unless you are already prepared to shut everything down, then do not do this. 
The most likely outcome is radio silence from all your recipients with an occasional “thanks, but no thanks”.
2. Bidding War
On the other extreme, if you are approached by more than one strategic acquirer with an unsolicited offer that you cannot refuse and a light due diligence requirement, this is the perfect time to hire a banker and run a process. The banker would be very selective to run analysis on companies that are either in or adjacent to your space and also having the bankroll to outbid your existing offer. Based on my conversations with founders who were in similar situations, they all appreciated having a banker who managed a process. In the case of Wattpad, Allen Lau the CEO hired bankers when they received their first offer. They were able to discover two other companies that were put in offers and all three offers all arrived at nearly the same price in the end. 
Now unless you are in either situation, my recommendation is do not run a process. This is because by setting an artificial timeline, you are forcing acquiring companies to make a decision on whether to pursue an acquisition. This should only be done when you have leverage, and given that the first scenario will likely end up in a trainwreck regardless, it’s best to discover without a timeline on whether you have that leverage or not. Plus, no executive would feel comfortable engaging in M&A conversations without adequately knowing and trusting you and the company for a long time horizon. Hence, stay patient and spend the time to engage in the conversations individually, do not set a deadline, and let the interactions grow organically and do not apply pressure until later in the conversations.
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29. Common Pitfalls in the Opening Game
Here are a list of antipatterns and pitfalls during the opening game when it comes to engaging with potential acquires
1. Not setting the team up for success by not setting clear expectations on communications, management, and roadmap while you are heads down working on M&A.
2. Not having done the homework when choosing the right contacts in the initial conversations.
3. Not preparing for the meetings.
4. Spending too many iterations on the NDA.
5. Not providing requested information or supporting documents in a timely fashion.
6. Being overly rigid in your vision for the future or how acquisition and integration should play out.
7. Being ambiguous or playing hard to get when asked about M&As from the potential acquirer.
8. Getting into the deal terms without sufficient discovery and information exchange.
9. Having unrealistic expectations on conversion rate between initial intro email to first meeting to second meeting.
10. Running a process prematurely.
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Part III: The Middle Game - Finding Calm in the Midst of Chaos
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30. The $$$ Expectation Alignment Conversation
The next conversation that the potential buyer would likely engage in is the expectation alignment meeting. Explicitly, the first thing on the list would be the considerations (cash vs stock), retention and potentially other incentives. Other items that could come up at this point if they are important to the buyer, can potentially kill the deal, or materially change the valuation or terms. One could be the work location if they expect you and your team to relocate in order to complete the deal.


Nevertheless, the main emphasis is on what would be the amount of money and/or stocks that would take you to sell the company. How should you answer your price? Let’s first understand the basics of a deal when it comes to considerations and retention. There are other more complex forms of payments, but most commonly they are purchase-price considerations and retention / stay bonuses :


1. Considerations


This is what you get at the close of the deal. This could be cash, stock or a blend of the two. If the acquiring company is private, the stock offered would be illiquid until a liquidation event like IPO or a M&A. Depending on when their last fundraising event was, the valuation could be stale and you also need to discount the value against the risk of a future liquidation event. Another thing to consider is, if you have raised capital in the past, there is a liquidation preference stack that needs to be adhered to if your company is bought. The preferred would get paid first and the common stocks only get paid after the preference stack is cleared. So model out the scenarios on how much money/stock you would actually get for different considerations.


Cash is almost always preferred as considerations for a M&A. The only exception to the rule is that if the acquiring company is a high-flying startup with private stocks coveted by investors and is not available to the public market, then it may make sense to pick private stock over cash. In such a case, the acquiring company may also ask you what your preference is when it comes to stock vs cash. As for blue chip publicly-traded companies, their stock is as good as cash, with the caveat of a lock-in period typically placed after an M&A so that the stocks could not all be immediately sold. So there is a discount to be put for the valuation based on stock-price.


Sometimes depending on the balance sheet of the acquiring company, they may not have the cash balance to complete a deal, and would try to maneuver a creative financing exercise like debt financing, promissory note, or a SAFE (Simple Agreement for Future Equity) in order to convince you to take the deal. These types of financing could get rather complicated quite quickly and could be disastrous for you as the seller. If the buyer brings up these topics at this conversation unsolicitedly, it goes to show that the buyer is in fact short in cash and your alarm bells should go off and try to vet whether you are better off staying independent or left holding the bag when the deal closes.


Finally, when a deal is complete, you will need to pay the lawyers, the bankers, any outstanding debt, and invoices as well. So be sure to factor those in when modeling your payout at closing as well.


2. Retention Bonus


One thing to note when it comes to the buyer when it comes to M&A is that they would much rather pay all of the money to the team retained for the acquisition, than paying a single dime to others who are on the cap table but would not be working for the acquirer, like the investors or ex-employees who had exercised their shares. The logic is simple, the buyer would like to use the least amount of resources possible for this transaction, and to them, the money is better spent to motivate and incentivize those who are kept in the transaction. Of course, no investor would agree to this and the deal would not pass a board vote. On the other hand, if there is no retention and the headline purchase price consideration does not clear the preference stack, the founders and employees get nothing from this deal, and while the investors may be happy to take this deal with a small loss, this would also not pass a board vote because the founders would not agree, and the employees would not agree to work for the acquiring company. So this is where the negotiation comes into place to ensure that all the parties are taken off in the transaction, and you need to find a sweet spot between the considerations and retention that all the parties are motivated to take the deal.


The buyer would typically offer a two to four year retention bonus for the team as a way to incentivize everyone involved to stay for the integration. The difference here is that retention will be treated as ordinary income and is subject to a higher tax withholding, compared to stock purchase at closing which would be considered as capital gain as long as the stocks were exercised and held for more than a year. 


There are instances that the buyer also pushes for a performance-based bonus structure, also known as earnout in the retention. This means the team would only get paid when certain sales or milestones are met. This needs to be avoided, not just because it’s unfriendly to the team, but understand that market change and strategies deviate, you as the founder would never want to have your incentives tied on some target set years ago when the company already abandoned the strategy and moved to something else.




So now that we’ve explained what considerations and retention are, how would you answer what your expectation is? Your answer to this question is largely a function of how much leverage you have in the negotiation. While buyer will scrutinize your balance sheet, your P&L, and past fundraising history, and potentially pencil in a valuation from their analysis, understand that everything in an M&A is an negotiation, and a deal cannot be completed unless you, your cofounders and your board agree on that price. Let’s take a look at how you answer the expectation question based on which scenario you are in, which dictates how much leverage you have.


1. Competing M&A Offers.


Simply tell the acquirer that you have competing offers in the market and they should put their best offer forward if they would like to acquire your company. Do not disclose who else you are talking to. Also do not tell them what the best offer is until they have provided a number themselves. If you give the number too early, you may end up leaving money on the table as the buyer may be willing to offer much more or send the wrong signal that the number you give is what it takes to close the deal. Do not get into negotiations just yet at this point even if they provide you with a number, if anything, you can thank them and tell them politely that you’ll discuss their proposal with the board and defer the negotiations at a later time. 


2. No Competing M&A Offers, But Have Investment Offers.


Similar to the first scenario, let the acquirer know that you have a pending fundraising offer and the purchase price would be a whole lot more expensive once you sign that term sheet. Politely ask them to put the best offer forward and you’ll discuss the proposal with your board. Again do not offer any numbers.


3. No Offers, But Comfortable to Continue Staying Independent.


Let the acquirer know that you are excited about the opportunity of working together, but at the same time, the company is doing very well. You are completely comfortable with running the company independently and have the full support from your board and your team. The acquirer would need to put together a really strong offer in order to be considered. I would again refrain from providing a number at this point. But if they insist and press you on a headline price, use the models that you used in the past and come up with a ceiling for a purchase price that you would be comfortable with if the final sale price is half of that initial quote. So say that your absolute minimum is $10 million for the cash price at closing and $6 million for retention, then tell them that you are looking for $20 million at close and $12 million for retention. Note that once you give the numbers, the actual payout will always be less or equal to what you quoted, regardless if the company all of a sudden achieved bigger milestones or landed new customers. So definitely think carefully before providing a number.


4. No Offers, No Desires to Stay Independent.


This is the case where you have no leverage, and would take any offer out there. But that is not true. Think about how much you would get paid in the open market, and the freedom to pick and choose your next job or endeavor. You can always put a price on that. In such a case, you tell the acquirer that you are absolutely ecstatic of the opportunity working together, and would be interested in what offer they had in mind. At the same time, you would want to make sure that the offer takes care of the team and keeps everyone motivated during the integration period, and is also a good outcome to the investors. And ask them to put together the best offer. And again, if pressed on giving a number, calculate the opportunity cost for you to work for the acquiring company for two to three years, and multiply that by two, and then work that out in the considerations or retention. 


Personally, I don’t believe it’s a good idea in this conversation to bluff and claim having offers when there are no offers or saying that you would stay independent when you have to wind-down. The acquirers are sophisticated, they will conduct more due diligence, and they will talk amongst competitors. And very rarely would a company buy another one just because they think there is competition. When deals don’t work out, and often they don’t anyway, you want to live to fight another day or potentially sell to the same buyer in the future when the right circumstances arise. Hence, it’s better to follow through this process truthfully, not all companies find a home, and that’s okay, but your reputation and integrity matter a whole lot more in the long run.
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31. Initial Due Diligence


Due diligence in various threads will likely happen simultaneously at this point. While you may have dedicated leaders handling each function inside the company, it’s best for you and cofounders to handle them yourselves instead of involving employees in the process. Or if you must, keep the privileged information circle as small as possible. Reason being, at this stage, the probability of a deal closing with this buyer is low, and getting employees involved too early may set the false expectation that a deal is imminent, which will be devastating for morale inevitably when the deal falters at a later stage or moves at a snail’s pace.


Another point on DD, answer every question asked truthfully. If there are things that you are unsure of, take it as an action item and provide the correct answer after you did your homework. Treat this as an exercise not for how much you know about things, but how seriously you take each question, and the acquirer will appreciate it when you say you don’t know and provide a precise answer later. This is a process of building rapport and trust between you and the acquirer. If there is no trust, there is no deal. In that vein, if there are changes to the company that could materially alter the deal terms, it is always better to proactively provide those updates rather than letting the acquirer find out themselves. 


Let’s take a look specifically at each area of due diligence. Your key point of contact (or internal champion who drives this deal) will likely attend all of these meetings, however, depending on her area of responsibility, she may ask other leaders to help drive some of these conversations that she doesn’t manage.


1. People
        
Attendees from Acquirer: Head of HR, People Managers
Materials Under Review: Cultural Docs, Cap Table, Roster, Org Chart, Past Performance Reviews, Leveling Guideline, Compensation History, Employment Contracts


Of all the due diligence, the people one is perhaps the most straightforward. Typically if the process already has gotten to this point, there is already a good rapport and some level of cultural fit between the two companies. Nevertheless, this is an opportunity for the acquirer to spot any red flags or potential personnel issues with the company. When asked about your culture or values, be sure to provide anecdotes that back them up. The acquirer HR will also walk through your roster and ask about each employee in detail. Questions could include what this person works on day-to-day, what is her domain expertise, how critical she is for the acquisition, and likelihood of her wanting to be part of the acquisition. At the end of the meeting, the acquiring company will make an overall determination on whether the team is a potential fit, what the reporting structure would look like, and finally a list of key employees to retain, those who will be given transitional contracts, and those who will not be part of the acquisition. The hope for you as the founder is always that everybody gets retained for the acquisition, this would be the ideal case. However, for any M&A, there inevitably will be positions that are redundant or unnecessary post acquisition. Some of the most likely positions to be eliminated are your internal HRs, marketers, and support team. On the other hand, top engineers, product leaders, or design talents that are difficult to hire for even in the open job market will be highly coveted in any acquisition.


2. Financial
Attendees from Acquirer: CFO, Analysts, Third-Party Accountant/Auditor (Optional)
Materials Under Review: Past 3-5 years of Balance Sheet, P&L, Cash Flow, Bank Statements, Credit Card Statements, Tax Returns, Future Financial Projections/Forecasts, Large Customer Contracts, Large Vendor Contracts, Debt Obligations


This is the least fun due diligence of them all. I have heard people comparing the financial DD to a cavity search. Depending on how keen the acquirer is, they may bring on a third party auditor to go through all your books and ask painstakingly about every expense you had in the last three to five years. This is where having clean budgets and balanced books in the past make a world of difference. If you have a CFO or bookkeeper, this would be the only instance where it’s advisable to include someone who is not a founder in the due diligence process. Again, when they get you on questions that you don’t remember or don’t know, take an action item and provide the answer after the meeting. Never lie, and never mislead, a deal cannot happen when there is no trust.


The acquiring company will likely ask your financial forecast for the coming quarters or year and you may be tempted to provide an optimistic figure in the hopes of getting a better deal. This would not be a wise move, as the process of closing the deal could take quarters if not a year. If you are unable to deliver on the promised forecasts, it would cast a bad light on the deal terms, and could even jeopardize the deal from closing. Hence, it’s best to give conservative estimates, and over deliver on them.


Based on this information, the acquirer will model out a projection of future revenue and expenses, and use that as one of the key levers for the considerations and retention. Nevertheless, as good as this math is, M&A is more emotional than it is rational, and the projections only serve as a reference.


3. Governance / Legal
Attendees from Acquirer: General Counsel
Materials Under Review: Company Bylaws, Litigations, Cap Table, Court Orders, Incorporation Documents, Board Meeting Minutes, Fundraising Docs, Other Legal Contracts


The exercise here is to ensure that your company is properly incorporated, under good governance and there are no outstanding litigations that could derail the deal.  


4. Product
Attendees from Acquirer: Product Executives, Design Executives
Materials Under Review: Access to Products, Metrics, Descriptive Materials, Roadmaps, User Interviews


Expect some white board sessions to talk product strategy, user personas, go-to-market, positioning, and integrations. Have an open-mind about what the rebranded version of your existing product may look like. The acquirer may completely scrap your brand and your logo, and instead erase everything on the internet about whether your company and your product ever existed. 


Part of the DD could also involve digging deep into your metrics and understanding any trends and how they affected your product decisions. You may receive critical feedback on your existing products and ask to provide justifications on the UI/UX or feature prioritizations. Do not get defensive on any decisions, provide your rationale on the product decisions and treat it as a discussion and feel out what working together in the future may look like. The acquirer is doing this exact exercise also to vet what it’s like to work with you.


5. Technology
Attendees from Acquirer: Engineering / Research Executives, Tech Leads
Materials Under Review: Access to Codebases, Engineering Dashboards, Technology Stacks, Descriptive Materials


Your CTO or VP of Engineering may be asked to present key technology stacks, engineering processes, upcoming roadmap and walk through code with the acquirer’s counterparts. The acquirer wants to go through your code and commit logs to vet the level of complexity of your codebase, as well as how robust the build and deployment process is, and at the same time how clean the codebase is, who are the key contributing engineers and how productive they are. Expect the conversation to be very technical, and the discussions could take a few meetings to complete depending on the scope the acquirer would like to cover. As you prepare for this meeting, think about how to answer the “why” with each engineering process, architecture or tradeoff you instituted. 


6. Miscellaneous


Depending on the specializations or certain quirks of your business, there could be other areas that are scrutinized during the due diligence process. For example, if your company has a business operation in China and generates significant revenue there, then this would likely be an area of due diligence carried out by the acquirer as it is unique to your business and may be the reason why they would like to acquire you.
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32. Key Employee Interviews


As part of the technical due diligence, the acquirer may ask to interview a few of your key employees, and in the extreme case, your entire roster. This is very common for acquihire scenarios as the acquiring company does not place any value on your existing set of products or technology, but solely cares about whether the team makes the cut in the technical interviews, which is a proxy for whether the team would be able to deliver on executing the planned product or feature post acquisition.


The level rigor of the technical interview is inversely proportional to how strategic the acquisition is. If the acquisition is a straight-up strategic buy, then the interview with the team will almost shift primarily to a cultural interview with no technical vetting. This is because the acquirer in this case typically wants to keep the product and strategy intact, and does not want to rock the boat in terms of letting technical personnel focus on the execution. 


Most of the times the interviews are done after the term sheet is signed or at least terms are agreed verbally in principle. If the acquire pushes for interviews, this is a great leverage to push for a term sheet. By getting the team to interview with the acquirer, you end up implicitly informing the whole company that a M&A is in progress. This is risky for morale, so you want to avoid that. If anything, limit the exposure to only a handful of key employees, and do the full company interview only after the termsheet is signed. 


So let’s break down the two aspects of the interview into technical and cultural below:


1. Technical


Depending on the leveling guideline of your company, the acquiring company would try to map the leveling of your PEDs (product managers, engineers, and designers) to their internal levels. In doing so, they would either have a full fledge interview like the one you would get if you are interviewing for a Google or Meta for the respective levels when it is an acquihire, or a watered-down version where they ensure that everyone is properly pegged and there are no red flags in the technical interviews.


Technical interviews are very different compared to day-to-day tasks, so it is important to take them seriously and get your key employees to prepare them well-in-advance. Do mock interviews with them where they need to whiteboard, code or design things from scratch. Sometimes people do fail these interviews, and it could have dire consequences at this stage of the process. Enough of your key engineers couldn’t code in real time for acquihire interviews, there will be no deal.


2. Cultural


For the cultural interviews, the acquirer cares mostly about whether the seller’s employees are culturally good fit post acquisition and if they are motivated to join the acquiring company. Some employees only like to work in a small company environment and have no desire of working for a big corporation. Your job is to make sure you prepare these folks and make sure there are no surprises during the actual interview.
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33. Surviving the Middle Game


At this point, the only thing that separates you between the middle game and the end game is an offer. As much work has been put into this transaction by both sides, a deal does not become real until the considerations and retention bonuses are aligned between you and the buyer. Some acquirers may be eager to get into the exclusive period by issuing you a term sheet right off the get go, while there are others that slog along and request for every single bit of information but are in no hurry to discuss the terms. Well, once the initial due diligence is complete, this becomes the checkpoint for a term sheet. Ideally, at this point you have run the process in parallel amongst multiple suitors, and they have all sufficiently done their due diligence so that all of them can issue their offers around the same time. You also want to avoid the situation where you end up getting no offers because you were hoping to get an offer from one of the slow moving acquirers that you end up declining other preemptive offers. So how do you get all the ducks in a role, here are some practical tips in dealing with each type of an acquirer:


1. Tech Giants


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.


2. Stragglers


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.
 
3. Lurkers


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.


4. Midsize Companies and Startups


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.


5. Exploitative Buyers


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.
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34. Staying in the Race


If running a startup is like a rollercoaster where the highs are really high and the lows are really low, running the M&A middle game is a rollercoaster ride on steroids. There will be days when you feel like you are crushing it with the buyer agreeing with you on all the due diligence meetings and they singing praises that this is a match made in heaven, while the following weeks when you get no email replies and no returned calls where all hope feels lost. 


I’ve been there, I know exactly how it feels. When we were engaging with a pre-IPO company for a potential M&A, every meeting felt great, and to say that our team killed the due diligence meetings would be an understatement. The acquiring company’s leaders as well as their technical experts were all thoroughly impressed by our customer-centricity, level of technical prowess, and our ability to execute. Nevertheless, for some reason, the replies were always weeks apart after every interaction. It has gotten so bad at one point where I personally could not fall asleep for more than ten minutes at night and would check my phone for emails because of the time zone difference. Food had no taste during that time. And when I was spending time with family, I would not be present, as my mind would be wandering elsewhere, overthinking and overanalyzing on what is the potential holdup. There were days I wanted to just show up at their headquarters, and confront our point person on what the hold up is. I would be happy for a couple days when he finally replied to our email with some superficial excuse that they are working hard on the deal, or they just needed one more sign-off before sending over the termsheet, but that day never came.


Now thinking back, I don’t know how I even made it through that period, but the following were some techniques that helped me to get through those dark moments.


1. Figure out a routine


Working out in the mornings and reading at night were my refuge that got me through the middle game. Given that the due diligence phase before the termsheet is very much a function of the progress made by the buyer, there were days when I felt that I accomplished absolutely nothing because there were no replies from the buyer after a promised update. Instead, I set a goal for myself to always complete a 10K run or a 100 lap pool swim in the mornings, and read a chapter of a book in the evenings. As trite as it may sound, these tiny milestones helped me psychologically as baseline accomplishments when otherwise no progress feels to be made.


2. Still allocate time each day to work on company products and technology


We started companies as founders because we wanted to work on interesting user problems, and work on interesting products and technology that serve these users. Being in an M&A does not mean that we can’t still work on them. In fact, it is absolutely critical to still spend time building because the M&A game can become all consuming and it’s easy to get burned out by the lack of control and progress. This was the mistake that I made initially, as I expected the M&A to complete within a quarter, and after half year of working on M&A decks and preparing for due diligence with nothing to show for, it led to massive shock to my identity and I was confronted with the reality that the company must remain independent in order to survive the winter of deal making. Instead, I should have still spent a good chunk of every day building products and technology, which was what I ended up doing after realizing that a deal was not imminent. This actually helped significantly to reorient myself and got some of the joy back in running the company after all. 


3. Lean on your cofounders


Oftentimes, the only person who knows and appreciates what you are going through is your cofounder during the M&A. You cannot talk to the employees about any of this, and your family members would be living saints if they can tolerate you giving updates on the ups and downs of an M&A for more than a week. So it is best to lean on your cofounders and talk regularly about how you are dealing with the stress of the M&A and other creative paths to slog along in the process. It’s moments like this where you need your cofounders. During our M&A phase, my cofounder Borui and I talked everyday, sometimes for hours, and sometimes for a few minutes, but at a minimum, we checked in and saw how each other was doing, and analyzed the latest situation. We are emotional beings, all of us are, and having partners that support each other during this difficult time is invaluable. There were numerous times when I was very close in sending out an email to a straggling buyer that I would for certain regret later when Borui talked me down. And there were also instances when Borui was losing his mind and second guessing on whether our eventual buyer was actually interested in doing the deal and wanted to confront the acquiring CEO and I had talked him down.


4. Find your support group


M&As are unique in that the experiences rarely transfer from one to another, so I actually did not find it helpful when talking to other founders who sold their company as their lessons did not apply to my case. Plus, these conversations are typically highly confidential, so for me, I did not divulge that I was going through a process even to the closest friends. This is where it was helpful for me to have bankers and advisors on my team, folks who have actually done these in the past. I feel that the main value added from our bankers was actually their therapy sessions as opposed to them helping us negotiating the deals and finding the buyers. If it weren’t for our bankers, I would have likely accepted the worst deal on the table early in the process. So be sure to find that support group or advisor for you. 
  
5. Know that failure is an option


This is probably the most difficult thing to accept as a founder, that the years of hard work and sacrifices may in fact not result in any financial return. Nevertheless, take solace in the fact that you learned so much in this process, and you will come out stronger on the other side. What I found helpful was that if I spent any time running calculations on what the payout should be in order to match the compensation I would have gotten had I worked in big tech, I became bitter and self-destructive. Instead, when I took on the perspective that look, the worst possible option is not finding a buyer or even winding down, it is not as scary as it sounds. There are plenty of opportunities out there for the next company or work in other tech companies. There is no shame in swinging for the fences and striking out. At least I took my shot and did everything I could.
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Part IV: Managing a Losing Position - What to Do When All Hope is Lost
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35. It’s Not You, Not Your Bankers, Not Your Board, It’s the Market
In mid August 2022, after close to a year of intense reach outs, due diligence meetings, and endless iterations of our M&A decks, it was evident that the bubbly M&A market we first saw in September 2021 was a thing of the past. Borui and I initially had five actionable inbound inquiries from five big tech companies, we were on friendly terms with *** and ***, as well as having existing partnerships with a number of Android OEMs, eventually all of them said no. What I previously anticipated as a quick one quarter sprint to find the buyer with the most attractive offer, turned out to be no offer. Well, that was not completely true. We had one offer from another private company that already raised significant capital but was struggling to grow and raise their next round. Their offer consisted of taking all of our assets, IPs and some team members in exchange for the lowest tier of common stock in their options pool. We would’ve been better off remaining independent or even returning our remaining cash balance to our investors. The investors would get a better payout, and the existing team members would have had better job prospects.
I went through the seven stages of grief over the span of half a year. After the shock of having no offers after a couple months of what I originally thought as extremely positive meetings with the inbounds as well as those that we reached expressing our desires to pursue M&A opportunities, it moved quickly to denial and anger. M&As were still happening up to mid 2022, but then everything dried up in the market. And then it was bargaining with anyone who had shown interest in the past or had done any form of due diligence with us, asking for any offer even if it was below the amount that the investors put in. I felt guilty that we went on this path, there were weeks of intense depression, and the final moment where I grudgingly accepted that this was the outcome at the current time. We had to continue to operate independently until the foreseeable future. There was no longer a market for our company.
Even to this day, I still carry some guilt in thinking that it was partly my fault that we could not find a buyer in 2022. Perhaps I did not speak up enough or be prepared enough during the initial meetings. Or I was too inflexible on what I thought the vision was for a joint venture, and ignored the signals from the other side in terms of what the acquirer was looking for. Nevertheless, this was the expensive tuition I had to pay for my first startup where inexperience definitely handicapped us in getting to a deal that could have been much better than the deal we had in 2025.
I also at times questioned if it was our bankers’ fault, where perhaps if we just interacted with the acquirers directly, the talks would be straight-up and there was no false sense of posturing or unrealistic expectations from our side.
I would blame the board on a number of things, but they have been nothing but supportive during the entire M&A process. They never had any expectations in terms of what the multiple must be in order for them to approve the deal.
The fact of the matter was, we not getting an offer was a direct function of the market at the time. The original thesis we had was doubling down on creator economy and the metaverse, but half way through the pandemic the market was shifting towards crypto and there was very little interest in what we had to sell. At the same time, companies are always bought, not sold. I had to accept the fact that as good as the company metrics we had, in order to sell, there had to be a buyer with an actionable offer. 
If you are in the midst of an avalanche of nos and a bunch of emails that never got replies for, take solace in the fact that this is completely normal for an M&A. In fact, even the best of companies with positive cash flows and deep technical expertise do not get offers. This is not a function of you, your company, or your banker. It is purely a function of the market at the current time. This however does not mean that the market will never come back, Take what you learned from the past conversations, and recalibrate on what kind of product or technology that actually got positive feedback. Go back to the drawing board, work on the next iteration of your product. As long as there is a path to profitability and you have the patience and persistence to make it out on the other side, a buyer will eventually emerge.
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36. There is No Shame Approaching Your Competitors
Perhaps the most gut-wrenching thing you could do when there are no offers but you still want to sell is to reach out to your most bitter competitor and seek for a potential consolidation. This should be the last resort, as engaging in a conversation with your competitor proactively would always put you in a spot where you have to share your metrics and some level of trade secrets that would benefit your competitor. Plus, they have no obligation to buy you even after you share all of these insights that normally they would have to pay top dollars for. Nevertheless, certain times the only way to find a M&A deal is to approach your rivals. 
Swallow your pride and understand that businesses can be bought or can be sold, there is no shame in two competitors joining forces, in fact, such deals happen all the time and some of the most successful companies were the byproducts of competitors consolidating (Paypal and X, Pixar and Disney, United Airlines and Continental, Exxon and Mobil, Sirius and XM, etc). However, because this will have to be an outbound reach out, expect your competitor to be keen to extract all the information you have, and if in fact there was a segment or product that they like to absorb into their portfolio, expect the initial offer to be a lot worse than what you normally get for even an acquihire type of deal. In fact, you will most likely get an all stock deal if the competitor is also privately held.
Nevertheless, it is commendable to find a home for your employees, and if the prospect of your competitor is much better than yours, or that of the joint venture has better prospects, your privately held options or stocks would have a better chance of liquidating in the future. While it is always more satisfying to beat your competitor than to join forces, sometimes it is the best option to combine as you get to consolidate and streamline duplicate functions, pool talent together, and lift pricing power. So before you pull the chords and call off the M&A effort, ask yourself, have you talked to all your competitors, and would there be an one plus one equals more than two situation if you joined forces with a bitter rival.
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37. Act 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 termsheet 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. 


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38. Managing Stakeholders When You Can’t Sell
There are mainly three classes of stakeholders you have to manage when you couldn’t find a buyer, they are the following ranked based on the order of importance, your cofounders, your board, and your employees.
The most important people to align on are your cofounders. Now is the time to get real and figure out what everyone’s personal situation and goals are. Everyone is in different life stages, perhaps you want to continue operating independently but your cofounder wants to cash out and do something else. The best thing to do here is be transparent and honest about what you want to accomplish and try to find alignment amongst the cofounders. In my situation, when we could not find a buyer in 2022, both Borui and I felt comfortable continuing running the business as we had positive cash flow and the team was excited about working on a new professional product. In 2024 however, when we were waiting on the eventual offer, both of us knew that if we couldn’t sell this time around, we were too emotionally scarred to continue on and would likely pursue other endeavors. The great thing was that we were in constant communications about our situations and goals during these difficult times, and it was great that we managed to figure out the alignment and work towards an endgame. There were heated discussions and debates, but things never got acrimonious and never spilled over to the team or the board. We each stated what we wanted and we reasoned and eventually aligned. I’m grateful that this relationship worked out between Borui and I. As I know, there were other founders who were not lucky when they went through the M&A process and even when things were going well, the cofounder relationship soured that blew up the deal or caused all types of damage, and I think the number one reason was because the cofounders were not transparent with each other, or could not resolve conflicts and find compromises. This would be the biggest and most important relationship you manage during the M&A, and especially when things turn tough.
Next, you have your board members who you have to manage, and they likely include your key investors. The bottom line is, if you have institutional investors, they have seen this game played out a hundred times and if there is no deal, they have already marked this investment as a loss and are just interested in recuperating their loss by taking back the existing cash balance of the company. If your company is burning cash and you have no M&A offers, you would be under a world of pressure to return any existing cash to your investors in order to maintain your reputation in the VC world, even if your investors do not have a majority. This would mean either buyout your investors and continue operating independently, or return the investor leftover cash and wind down the business. You could try fundraising or doing a recapitalization, but that would be an even tougher lift than doing an M&A now that you experienced M&A first hand. So your best leverage here when it comes to managing your investors is to try to turn your business to cash flow positive. Only if your company earns more money than it burns, would you have the right to continue building the business and retry the M&A market in a future date. So if your goal is to continue operating independently with the investors tagging along, then make the necessary cuts first.
Finally, it’s managing your team. Ideally, you have kept the circle of confidantes as small as possible, so that when you receive no acceptable offers, there is only a handful of key executives who would ask you what happened from the interviews or due diligence. Ideally, before they even get involved in any of the process, you already set proper expectations that a transaction is almost always an outlier event and the most likely scenario is the status quo of remaining independent. Nevertheless, there is always a greater likelihood of these key employees leaving if a deal does not materialize. Nevertheless, as the leader, your job is to rally the troops and lead in the mission with or without the M&A. Give them the confidence that the future is bright and greater things can still be accomplished without an acquisition offer. 
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39. What Not to Do
Here were some mistakes that I made personally when we were going through the M&A discovery process and ended up receiving no acceptable offers in 2022. These mistakes caused the company to waste valuable time and resources working on the wrong thing, key employees leaving, and a world of pain as a founder when all of it could be avoided. 
1. I spent full time on M&A-related tasks and detached myself from the company day-to-days, resulting in an identity crisis when no deal happened. Instead, I should have still regularly contributed to areas that were enjoyable to me when it comes to company building. 
2. We got too attached to the original thesis when the market signal is clear that it is no longer in fashion. Even though we have had a number of inbounds based on the original thesis, when the tide turned and the market was no longer interested in the creator economy thesis, we should have pivoted quickly, and gone back to the drawing board.
3. I was not being open-minded about what the joint venture would look like. Each acquirer had their own ideas on what the joint venture looked like, and there were instances when we were too insistent on our version of that future. For example, a company was looking to acquire us because of our expertise in building software tools, but we insisted that the future was all about community, which they were not interested at all and ended up passing up on us after a full due diligence.
4. We set up a carve-out bonus to the entire team prematurely in anticipation that a deal was imminent. We were really confident that we would be able to find a buyer before June 2023. When that date came and went and we had no acceptable offers, everyone was paid a one time bonus but also made aware that we could not find a buyer. This resulted in two key employees leaving voluntarily.
5. We told the whole team we were exploring M&A. This was the worst of mistakes. It gave everyone false expectations that we were going to be imminently bought for an insane amount of money. We actually had multiple employees who preemptively exercised their options anticipating that they would get better tax treatment from capital gain. The initial excitement for a week or two turned to anxiety and eventually despair. Every 1-1 with the employee was no longer about product building but ended up becoming I giving updates on the M&A. Also in a perverse way, it felt like the employees were no longer working for me but instead I was working for them. As soon as I told them that the company was going to be sold and the goal was to get everyone retained, certain employees got the notion that they became unfireable. So in any case, do not tell the employees that the company is for sale.
Here are a couple other mistakes based on anecdotes from other founder friends that you should avoid making.
1. I have heard countless stories of founders prematurely jumping into a term sheet without doing enough due diligence or properly discovering the market. What they did not realize is that term sheets are often non-binding and also exclusive. And instead of having done majority of the market discovery and due diligence, once a term sheet is signed, the potential buyer held all the cards, and oftentimes stopped responding to emails and purposely let the termsheet expire after doing some diligence and realizing that it was not a good fit. Instead, it would be much better to have alignment on the joint strategy, complete with all the necessary due diligence, and then jump into the termsheet, which improves the likelihood of the deal closing and also ensures that the maximum number of potential acquirers are involved in the process.
2. Rage quit when things weren’t going well. This is perhaps the worst thing a cofounder could do. It meant that the other cofounders or even the investors would have to step in and clean up the mess. This would be detrimental to one’s reputation and likely would result in the worst financial outcome. If anything, make sure the succession plans are all drawn out and think through this decision seriously before throwing in the towel.
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40. It’s Okay to Shut it All Down, But Do it On Your Own Terms
Startups should not be a trap, and by all means it is not a life sentence that you have to serve until your last dying breath. Sometimes the only option if no potential buyers are found and cash balance is low, is to shut down the company. There is no shame in that, in fact, most startups die. However, do it on your own terms.
What does that mean? Do not let the bank be the one shutting you down because you couldn’t make payroll. Do not let the board fire you because you couldn’t see the writing on the wall and wanted to run the company to the ground. Do not let your customer find out that you are out of business because your app or APIs all of sudden stopped working without prior warnings.
Instead, discuss this with your board and get a consensus. Check in with your lawyer on proper procedures if the goal is to shut down the business. Get the lawyers to draft a wind-down plan and thoroughly list out the action items. Inform your employees, your vendors and customers and what this means for them. 
This way, you still get to write your own eulogy and life still can go on after that. 
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Part V: The End Game - Execute, Execute, Execute
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41. Pre Term Sheet Negotiations with the Buyer


It’s been weeks with no replies after the latest request for information when due diligence feels like years ago. You are questioning whether the potential acquirer is still interested in putting down an offer. At last, you see a text message or email asking for your closest availability for a call or a face to face meeting. Now what is this all about?


Chances are, this scheduled call is to discuss the terms for an offer. It would be incredibly easy to pass on an acquisition via an email. In fact, I have been personally rejected probably a hundred times, and only one was a rejection via a phone call because the potential acquirer was asking for some metrics just hours ago. So if you made it this far into the game, and your point of contact is asking for a meeting, expect this to be a deal term discussion. 


At this point, you have already had the expectation alignment meeting, and the buyer has had an idea on what you are looking for, so it is time for them to show their cards. The conversation would go something like the following:


Acquirer: Exchange pleasantries, talking about vacations, weekend plans, etc for 3 mins, then jumping into business… Obviously we looked at this opportunity and the entire executive team is very excited about the prospect of working together. We would like to put an offer together.


You: Okay, great. 


Acquirer: We love the products, the team, and also we think it’s gonna be a great fit. But still, there are a bunch of risks still involved with the strategy and given there needs to be a lot of integration work, we will be eating a huge amount of capex and also increasing our opex with little upside in the beginning. Plus the market has been volatile and investor confidence is mixed on future prospects. Plus, there are risks that we discovered from the due diligence on your customer churns, technology defensibilities, flight risks of key employees, etc.


You: Okay.


Acquirer: We are thinking of doing an Asset Purchase given that there are a number of liabilities associated with the company that we don’t want to assume. 


You: Okay.


Acquirer. So here’s what we like to offer. For closing considerations, we are willing to pay $X in cash and $Y in stocks for the assets. As for retention, we are willing to offer $Z in cash and $W in stocks over a 3 year term for key employees.


That’s it. The actual conversation literally lasts five minutes, and now you have to figure out whether this is worth negotiating or reject outright. So let’s break down the key components. 


1. Deal Type


In a nutshell, there are three types of deal structures. Stock purchase, merger or asset purchase. Stock purchase is typically avoided on both sides as this would mean the acquirer company would go and purchase every single share that your company has ever issued at an agreed upon price. The problem with that approach is that any stockholder could potentially hold up the deal, whether it’s an investor that you are no longer on speaking terms with or a disgruntled ex-employee who holds very few shares. Instead, the ideal case is to push for a merger, where depending on where you incorporated, the threshold for approving the deal could only be the majority of the board along with more than 50% of the shareholder vote. In both scenarios, the acquiring company purchases the entire company. In both cases if it’s a full cash deal, then the proceeds would be considered capital gain, which has more favorable tax treatment depending on the holding period.


The last class is an asset purchase, where the acquirer picks and chooses which parts of the company they want to acquire, and which ones they don’t. The drawback of this type of purchase is that the proceeds paid for the assets are considered ordinary income, and are subject to corporate level taxes. And when the proceeds get distributed amongst the investors and the team, they are also considered as income, so it essentially becomes double taxed. Typically startups have R&D tax credits or carry losses that can write off some if not all of the proceeds, but the distribution to the team would get taxed as ordinary income regardless. 


If your company still holds significant cash in the balance sheet, it is imperative to clarify whether the company cash is also included in the deal with the acquirer. Your cash balance will make a material difference to the closing considerations. 


If you have gotten this far in the process, this is also where you need to get on the phone with your M&A lawyers and tax lawyers will help you a lot in navigating the complications of the potential transaction. The headline is to push for a merger from the acquirer as a seller.


2. Considerations


This topic was covered in the expectation alignment chapter. Again, fundamentally, this is what the acquiring company gives to your company at the close of the transaction. It could be cash, stocks, or a blend of the two. The main thing to consider here is alignment amongst your key stakeholders on the preference or blend of cash versus stocks. In most cases, cash is preferred over stocks but if you get acquired by a private company, they may not have much cash on their balance sheet. In certain scenarios, your investors actually prefer getting stocks over cash for a hot private company whose private stocks are difficult to access in the secondary market. It could also help your investor’s brand for their fundraising purposes when they present to potential LPs that they hold certain stocks in their portfolio. Or it could be the scenario where it’s more tax advantageous for the investors to take stocks than cash. Be sure to ask your board member investors explicitly what they prefer during the negotiations in order to minimize conflicts down the road when it comes to the actual vote of the final deal documents.


The other dynamic in play here is that the acquirer would want to maximize the incentives for you, your cofounders, and your team and not pay a dime to your investors or ex-employees on your cap table if they can get away with it. The reason is simple: to the acquirer, the value is all in the team that is absorbed to their company, there is no value from your investors or ex-employees. So, what they would potentially do is minimize the considerations and instead load put the main payout in the retention. 


This would put you and your investors in an adversarial position. Nevertheless, even if you have supervoting rights or hold a majority of the board, make sure the deal you get is fair for everyone involved. Silicon Valley is a small place, you never know the next time you’ll be starting a company and need to raise money again. Take care of your investors and value all the relationships you made.


3. Retention


Retention is a combination of cash and stocks that the founders and team would get spread out over typically a two to four year period. If it’s cash, it typically follows the structure of some amount payable at deal closing, and then evenly paid out on an annual basis until the conclusion of the retention period. And if it’s stocks, it typically has a one year cliff and then vests either on a monthly or yearly basis until the end of the retention period. 


And that’s all there is to it when it comes to an offer. Now here comes the difficult part of negotiating this offer with the acquirer. Now here are a few things to keep in mind:


1. Don’t negotiate at this meeting, instead, ask for clarifying questions, and make sure you write down all the key terms and considerations. Do not show any reactions even if it’s a really great offer or a super bad one. Simply ask all the clarifying questions and let your point of contact know that you discuss this with your board and get back to her. Also, do not just accept the offer on the spot, this type of decision will almost always require board approval.
2. Make sure you have a waterfall ready along with a precise set of revenues and expenses factored in so you know exactly how much each employee will get at closing from the considerations. Triple check these numbers as you don’t want the nasty surprise that any key stakeholder is getting significantly less than what she anticipated at the moment when you sign the term sheet.
3. This is one of the rare occasions that having bankers actually adds value as they take the role of negotiating. By this point, you could be already exhausted by the process and wanting to get a deal done to take a bad deal, or you could be having unrealistic expectations and pass up on a great deal. Having bankers who have done these negotiations in the past can serve as a buffer between you and your future employer, where there is no ill-feelings when the negotiations get contentious and potentially acrimonious. 
4. Your negotiation leverage is ultimately a function of how important your company is to the acquirer and if there are competing offers. Even if you do not have other acquirers in the mix, your runway, cashflow, quality of your product, expertise of your team and potential future fundraising prospects can serve as your leverage. 
5. M&A valuations are rarely based on sound math or robust calculations. You can take any spreadsheets made by an analyst and change one single cell and the final output would be off by a mile. Instead, valuations are based on emotion. So the best way to manage that is to have a bottom line for what you are willing to take, and be prepared to walk away if that number is not met. Of course, don’t just come up with any arbitrary number as your bottom line. Make sure you can provide some justification whether it’s opportunity cost, comparable transactions, or price of remaining independent.
6. Typically a term sheet does not need to be produced by the buyer until the deal type, considerations and retention are all agreed upon.There is no need to rush the buyer to put everything on paper, as having these terms on paper gives these numbers a certain level of legitimacy, and hurts your chances of negotiating for better terms. Instead focus on negotiating the key terms with the acquirer over the phone or face to face.
7. Understand that whatever numbers you end up agreeing with at this point, they will be the best possible outcome you could get when it comes to closing. As the deal progresses past the term sheet phase and more negotiations and diligence are done, typically the buyer would find and take discounts on any missed quarters, key employee departures, or other business events that put you in a weaker position.
8. A book that I found useful when it comes to negotiations in general is Chris Voss’s book “Never Split the Difference”. There are tactics in the book that could be helpful for your negotiations.
9. Keep your board in the loop during the entire negotiation process. Ultimately, they need to approve the deal. If there is any feedback from the board regarding the economics, make sure to get alignment quickly and then pass those expectations back to the acquirer in the negotiations.
10. Because the cap table waterfall governs how the proceeds will be distributed at closing, there is often no ambiguity on how that money or stock gets divided up, and typically the acquirer would have already had your waterfall at this point. You will realize that how retention bonus is dispersed amongst the founders and employees are not yet discussed, this will typically be negotiated after the termsheet is signed.
11. Finally, don’t short change yourself or your team when it comes to this negotiation. Presumably everyone has worked super hard to get to this point, and unless you have absolutely no options but to sell, hold your head up high and act as equals at the negotiation table to get the best possible deal for your team and investors. 


Now after rounds of negotiations, you and your acquirer have finally agreed on the deal structure, considerations and retentions, they are ready to send you the term sheet. Let’s look at how to study a term sheet in the next chapter.
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42. Term Sheet Received - Where to Go from Here


It is the moment that you have been waiting for, after weeks of negotiations and finally agreeing on the terms, an email from the acquirer with the term sheet in a word document. Let’s take a look at a sample term sheet.


1. How to Read a Term Sheet


Below is a sample term sheet that includes all the key terms you would expect in a term sheet. While some term sheets are dozens of pages long, things can typically be boiled down to something like the following.


Summary of Proposed Terms
Date: January 1st, 2030  


Acquirer:                Big Acquirer


Purchase Price:        Big Acquirer will acquire the assets (other than cash and cash equivalents) of Acquired Company for the following:


1. $1,000,000.00 in cash at the closing of the acquisition, payable to the target company
2. $2,000,000.00 of Big Acquirer’s common stock based on the latest 409A price issued as stock certificate to the target company at the closing of the acquisition
3. $1,000,000.00 in cash as management retention plan payable to the founders and key employees with the following schedule
   1. $200,000.00 paid at closing
   2. $200,000.00 paid at the first anniversary of closing
   3. $200,000.00 paid at the second anniversary of closing
   4. $200,000.00 paid at the third anniversary of closing
   5. $200,000.00 paid at the fourth anniversary of closing
4. $2,000,000.00 of Big Acquirer option grants to the key employees at closing, exercisable based on Big Acquirer’s latest 409A valuation as of the grant date.


Governing Law:        Delaware, USA


Conditions to Close:        This Summary of Proposed Terms, except as specifically provided below, is non-binding.  A closing of the acquisition would occur simultaneously with the signing of the transaction documents along with the following conditions:
* Satisfactory completion of remaining legal, accounting, business due diligence
* Review of technology and operations
* Big Acquirer’s determination that no material adverse change to the business, financial or prospects of the target company occurred
* Employment contracts with key employees


Transaction Docs:        The parties will negotiate in good faith mutually acceptable transaction documents. The transaction documents will contain the terms summarized herein and such other representations, warranties, covenants and other terms that are customary for transactions of this kind. The equity holders receiving considerations from the target company will indemnify Big Acquirer on customary terms.


Target Closing:        On or before 60 days from the date this document is executed.


Binding Terms:        The following terms shall be binding upon the Acquired Company upon its execution of this Summary of Proposed Terms: Acquired Company shall work in good faith expeditiously towards a closing on or before the target closing date specified above. Acquired Company and its subsidiaries will not for a period of 60 days from the date this Summary of Proposed Terms is accepted (the “Exclusivity Period”), take any action to solicit, initiate, encourage or assist the submission of any proposal, negotiation or offer from, or engage in negotiations or discussions with, any person or entity, or engage in any similar actions, relating in any way to the sale or issuance of any capital stock of Acquired Company or the acquisition, sale, lease, license or other disposition of Acquired Company. No press release or other public statement may be issued by Acquired Company, its subsidiaries or any of their respective employees, directors or stockholders relating to this Summary of Proposed Terms or the transactions contemplated hereby without the prior written consent of Big Acquirer.


The offer contained in this Summary of Proposed Terms expires on January 2nd, 2031.


This Summary of Proposed Terms is not a commitment to invest and non-binding on the parties hereto, except as provided above in “Binding Terms.”


Signature Blocks


In the term sheet, it will include the key terms previously negotiated which include the type of the deal, considerations and retention. A couple other things to call out in this document is that there is a binding section of exclusivity as well as information embargo placed upon you, while terms for the acquiring company are completely non-binding. 
Furthermore, the term sheet outlines expectations on the closing date, typically the same as the exclusive period. It also includes a set of closing conditions which are things that still need to be completed. It finally includes the transaction documents and provides expectations on what type of documents are needed to close the deal.


2. Things to Negotiate in a Term Sheet


Even though the key terms are agreed upon already, the term sheet now needs to be forwarded to your lawyers for review and redline any items that could be potentially problematic. For one, if your acquirer is not based in the US, the governing law for which the M&A adheres to would need to be aligned on. This may require you hiring lawyers in the geographic region where the acquiring company does business. 


Even though the term sheet is non-binding for the acquirer, there are binding terms for you as the seller. Most notably, there is a no-shop clause baked into the agreement. Expect this clause to be there unless the offer is not serious, it protects the buyer from doing all the diligence work only to find out that you will bolt midway through the process or take a better offer elsewhere. While you cannot negotiate the exclusivity, you could negotiate the exclusivity period down to say 30 to 45 days instead of the stand 60 depending on how much leverage you have. Having a shorter exclusivity period could actually hasten the final closing period which keeps everyone focused on the deal and the risk of deal fatigue if the closing drags out. 


Furthermore, there will likely be a set of closing conditions, where you should consult with your lawyer on the feasibility of meeting these conditions. Most of the time they are rather standard, but watch out for those terms that are beyond reasonable that are outside of your control. For instance, a buyer could impose a 100% retention of your customers before closing, which you should push back as such a request is unreasonable and having minor customer churn does not bring material difference to your business.


There is a sweet spot in terms of how much you should negotiate the term sheet with your potential acquirer. If the terms are clean and reasonable, then there are no issues with executing and moving on to the next phase of due diligence. However, if the terms are unreasonable and ambiguous, definitely push back as the negotiations done during the term sheet phase set the appropriate expectations for the final negotiations on the definitive agreement. If you come off as pushovers at this stage and accept key terms without contest, expect the definitive agreement negotiations to be lopsided where you or the company directors fronting all the risks and indemnifying for all liabilities. The goal is to arrive at somewhere that’s reasonable for both sides, and also set appropriate negotiation expectations as you move forward to the next step of diligence and finalizing the transaction documents.


At this point, negotiations on the term sheet should be handed off to your lawyers given that you have an experienced M&A counsel. They will be much better and more efficient at spotting potential landmines in the legalese with respect to reps and warranties, indemnification caps, and other critical terms. They will also be able to play the bad cops in negotiations while you maintain a good relationship with the buyers as ultimately you still have to work for the buyers once the deal closes. Finally, in the unlikely event that you do get litigated down the road by an existing shareholder, the plaintiff will almost always attack the process and conflict management. Having outside counsel steer the redlines builds a discoverable record that the board acted with due care independence, demonstrated reliance on expert advice, and unlikely negotiated in bad faith.


3. You Are Still Miles Away from the FInish Line


Now you are finally ready to sign on the dotted line, but little do you know that this momentous day in months if not years in the endless M&A preparations, meetings, and negotiations is only the clearing of the opening hurdle. You and the potential buyer have simply moved from courtship to actual audit phase, with the buyer having the right to walk away at any time. 


Now it is not unusual to close a deal in the targeted time frame if the deal is small, your board is aligned, and the transaction is not subject to regulatory or third-party approvals. Nevertheless, there is still a mountain load of work that needs to be done in order to close the deal. See table below for some of the big ticket items and why they can potentially drag on.


Remaining Task
	What Actually Happens
	Why It Can Drag On
	Confirmatory Due Diligence
	• Deep-dive into financials, tax, legal, IP, HR, technology, cyber, ESG, commercial contracts.
• Third-party quality-of-earnings (QoE) reports and technical code reviews.
• Site visits and key-employee interviews.
	Uncovers surprises (mis-booked revenue, IP gaps, pending litigation) that can reset price or kill the deal. Each new issue spawns follow-up digs and outside experts.
	Definitive Agreement Negotiation
	• Drafting the stock/asset purchase or merger agreement, plus disclosure schedules.
• Arm-wrestling over reps & warranties, indemnities, caps & baskets, escrow size, earn-outs or holdbacks.
	Every rep or indemnity dollar shifts risk. Lawyers redline for weeks; specialty insurance (RWI) may add another negotiation layer.
	Regulatory & Third-Party Approvals
	• Antitrust/Hart-Scott-Rodino, CFIUS, foreign-investment, sector regulators (FDA, FCC, FINRA).
• Shareholder votes (full vote vs. majority vs. board consent), lender consents, key-customer “change-of-control” waivers.
• 280G Approval
	Government timetables are outside everyone’s control. One competitor complaint can kick reviews into months-long investigations.
	Financing the Buyer
	• Buyer syndicates debt, lines up equity co-investors, or draws on credit facilities.
• Bridge-to-bond or private-equity capital calls.
	Turbulent markets make lenders skittish; terms can shift or dry up, forcing renegotiation or price chips.
	Tax & Structure Optimization
	• Decide between stock, asset, reverse triangular merger, F-reorg, etc.
• Model step-ups, NOL utilization, 280G “golden parachute” fix-ups.
	Requires tax counsel opinions, sometimes foreign rulings—adds iterations.
	Pre-Close Integration & HR Workstreams
	• Draft day-one org charts, retention packages, option rollovers, benefit plan transitions, work visa transfers.
• Data-room refreshes and employee-communications plans.
	Culture fit and retention become deal-breakers; renegotiating key-employee packages takes time.
	Closing Mechanics
	• Closing checklist, circulate officer certificates, wire instructions, FIRPTA forms.
	One missing certificate can push out the closing date
	

Work with your lawyers to list out all of the outstanding tasks and ask them for an estimate on the cost as well as schedule for each. As daunting as the next couple months look, experienced M&A lawyers have templates and playbooks for how to keep everything running on a tight schedule.
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43. Term Sheet Signed, Start of a Thousand Paper Cuts


Congratulations, you have signed the term sheet and entered into an exclusive no-shop period with the potential acquirer. You exchange pleasantries with your future boss and chat about how excited the shared future looks like. Everyone is optimistic for a fast close and looking forward to working on the joint roadmap and drafting a press release. Nevertheless, I can’t stress this enough, as you work with each respective party, the communication should be optimistically cautious that the deal could still potentially fall apart, and nothing is guaranteed until the money is wired to the bank. So brace yourself, this is the beginning of a thousand papercuts, and let’s first look at the interactions with the key stakeholders and how to work through them in the next phase of negotiations. 


1. Key Stakeholder Management


   1. Cofounders


Up to this point, chances are that your relationship with your cofounders are tight knit and encouraging as you have been all aligned on getting to a term sheet and seeing the company land. However, as soon as a term sheet is produced and signed, as all the key terms are in broad brush strokes, naturally questions come up amongst founders on how to divide up the payout, what types of roles are acceptable, and personal risks such as reps & warranties or non-compete that hit one founder harder than the other. Still, it is absolutely paramount that you and your cofounders are fully aligned and work in complete harmony to close the deal as any fragmentations or acrimony spilled over to the buyer can spook them and call off the deal. 


In the ideal case, the considerations clear the preference stacks by a mile, the result is a home-run outcome for the founders and early employees. The conversation becomes fairly easy between you and your cofounders. Liquidation follows through the cap table waterfall, you and your cofounders get paid accordingly. The retention at this point serves as an equalizer to incentivize those key employees who likely would cash out and leave on day 1 without enough retention rewards and those have little upside from the sale but are still critical to the integration. You and your cofounders simply need to align on who those employees are and make the recommendation to the buyer. 


The conversation with your cofounders gets very difficult when the headline price does not clear or barely clears the preference stack, meaning that the common stock holders are wiped out completely, and even the investors take a loss after the lawyers and bankers get paid. The only source of any compensation from this transaction for the founders now comes from the buyer retention pool and potentially a carve-out (which I will cover in the next section) from your board if they are nice. 


The cap table at this point plays virtually no role in the determination of how the retention pool is divided among founders and employees. In the eyes of the buyer, it is simply a function of the criticality of the domain knowledge of the retained employee and replacement cost. So even though a cofounder historically may have owned an outsized number of shares, if she does not serve a critical role to the integration, the buyer would not sign off on her getting the lion’s share of the retention bonus. Understand that the retention allocation needs to be approved by the acquirer almost all the time. In such a case, and I am well aware that each founder may feel that her contribution is more significant than the rest, I recommend proposing an even split among the founders for the retention pool to the acquirer, where the founders receive anywhere between 50% to 80% of the total retention, and the rest of the team receives the rest 50% to 20% depending on the size of the team. Bigger the team, bigger the allocation, and vice versa, smaller the team, smaller the retention. An even split between the founders spells out an united front when negotiating with the buyers as long as the alignment is that every founder is staying for the entire duration of the retention period. This leaves nobody’s ego bruised and also indicates that every founder pulls her own weight in the acquisition. 


Again, in this negotiation, understand that your biggest allies for this entire transaction are going to be your cofounders. In the same token, if anybody could destroy the deal, it would also be your cofounders. As difficult as it may be, put the needs of your cofounders as high as your own needs, compromise and come up with an outcome that everybody feels good about. Chances are, this won’t be your first company together, and you will call upon your cofounders in the future. 


   2. Board of Directors


Before signing the termsheet, it is customary for you to send over the final redlined version to your board to approve. This is not required because the term sheet is non-binding, but it is critical to have alignment with your board throughout this process. Your board of directors likely will have your lead investors, where they have a fiduciary duty where they need to act in the best interest of the company and its shareholders. During a M&A, this means overseeing a due process of discovery and finding the best possible deal, and also ensuring that all the necessary counsel and precautions are made. 


There are two sources of potential conflicts at this point with your board. Firstly, it is the allocation of considerations versus retention. In the eyes of the buyer, they would much prefer a deal where not a single cent is paid out to the investors or ex-employees on the cap table, and all the cash spent is on the team that is retained to be incentivized for a successful integration. Of course, this is a conflict of the fiduciary duty, as shareholders include investors as well as those who are no longer working at the company. Again, this is less likely an area of contention if the considerations are significantly more than the preference stack, and everyone is swimming in the upside. There could still potentially be board members who expect an outsized return on investment, and have veto rights that can potentially block the deal. In such a case, the work should have been done at the beginning to set alignment on expectations so that there are no surprises at this point. In the case where the consideration barely or does not clear the preference stack, an interesting balancing act needs to be made so that a fair deal can be done so that the investors still get some returns and the team still feel motivated to complete the deal. Imagine a scenario where the upside for the team is zero and all the money is paid out to the preferred shareholders, in this case, the founders would not sign off on the deal as the opportunity cost of joining the acquirer would be greater than just seeking employment in the job market or starting a new company. Experienced board members would instead offer a management carveout, that ranges in the 5-10% of the total proceeds the investor would receive, and offer that to the founders and key employees as extra motivation to ride out the deal. How this money is divided is largely a discretion of the founders. My advice here is similar to the last section where you treat others the way you want to be treated. Moreover, if a management carve-out is offered by your board, this information needs to be disclosed to the acquirer. The additional incentives will need to be voted by the board members, and would also affect the 280G analysis. There is also the potential issue of an escrow, where some percentage of the proceeds may be put aside to cover any unforeseen lawsuits or expenses post M&A. The size of the escrow directly affects how much distribution investors get at deal close. In the ideal case, they all want everything all at once, but the buyer may insist on having an escrow to protect the buy-side from any potential risks. This would be another area to account for and align with your board on how much money to set aside.


The second biggest piece of contention, and perhaps matters a lot more to the directors, is the cap on indemnifications and reps and warranties. When a company is sold, typically the board dissolves, and the board members want to move on with their lives. The last thing they want is an unlimited cap on indemnifications that a future lawsuit wipes out any of the upside plus some. So in such cases, your board would not sign off on any deals with these types of terms and it is critical to have your lawyers flag anything that potentially puts your board members at risk in the definitive agreement. This would also mean that you and your cofounders may have to front some of the risks personally when it comes to indemnifications as well as reps and warranties. Do not be surprised if your retention bonuses are used to backstop any future lawsuits so that your investors are off the hook from these litigations. 


Aside from these two areas, typically the board members are fairly empathetic of the M&A as long as you ran a clean process and they were all informed along the way. Nevertheless, you want to make sure there is unanimous board approval on the actual deal terms. While only a majority is needed to pass a resolution, having even one board member dissent could lead to litigation risks and the buyer having low confidence that the deal can get through, in fact sometimes buyers put unanimous board approval into the closing condition to limit their exposure to such risks. Having dissenting board members could also mean that critical deal information may get leaked, or they go rogue completely and try to sabotage the deal. Hence, be sure to spend the time to meet each board member individually and understand their needs. This way you will not have any surprises when it comes time for the actual vote. Be sure to start providing weekly email updates to your board at this point and keep them informed on the latest progress leading up to close. Next let’s take a look at those investors who are not on the board.


   3. Outside Investors


Depending on how many outside investors you onboarded throughout the lifetime of the company, if the number is large, then most of them will not get a board seat or even an observer seat and have very little visibility in the M&A process. If you have not informed them on the potential exit, now would be the time to do so. Failure to inform them any later could cause a hold up during the actual shareholder approval process, or even lead to litigations if these outside investors feel that the board did not fulfill their fiduciary duty in finding the best possible deal for the shareholders. To approve a M&A (not a share purchase), typically as there is one vote per share, only fifty percent of the shares need to vote yes in order to approve the deal. The main thing that these investors would care about is again what the waterfall looks like with the agreed upon headline considerations. In other words, what would they get at close, cash or stocks, and how much they would get.


Typically non-board member investors behave in two distinct ways when it comes to M&A. The vast majority of institutional investors in Silicon Valley vote in the same direction as the lead investors who are typically board members, and they either led the last round of financing or owned the majority of shares outside of founders. The reason is quite simple, institutional investors are friends and share a very tight network, it’s not uncommon for partners to switch firms or start their own funds, being a naysayer in a deal when the lead investor already approved the deal could signal the dissenter as difficult to work with and hurt access to future co-investment opportunities. If you took investment from institutional investors on Sand Hill Road, chances are, the work is already done as soon as the lead investors are onboard with the transaction.


However, there is the other class of non-institutional investors who could be your family offices, internet celebrities, early advisors, rich uncles, wealthy friends who do not have large ownerships of the company but still hold preferred shares. Typically these investors do not follow the unwritten customary rules of Silicon Valley, and could be a potential holdout for the deal for a number of reasons. For one, they may not be as responsive as institutional investors, so you may not even get their signatures in time if you would like to have a fast close. And if they do have an issue with the transaction, most likely it would be because they hold unrealistic expectations on what the return multiple should be. This is where having good prior investor relations can be super helpful, where even the smallest investors are in the loop with company financials and latest strategies and initiatives. In any case, if you do find yourself in a pickle where an investor of this class is not replying to your emails, dragging their feet, or flat out belligerent with the top line deal terms, first analyze if you have the necessary votes to pass the deal. If so, then be as courteous as you can and that you will try to address any concerns that they may have, but also make it clear that this deal already has the necessary votes and that unless other major shareholders are on board, do not have expectations that what they ask for will be agreed upon by the buyer or the board. In the case that you do need their votes to approve the deal, then you will need to make sure that the demands by this rogue investor are met either by renegotiating the terms with the buyer and the board. Simultaneously, reach out to your lead investors for help to provide additional context or help mend the relationship. Sometimes having the same news delivered by a fellow investor instead of a founder is easier to swallow. In any case, given that the deal is not closing imminently, you still have time to get everybody on board, and be sure to spend the time to meet, explain and align with all your investors on the upcoming transaction. You want to make sure that everyone will sign the definitive agreement a couple months when the deal is about to close.


There is also the issue of 280G analysis down the road if you and your cofounders and key executives receive compensation or incentives from the transactions that significantly exceeds the typical pay, where the compensation package would then be put under a vote by all shareholders excluding those who would be receiving such pay packages. Guess what, this means those investors who were holding out the deal in the first place could potentially block the vote once again. A failure to pass the 280G vote means an additional 20% excise tax for all the recipients. I will talk more about 280G in a later chapter, but the point again is, be sure to be on good terms with all your shareholders as dissenters could indeed do serious damage to the deal. 


   4. Shareholders with Significant Ownership


There is a class of shareholders who hold common stocks that account for more than 1% of the company who are neither investors nor employees. Most likely they would be your ex-cofounders or ex-employees who have left the company. While it is unlikely that their shares could sway the shareholder vote one way or another, their vote could in fact be the deciding vote when it comes to the 280G. Ideally the deal clears the preference stack and these shareholders also have some upside and it’s less likely they would turn adversarial in the vote. Still, now would be the time to do a tally from the cap table and figure out if there could be a potential issue with any of the upcoming votes, and proactively reach out to those individuals and give them the lay of the land and answer any question they may have on the upcoming potential transaction. 


   5. Other Shareholders on the Cap Table


No communication needs to be done to folks in this category at this point. They will find out about the deal during the final approval process.


   6. Employees


As much as you would like to share the news with your employees, I would again advise you to hold off this communication until the deal becomes a certainty. Your employees do not have half the context that you have on the M&A and will not be able to stomach a failed deal as well as you do, and you do not want all your subsequent interactions with them to always be on the topic of M&A. Plus, the term sheet may even forbid you from discussing the existence of the term sheet with anyone outside of your board, officers, lawyers, bankers and accountants. 


If you must, any communications that involve the potential buyer should be on a need-to-know basis and only in the context that’s necessary for the due diligence. For instance, if a confirmatory due diligence needs to be done in engineering that requires key engineers to be present, have them sign an NDA and then loop them in with only what’s needed for the meeting. Something along the lines of company X is looking to do some deep integration with us, and would like to run a technical review on the area that you are responsible for. That’s it, no need to talk about anything else. If they ask follow up questions, simply tell them that you can’t tell them much at this point. 


   7. Bankers


If you have the luxury of being able to afford bankers, they should have done the heavy lifting of getting the term sheet, and will help you greatly with navigating the rest of the process and get the deal to a close. However, understand that the incentives are not always aligned between you and the bankers. Your objective function is to find the best place to spend the next few years at least to work on a joint venture, grow your business together, and develop your career. This would mean potentially negotiating hard on titles, areas of responsibility, or even walking away from a deal if the vision lacks alignment. Your bankers on the other hand, are mainly driven by the financial incentives of closing the deal at the best possible headline price and retention bonus with the least amount of risk. Thus, they would also be significantly more risk-averse than you are when it comes to negotiating for terms that could potentially jeopardize the deal, not work as hard as you want them to when it comes to haggling over terms outside of retentions and considerations, and would even nudge you to take a safe deal as opposed to pressing on with an ultimatum of demands to the buyer threatening walking away if it is not met. 


Luckily, the bankers we hired were not these types of nonscrupulous hustlers, but many founders aren’t as fortunate. So the best thing to do here is to set clear expectations with your bankers on what you are looking for in the deal. Also understand that they are working for you, and no deal is done without you agreeing. Keep a close pulse with your point of contact from the acquirer, and don’t be afraid to step in to steer your bankers even though they may still be doing the negotiations on your behalf.


   8. Lawyers


Whenever a company goes through a M&A, especially when representing the sell side, the lawyers get to have a field day. Given that this is likely the last invoice that your lawyers will bill you, expect their team of partners and associates to step in and bill you hours for reviewing anything and everything with respect to the lifetime of the company. Majority of the work will be done by the acquiring counsel in terms of providing the initial draft of the definitive agreement, requests for various disclosures, as well as managing the closing process. Nevertheless, your lawyers will need to step in to redline and negotiate on the company’s behalf for any draft documents, prepare the final disclosures, and manage the close process from your end like getting board and stockholder approvals, and running the 280G analysis. 


The biggest potential money drain is in preparation of the disclosures, where you should align with the buyer on a tight list of items to disclose that is material to the transaction. That could include your key customer contracts, critical intellectual properties, employment contracts, legal documents, and tax filings. Things that may not be material could include vendor contracts that are below $10,000 a year, open source software usage, or existing employee health insurance plans. Reason being, all of these documents will be read through by the lawyers on both sides, and this could easily turn into an endless discovery process where the lawyers flag random items that require further clarifications or supporting documents. Don’t let them play this game with you, each email exchange along with additional disclosure schedules they draft will be billed as hours.


Another potential money drain is overly zealous lawyers being aggressive with terms in the final agreement. While it’s helpful to have a strong and knowledgeable legal presence, you have to set the expectations on materiality with respect to only negotiating on terms that matter. 


Finally here are some techniques to help you stay on budget. For one, not everything needs to go through your lawyers. Reviewing of new employment contracts from the buyer, preparations of the disclosure schedules, even negotiating of the key terms can all be done by you. The lawyers sometimes are only needed to put the final language in legal terms. At the same time, set a budget and review the billable hours on a regular basis. If at any time you feel like the lawyers are spinning the wheels and not making enough progress, bring the matter directly with the buyer, and drive alignment first and have the lawyers put it on paper. 


2. Final Interviews


The buyer may require a final round of interviews with some or all of your employees before deal closing. If no team interviews have been conducted yet up to this point, then please refer back to the Key Employee Interviews chapter on how to prepare your team for the interview. If interviews and technical due diligence has already been completed, then this round of interview mainly serves the purposes of cultural fit and retention assessment. This also means that you will now need to disclose to those who are being interviewed that there is a potential offer in place for the company. Of course, manage expectations to your employees and tell them that there are still a number of big ticket items to be completed, and there is no guarantee that the deal will close even if everyone aces the interview.


The acquiring executive or HR will ask whether your employee is excited to join the acquiring company, and may implicitly get this information by asking how much they already know about the company and what they think a joint strategy would look like. Your employees may also get asked what their day-to-day function looks like, and assess how critical they are for the acquisition. Certain roles may get eliminated based on redundancies, lack of impact, and cost constraints. 


It is still critical to prepare your team and potentially run mock interviews. Ideally you have a great culture and everyone is super aligned. Nevertheless, you may still have disgruntled, unmotivated, or even underqualified employees who should not be part of the interview process. It is best to terminate those relationships early on as having them strung along in the process could have catastrophic damages to the deal. Imagine what your acquirer will think if your star engineer told them in the interview that she hates working for you, or has no desire to work for the acquiring company, or has not written any code for the last year. The deal could be killed from a single bad interview.


It is rather bizarre, but some employees do start to act out-of-characterly upon finding out that the company is going through an M&A. People don’t really know how to react when they are faced with the potential of either making a lot of money, or being laid off because they don’t get to be retained by the acquirer. That’s why it is always better to communicate this to the team when the context is clear and the decision is already made. For the employees who are in the privileged circle who you had to share the news with, then you have to spend extra effort and attention to manage their day-to-days and also ensure that you provide them ample opportunities to ask questions and talk through their concerns.


3. Confirmatory Due Diligence


At this point, the acquiring lawyers will be deep in your data room, HR combing through your past performance reviews and internal docs, accountants scrutinizing over your bank statements and budget for the last three years, and senior engineers reading through your code base. You should already have done some level of due diligence, but if not, please refer back to the chapter on Initial Due Diligence. 


In addition to what was discussed in the earlier chapter, if you have weekly check-ins scheduled with your main point person from the acquiring company, expect such meetings to be effectively due diligence calls where various members of the acquirer team get looped in and ask you questions on different aspects of the business. They could be as trivial as what is a line item from your credit card balance a year ago, whether an ex-employee has returned their company equipment, or why a certain software library is used over another. Other times, the questions could be a lot trickier and require much thought and deliberations. For example, they may also ask you what is the likelihood of a major customer renewing their existing contract, for such a case, it is always prudent to be conservative and provide the worst case projections. The reason you don’t want to be overly optimistic is your retention bonus could be tied directly with projections. This would be disastrous as changes in the company direction post-acquisition could result in this revenue target no longer being a priority, and thus retention bonus that you thought you would get never being paid out. At the same time, it is also not a good idea to sandbag or cast overly pessimistic projections for future earnings. Such posturing could spook the acquirer and lead to loss in confidence for the acquisition.


As frustrating as this process is, understand that all the necessary questions need to be asked by the acquirer in order for the sponsor of the deal to fulfill her duty to her direct manager. Very often the case is that the CEO is actually the sponsor of the deal and she has a fiduciary duty to her board and shareholders that requires her to demonstrate rigorous oversight, eliminate any potential blind spots, and ensure full accountability to stakeholders. Remember, she has personally championed this deal and needs to justify it meticulously, knowing her own reputation and credibility within her organization are directly at stake. Consequently, the buyer's team might seem excessively cautious, even paranoid, as they probe for red flags and hidden risks. They're attempting to uncover anything that could later cause embarrassment, financial loss, or operational disruption. While the barrage of questions may feel exhausting or overly intrusive, it's rarely personal—rather, it's a reflection of the buyer's internal pressures and the high stakes involved. Recognizing this context can help you stay patient, transparent, and constructive during what is inherently a challenging phase of the deal process.


4. Disclosure Schedules
Providing disclosure schedules to the buyer during an M&A transaction is a nuanced task with multiple areas requiring careful attention. A critical starting point is establishing clear alignment with the buyer on which types of disclosures are truly material to the transaction. Without this clarity, legal teams may unnecessarily expand the scope, leading to bloated documentation and potentially extending the due diligence timeline. It is crucial to manage lawyer input proactively to ensure disclosures remain focused, relevant, and manageable.
Precision and honesty are paramount. Each statement in the disclosure schedules should be meticulously verified and triple-checked for accuracy. Errors, omissions, or ambiguous statements can become significant liabilities down the line, potentially triggering disputes or even litigation. Be especially cautious with detailed disclosures such as consulting agreements, employee compensation agreements, vendor contracts, and software licenses, as inaccuracies in these areas can result in substantial post-transaction issues.
Watch out for subtle "gotchas" like ensuring clarity on notice periods or first right of refusal when it comes to liquidation or change of ownership. Certain enterprise contracts give customers the right to terminate unilaterally if there is a change of ownership, or the right to put an offer in place for an acquisition. Additionally, special attention must be given to contracts needing assignment or consent from third parties, as these can often introduce unforeseen complexities.
Lastly, intellectual property and data security disclosures require particular vigilance. Explicitly highlight any dependencies on third-party datasets, models, or tools, including clarifying license terms, commercial limitations, and potential replacement costs. Similarly, gaps in formal data privacy practices—such as the absence of internal security policies or regular audits—must be transparently communicated to avoid future compliance disputes or penalties.
In sum, disciplined management of disclosure schedules—with clear buyer alignment, precise communication, and thorough review—is essential to protecting the integrity of the transaction and ensuring a smoother path toward successful completion.
5. The “Oh Crap” Moment
Proactive and explicit communication is critically important when unfavorable business developments occur during the M&A closing period. Issues such as losing key customers, significant employee departures, lawsuits, or material contract terminations can significantly affect the transaction's terms or even its viability. Rather than burying such developments within dense disclosure schedules, it is always best to communicate these developments clearly and immediately to the buyer. This openness builds trust, maintains goodwill, and can often help mitigate potential adjustments or even termination of the deal.
In my own experience at Polarr, I faced this scenario firsthand during our acquisition by our eventual acquirer. Upon signing the term sheet, there was a closing condition stipulating that no material adverse change to our business would occur. However, about a couple months thereafter, I received termination notices not from one but two of our largest enterprise customers, OPPO and Samsung, collectively responsible for nearly a quarter of our entire revenue. This news was particularly unsettling because of the potential implications for the transaction. Fortunately, this segment was not central to our future strategy, and we had been transparent from the start that this enterprise licensing business would eventually diminish, though the timing was unexpectedly bad plus the two seemingly independent catastrophic events happened simultaneously.
Delivering this news to the acquiring founders was extremely challenging, but my cofounder Borui and I made the conscious choice to be proactive, honest, and explicit. Alongside communicating the losses clearly, we also presented mitigation strategies. This transparency reinforced the trust we'd cultivated with the acquiring company and allowed them to confidently proceed without altering the original deal terms. Despite this positive outcome, the stress of potentially jeopardizing the acquisition highlighted just how pivotal transparency can be during this sensitive period.
Honesty and proactive communication are always the best choices in such situations because they significantly reduce the buyer’s perception of risk and uncertainty. Buyers naturally expect some degree of turbulence during the acquisition process, and their confidence in your integrity can often carry more weight than the immediate financial impact of negative news. In contrast, discovering hidden problems independently through diligence can severely damage the buyer's trust, possibly causing them to renegotiate terms aggressively or abandon the deal altogether. Being forthcoming not only demonstrates your good faith but also positions you as a reliable partner, laying a stronger foundation for post-acquisition collaboration and integration.
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44. More Negotiations with the Buyer
Even though the headline acquisition considerations and retention are already agreed upon, at this stage, the acquiring company will typically propose their own versions of retention bonus allocations, new compensation packages, titles, and the post-acquisition organizational structure based on interviews and HR-related due diligence. As the founder and seller, it's crucial to be proactive and strategic in navigating these final negotiations.
1. Consideration and Retention Allocations
From experience, I've found it's advantageous to preemptively propose your own retention allocation plan to the buyer. Offering a well-thought-out draft based on the criticality of team members to integration and the future roadmap—rather than simply basing allocations on seniority—can serve as a strong foundation for further discussions. Make sure that retention payout as well as stock option schedules are structured evenly across the integration timeline, avoiding scenarios where team members might feel incentivized to leave prematurely or feel unfairly compensated if payouts are delayed too far into the future. Also avoid the situation where the founders get the overwhelming majority of the retention bonus, as this is often a function of the team’s criticality to a successful integration and its size. Make sure to do ample research and talk to your bankers or advisors what a reasonable allocation should look like for your situation. An allocation that is skewed towards founders could lead to diminished trust from the buyer that the founders are greedy and also potential key contributors leaving from the perceived unfairness. In the worst case, a buyer could call off the deal.
Send over a spreadsheet of your entire roster along with their titles, areas of responsibility, current salary, and proposed retention bonus breakdown to the acquirer. Add a notes column that provides the justifications for why each person is getting what they are getting. Then schedule a meeting to walk through the spreadsheet together. Throughout this negotiation, understand that the goal of the acquirer is to ensure that all the key stakeholders are appropriately incentivized and ensure that they stay for the entire retention period.
2. Compensations
Surprisingly, rather than immediate raises post-acquisition, acquiring companies may initially suggest pay cuts for certain employees or executives. The reason could be a number of things, but most likely it is because your existing salaries may be out of band compared to the acquiring company’s internal payband, and this is especially true if the acquiring company is outside of Silicon Valley. It is essential not to take these proposals personally. Instead, calmly provide clear justifications for the current compensation rates of your team. Remember, every detail in this negotiation is open for discussion. Rather than accepting base salary cuts, propose a modest increase in base salary balanced by a slight reduction in retention bonuses. Psychologically, this approach often feels more palatable and respectful to your employees.
3. Titles
Acquiring companies are usually conservative in assigning titles to new employees, often down-leveling roles to maintain parity with their existing staff or as a reflection of interview performance. But understand this, being acquired and getting a return for all your stakeholders is the best title you will ever get in the startup business, so personally, I would not go to war if your title was previously CEO and post acquisition it is reduced to a general manager. There are rarely two CEOs in a company, and even rarer when the acquired company CEO steps in as the new CEO right away. However, if you genuinely believe in the potential of the acquiring company and foresee yourself or your team staying beyond the retention period, it can be beneficial to advocate for larger roles or more senior titles to better capture future upside and opportunities for advancement.
4. Team Reorganizations
You should anticipate that the acquiring company will propose headcount reductions as part of team reorganizations. It's crucial to carefully evaluate and push back against proposed reductions if they could negatively impact business outcomes or integration goals. There will inevitably be roles that are redundant, but perhaps there are other areas in the acquiring company that could use the extra headcount, and you should do everything you can to explore those avenues. Communications regarding employee departures should not happen during the negotiation phase but should be strategically timed for the closing. Disclosing personnel changes before closing could lead to morale setbacks of the entire team, as key employees may even feel the need to preemptively leave in anticipation that they may be let go.
5. Other HR Related Negotiation Topics
This phase is likely your final chance to leverage additional benefits or considerations. Beyond standard negotiation items, also discuss remote work policies, comprehensive benefits alignment, or specific personal needs or situations (ex. Work visas, planned vacations, maternity leaves, etc) for key employees, especially those critical for integration. This is your opportunity to negotiate improved terms on employee benefits coverage, or additional resources needed for the team's smooth transition.

In summary, while the headline terms may already be agreed upon, these detailed final negotiations significantly influence employee satisfaction, successful integration, and long-term outcomes for your business. Proactively engaging with the acquiring company, clearly communicating your rationale, and maintaining a collaborative yet assertive approach will help ensure a successful and beneficial outcome for all parties involved.
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45. 280G Analysis
One of the less glamorous, yet crucial aspects of selling your startup is navigating the complexities of a 280G analysis. Section 280G of the IRS tax code addresses payments made to executives (including founders) in connection with a change of control, such as an acquisition. These payments—often including severance packages, retention bonuses, or accelerated vesting of equity—are scrutinized to ensure they are not considered excessive, also known as "golden parachutes". This process should commence as soon as the compensation packages are agreed upon.
Why Does 280G Matter?
From your perspective as a founder, understanding the implications of 280G is essential because failing to properly address it can lead to significant tax consequences, including a punitive 20% excise tax imposed on the recipients and loss of tax deductions for the acquiring company. This creates a strong incentive for both parties to ensure compliance. 
Key Components of 280G Analysis
* Calculating the Threshold:
The threshold for determining excessive payments is three times the individual's average annual compensation over the past five years. Any payments exceeding this amount are at risk of triggering the excise tax.

* Considerations and Retentions:
 The specific terms and components of the compensation packages negotiated during the deal—including retention bonuses, severance payments, and equity acceleration—are critical. Every detail matters, as minor adjustments can significantly impact the outcome of the 280G analysis.

* Shareholder Vote Requirement:
 Payments determined to exceed the threshold can avoid the harsh penalties if approved by shareholders. However, there's a catch: only shareholders who are not recipients of the compensation being voted on can participate in the vote. This means that founders and other key executives typically cannot vote to approve their own compensation packages.

Ensuring a Smooth Approval Process
Because the approval requires an affirmative vote from at least 75% of disinterested shareholders, it is crucial to maintain open, transparent relationships with your key stakeholders—particularly your lead investors. The good news is that votes typically align with the recommendations of the lead investors. Historically, rejections of these compensation packages are rare, provided relationships with stakeholders are strong and communication is clear.
Nonetheless, delays in this approval process can significantly hold up the deal's closing timeline. To avoid this, initiate the 280G analysis and shareholder approval process as soon as the terms of the compensation packages are finalized. Proactivity in this stage demonstrates diligence to both investors and acquirers, reassuring them that you're well-prepared and organized.
Main Takeaways for Founders:
   1. Understand Early: Familiarize yourself early with what triggers 280G issues.
   2. Communicate Clearly: Be transparent with your investors about why certain compensation elements are necessary for the business continuity post-acquisition.
   3. Be Proactive: Initiate the shareholder approval process promptly after finalizing compensation details to avoid delays.
   4. Maintain Relationships: Cultivate trust with key stakeholders and lead investors to ensure smooth passage of necessary approvals.

While a 280G analysis might initially seem daunting, careful planning, clear communication, and proactive management can make this a straightforward process. Approached thoughtfully, navigating 280G becomes merely another checklist item on your path to a successful acquisition.
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46. What to Do When the Buyer Stops Answering Emails
Perhaps the most disconcerting moment in an M&A process happens just when everything appears on track: the definitive agreement seems close, due diligence is essentially done, and everyone can practically hear the celebratory pop of champagne. But suddenly, communications slow down, emails go unanswered, and phone calls go unreturned. This stage, a period of complete radio silence, can be deeply unsettling for founders and sellers. Understanding what's happening—and more importantly, how to handle it—is crucial.
The Vulnerability of Non-Binding Agreements
At its core, a term sheet is almost always non-binding, heavily skewing power dynamics in favor of the buyer. They retain the right to walk away without notice or explanation. Sellers, on the other hand, are locked into exclusivity clauses that restrict exploring alternative offers. A seller's bankers might consider requesting a breakup fee as insurance against such a scenario. However, this clause is often omitted intentionally to keep negotiations smooth and flexible—after all, bankers typically only get compensated upon successful deal closure, so introducing friction at this stage may not serve their interest.
The Psychological Battle
Experiencing radio silence can prompt anxiety and self-doubt. Founders may begin questioning their worth, the attractiveness of their company, or even their competence. Remember, a deal falling through isn't necessarily a reflection on you or your business. The Adobe-Figma transaction, which initially collapsed due to regulatory hurdles, exemplifies this. The cancellation was a gut punch for Figma's CEO Dylan Field, but he rebounded spectacularly, reaffirming that the company's best days lay ahead. True to his word, Figma successfully transitioned to a triumphant IPO. Your identity and value are not tied to the success or failure of this single deal.
Empathizing with the Buyer
Keep in mind the acquirer is equally invested in the deal. They've committed extensive resources—time, money, manpower—to conduct due diligence and align internal stakeholders. If communication slows, consider giving them the benefit of the doubt. Perhaps they are indeed caught up in internal releases, quarterly results, or navigating unexpected hurdles. Ideally, the acquisition is an important but not existentially critical piece of their strategy, which naturally reduces their urgency compared to yours. Staying empathetic helps maintain your relationship, keeping doors open rather than inadvertently shutting them in frustration.
Strategic Patience and Support
At this sensitive juncture, impulsive reactions can be disastrous. You hold limited control in accelerating the process but significant power to derail it entirely. Leverage the calm presence of your co-founders and trusted advisors. Their perspectives and emotional distance can prevent rash actions. Getting aligned internally, swallowing pride, and syncing your frequency with the buyer’s pacing is key.
Faith, Not Fear
Mergers and acquisitions rarely unfold rationally or predictably; they inherently require a leap of faith. My personal journey has underscored this repeatedly: deals that seemed like sure bets evaporated abruptly at the final hour, and seemingly doomed transactions survived improbable odds—like unexpected customer terminations, or critical stakeholders suddenly fallen ill. The takeaway is clear: deals destined to close tend to find their way through adversity, while those not meant to crumble even under minor pressures.
Managing Silence Effectively
When your buyer seems unresponsive, regular but thoughtful check-ins become essential. Politely yet firmly update them on any relevant developments or progress made on outstanding issues. Demonstrate that you're engaged and ready to finalize the deal, but never resort to threats, ultimatums, or demands for explanations. Such moves rarely yield positive outcomes.
Instead, maintain an air of confident patience. Your professionalism in these challenging moments is the strongest indicator of your maturity as a leader and founder. Embrace the uncertainty as part of the larger story of your entrepreneurial journey. Whether the champagne cork ultimately pops or not, the silence will end, and your path forward will remain open, ready for whatever chapter comes next.
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47. Final Definitive Agreement
Congratulations—you're nearing the final stretch of your M&A journey. You've navigated through intense due diligence, delicate negotiations, and survived the ghosting periods and emotional ups-and-downs. Now, it all culminates in one critical document: the Definitive Agreement.
Unlike the non-binding term sheet, this agreement legally binds you and the acquirer to the terms and conditions of the transaction. Your counsel will meticulously review each detail to protect you and your shareholders. Let’s dive into the main areas you need to pay close attention to:
Purchase Price
The purchase price is paramount—clearly defined and detailed. It may be a cash transaction, a stock-based deal, or a hybrid involving both. Your agreement must explicitly outline payment structures, schedules, earn-outs, escrows, holdbacks, as well as any potential transfer taxes or withholding obligations. If stock is involved, consider the valuation methodology and lock-up periods carefully.
Closing Deliverables
Closing deliverables are documents that must be executed and delivered to consummate the transaction. Typically, these include:
      * Stock certificates or membership interest assignments
      * Officer certificates confirming accuracy of representations
      * Evidence of necessary corporate approvals
      * Regulatory approvals
      * Consents from third parties

Ensure your lawyers compile an exhaustive checklist early on to prevent last-minute chaos.
Assigned Contracts
Specify the contracts transferred or assumed by the buyer, including leases, vendor agreements, customer agreements, licensing deals, and employment contracts. Each assigned contract should be listed explicitly, and necessary consents from counterparties secured before closing.
Representations and Warranties
"Reps and warranties" are assurances both parties provide regarding the condition of their respective businesses. These include:
         * Financial health and accuracy of financial statements
         * Compliance with laws
         * Intellectual property ownership
         * Absence of undisclosed liabilities
         * Material contracts
Ensure complete transparency and thorough disclosures to minimize future claims against your company. Any exceptions must be clearly itemized in a separate disclosure schedule attached to the definitive agreement.
Indemnifications
Indemnification clauses protect the buyer from losses resulting from breaches of representations, warranties, or covenants. Your board will pay close attention to:
         * The cap on indemnification amounts (typically a percentage of the purchase price)

         * Thresholds (baskets) for claims

         * Time limits for claims
Seek a balanced indemnification structure to protect you and your investors from undue risk.
Employee and Founder Retention
Clearly articulate the treatment of employee retention bonuses, equity compensation, and vesting schedules. These incentives are crucial for maintaining morale and ensuring a smooth integration post-acquisition.
Non-Competition and Non-Solicitation Clauses
The acquirer may require restrictive covenants limiting founders' and key employees' future entrepreneurial or employment activities. Carefully negotiate scope, geography, and duration to ensure these restrictions don't severely impact careers post-exit.
Final Advice to Founders
            * Be Vigilant but Practical: Ensure your lawyers negotiate aggressively on key points but maintain pragmatism to avoid derailing the deal.
            * Early Preparation: Begin preparing disclosure schedules and required consents early in the process.
            * Board Alignment: Regularly update and align your board throughout negotiations to avoid surprises and secure swift approvals at closing.
            * Communication: Maintain clear and consistent communication with your legal advisors and bankers, ensuring visibility on critical risks and milestones.

The Definitive Agreement is your roadmap to a successful closing. Treat it with the diligence, scrutiny, and respect it deserves. This meticulous attention ensures a smoother path to your well-deserved exit.




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48. Final Approval Process


At this point, once the definitive agreement is agreed upon by the acquiring company and your legal team, it is now time to get it approved by your board and then your shareholders. Specifically, there are three pieces of documents that need to be approved, the final definitive agreement, the 280G vote, and if applicable, a management carveout. Let’s look at the voters independently.


Board Members


Your board should have had a close pulse on where things stand along the way. So when your legal counsel sends over the final documents for approval, there should not be any surprises. The main thing that they care about are the distribution amount as well as schedule and indemnification caps. Your board needs to approve all the documents before they get sent out to the other shareholders. In the case of the management carveout, only a board approval is needed. As stated in earlier chapters, an unanimous decision is desired for all of the approvals.


Shareholders


Everybody on the cap table will get notified at this point, and that could include your existing employees who have exercised their shares, or folks who left the company a long time ago. Naturally, everyone would pull out their calculators and see if and how much they will get from the transaction. Expect your phone to blow up with reach out from folks you haven’t talked to in a long time. But all in all, 50% of the votes are needed to approve the transaction, and 75% of the disinterested votes are needed to pass the 280G analysis.


Once the votes pass the threshold, now you can close the deal.
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49. Where the Deal Could Still Blow Up
Even after the definitive agreement has been fully negotiated, approved by both the board and shareholders, and all requisite 280G analyses and votes have successfully concluded, there remains a tangible risk that the deal may not close. At this stage, it may seem like all that remains is the perfunctory wiring of funds and countersigning of documents, but the reality is far more nuanced. Several factors—some within your control and others entirely beyond it—can jeopardize the consummation of the transaction.
               1. Regulatory Approvals and Antitrust Risks
One significant risk involves regulatory approvals. Certain deals, particularly those involving large corporations, dominant market players, or specific industries such as telecommunications, technology, pharmaceuticals, and defense, typically trigger rigorous antitrust inquiries and regulatory reviews. These approvals can come from agencies such as the Federal Trade Commission (FTC) or the Department of Justice (DOJ) in the United States, the European Commission in Europe, or other jurisdictional regulatory bodies globally.
Transactions that significantly reduce competition, create monopolistic or near-monopolistic entities, or have major market share implications often attract intense scrutiny. In the U.S., the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) mandates filing with the FTC and DOJ if the transaction exceeds certain monetary thresholds, which are adjusted annually and currently exceed approximately $126.4 million (as of 2025). Furthermore, if the acquiring or acquired parties meet certain size-of-party thresholds, the deal is subject to mandatory reporting and approval. High-profile examples include Microsoft's acquisition attempts of Activision Blizzard and Adobe's proposed acquisition of Figma, both subject to extensive antitrust challenges. Regulatory approvals can take months or even years, and prolonged uncertainty can ultimately kill the deal. Check with your lawyers if these cases apply. 
When selling to a foreign company, particularly from countries like China, additional regulatory hurdles come into play. In the U.S., this involves a review by the Committee on Foreign Investment in the United States (CFIUS), which evaluates potential national security risks. Similarly, other jurisdictions may require approvals related to foreign ownership or investment restrictions. Such processes can be unpredictable, politically influenced, and significantly extend deal timelines or even lead to outright denial.
               2. Third-Party Consents and Transfer Risks
Third-party consents, such as approvals from key business partners, licensors, lessors, banks, or major customers, represent another hurdle. Even minor resistance or delays from these critical stakeholders can halt or derail the entire transaction. Additionally, the transfer of crucial assets—intellectual property, real estate, or licenses—can encounter unexpected legal or bureaucratic obstacles. While the seller can prepare thoroughly by maintaining clear contractual language and proactively securing third-party buy-in, some situations remain inherently unpredictable. 
A couple examples of this could be the notice and approval of the sale from a platform that you do your business on, say Apple or Google if you develop apps, or Roblox if you are a game developer on top of their platform. There could also be the issue where your key customers have languages in the contracts that require notices or approvals when there is a change of ownership or any type of liquidation event. 
               3. Financial and Performance-Related Risks
Another substantial risk factor is the financial stability and business performance of both parties leading up to closing. If the acquiring company experiences a particularly poor financial quarter, encounters a sharp decline in stock value (especially relevant if the deal includes stock-based consideration), or uncovers previously undisclosed material financial issues within the target company, the buyer may reconsider and withdraw.
A badly missed revenue target by the seller, the emergence of significant liabilities or legal challenges, or revelations of unethical or problematic business practices—often uncovered in the final stages—can likewise derail the deal.
               4. Human Factors and Emotional Considerations
Sometimes the human element can also disrupt what might appear to be a solidified transaction. Misalignments, disagreements, or unexpected emotional decisions from either party’s leadership, uncovered during final deliberations, can introduce doubt or erode trust sufficiently to terminate negotiations. There have indeed been instances where hastily signed term sheets, concluded without adequate reflection or diligence, unravel completely as the parties sit down to finalize the definitive agreement.
               5. Importance of Diligence and Responsiveness
In this precarious phase, diligence, responsiveness, and careful timing become critical. Any unnecessary delay or lack of responsiveness can cast doubt and lead the buyer to question the seller’s commitment or the veracity of earlier disclosures. You as the seller must promptly address all inquiries, clearly communicate any arising issues, and remain consistently engaged until the transaction fully closes.
               6. Early Alignment and Careful Term Sheet Negotiation
Given the complexity and myriad potential pitfalls of the deal-closing process, substantial deliberation before signing the term sheet is crucial. Both parties should fully understand their commitments, responsibilities, and mutual expectations. Hastily executed agreements, driven by impulse or superficial alignment, often lead to significant disruptions later. The definitive agreement stage is far too late to uncover fundamental misunderstandings that could ultimately lead to the collapse of the transaction.
In summary, although substantial progress is marked by the definitive agreement, the consummation phase remains fraught with potential hazards. You should remain vigilant, responsive, and proactive, carefully controlling what they can while calmly managing and preparing contingencies for what they cannot.
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50. Closing It Out
Closing day represents the culmination of extensive negotiations, approvals, and diligent planning. At this pivotal moment, the definitive agreement, already approved by both boards and shareholders—including successful completion of the 280G analysis—is ready to be officially signed and executed. Despite its ceremonial appearance, closing day demands meticulous preparation and careful execution to ensure everything proceeds seamlessly.
               1. Critical Signatures and Documentation
Your lawyers will manage this process for you on closing day. Several key documents require signatures and countersignatures, including:
               * Final Definitive Agreement
               * Disclosure Schedules
               * Assignment and Assumption Agreements
               * Non-Competition and Non-Solicitation Agreements
               * Employment Agreements for retained employees
               * Termination Agreements and Release Forms for departing employees
               * Bill of Sale and Transfer Documents
               * IP Assignment Agreements
               * Resignation Letters from departing board members and executives
               * Dissolution of the board of directors


               2. Financial Transactions and Payments
A significant aspect of closing day is the financial settlement. By this time, the acquiring company should have already wired the agreed-upon purchase funds to the seller’s designated bank account. Upon receipt, the proceeds need to be immediately distributed according to pre-agreed amounts to:
               * Shareholders
               * Outstanding creditors and vendors
               * Investment bankers and legal advisors
It's strongly recommended that you or your CFO manage this process physically at a bank branch alongside your banker to ensure accuracy, security, and timely execution. Having at least two individuals overseeing this step is essential to mitigate any risk of errors or wire fraud, which can be more prevalent with virtual transactions.
               3. Asset Transfer
Certain key assets integral to the completion of the deal must also be transferred on closing day. Common examples include:
               * Source code repositories (via GitHub or other platforms)
               * App store listings and ownership transfers
               * Domain names and intellectual property rights
Proper documentation confirming asset transfers must be meticulously verified to prevent future disputes or liabilities.
               4. Employee Transition and Communications
Closing day typically marks the last day of employment for all employees. It’s essential to serve termination documents and finalize severance agreements for those not retained. A generous severance package, along with signed release forms, is crucial to ensuring goodwill and minimizing post-transaction disputes. 
This is also the appropriate moment to announce the transaction formally to the broader team, highlighting the new joint direction with the acquiring team, and you could invite key executives from the acquiring company to give a talk, but also acknowledge the work put into this process by the entire company and congratulating everyone for making it to the other side. It is a huge milestone regardless of the financial outcome. Clarity and sensitivity during these announcements are essential to maintain morale and ensure a smooth transition. Retained employees will also sign their new employment letters and should get informed individually of their new compensation packages which includes their new base salary, stock options, retention bonus and other considerations.
               5. Payroll and Final Settlements
A final payroll run should be conducted to settle prorated salaries up to the closing date, including payment for unused vacation days. 
               6. Public Announcement and Press Release
Though not mandatory, a pre-drafted press release distributed on closing day can effectively mark the milestone publicly. This not only recognizes the collective hard work and achievements but also provides closure after the stress and intensity of negotiations and due diligence.
               7. Personal Anecdote: The Eventual Acquisition
Our deal with our acquirer closed on April 30th, 2025, a Wednesday. We had a 10am meeting with our entire team announcing the deal. Even though at this point everyone already knew that this was happening as everybody was interviewed by the acquiring company, there were still some emotions running through everyone as we shared our fond memories of first starting out, the times when we thought the company was going to run out of money, and those who we missed. My co-founder Borui and I met for lunch, anxiously checking our phones throughout the meal. Around 1 pm, the funds arrived in our account—banks close at 5 pm PST, adding urgency to the moment. Seeing the money come through was an immense relief, instantly lifting years of uncertainty and stress. I vividly recall the overwhelming realization: we did it, we actually did it. Borui headed to the office to manage a few logistical details, including signing a short-term lease, while I headed home for a well-deserved nap.
Closing day, therefore, is not just an administrative milestone—it's a deeply human moment marking the successful conclusion of one chapter and the beginning of another.
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Part VI: Aftermath - Finding Closure
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51. Finding What Brings You Joy Again
People often asked me what my biggest purchases were after my acquisition. Truthfully, I bought a second-hand upright Yamaha piano for my kids for $3,300 and a second-hand camera lens for $700. Even now, I still view a Chipotle lunch as a splurge and limit myself to eating there just once a week. My co-founder Borui's story is even more amusing. He doesn't cook and regularly eats at the Whole Foods hot bar for lunch. He shared that his most noticeable post-acquisition change was no longer paying attention to the scale when filling his container. Previously, he'd consciously keep the weight under one pound, equating to around $12. Now, he simply doesn't give it a second thought.
As euphoric as the magical moment feels when that substantial cash balance finally lands in your bank account—likely the most significant amount you've ever seen—this initial surge of happiness will undoubtedly fade after a day or two. Very quickly, what once seemed life-changing becomes merely your new baseline, another number among many.
More important than any monetary considerations post-acquisition is refocusing on what truly brings you joy. The entire M&A process likely drained much of the joy out of your daily life, replacing it with stress, anxiety, and uncertainty. If the outcome has been life-changing enough that you'll never need to work again—congratulations! However, understand this: entrepreneurs are inherently wired to build, create, and solve problems. The idea of endless travel or sitting on a beach indefinitely may initially sound appealing, but boredom inevitably sets in after just a few weeks.
So take time to seriously consider what genuinely brings you happiness, and focus on those pursuits. Some founders don't have the luxury of stepping away from work entirely, especially if the acquisition involves a retention package tied closely to future integration and performance milestones. In this case, dedicate your efforts to ensuring a smooth integration, enhancing the success of your products and services.
Yet, remember this: a significant weight has been lifted. You're free from the constant worry of making payroll, preparing for board meetings, or managing budgets and financial statements. Use this newfound mental space and time to engage with the things you've put off for far too long. Spend an afternoon on the beach alone, or finally watch that movie you've repeatedly postponed.
Personally, I always dreamed of documenting my journey through the M&A process. But sitting down to write without knowing how the story would end was daunting. Would the company survive? Would my employees find new homes? Or would I soon need to polish my resume and start job hunting? Fortunately, the deal successfully closed, allowing me to share my experiences with other founders and aspiring entrepreneurs. I find immense joy in discussing these experiences, offering guidance, and providing support to others on similar paths. Rediscovering this sense of purpose and fulfillment has been one of the most rewarding outcomes of the entire journey.
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52. Thank Those Who Helped You Along the Way
When the deal finally closes, regardless of how substantial or modest your financial outcome is, it’s crucial to acknowledge and show appreciation to those who supported you throughout the journey. Success never happens in isolation; behind every entrepreneur is a network of individuals whose guidance, patience, and support were instrumental.
Firstly, your board members and investors deserve special acknowledgment. Their trust, patience, and backing played a significant role in bringing the deal to fruition. A fitting gesture would be hosting a memorable dinner to express your gratitude. This meal might indeed become the priciest dinner tab you'll ever cover, but it's also a rare and special opportunity to express genuine thanks to those who believed in your vision from the beginning. Make this event meaningful and memorable, as this gesture of gratitude solidifies lasting positive relationships.
Your significant other has likely borne the emotional toll of your entrepreneurial journey. They've endured your stress, anxiety, and frequent distractions over the months or even years leading up to this moment. It’s essential to spend quality time together and have an open conversation about how to best celebrate this milestone in your shared life. It needn't be extravagant—perhaps a heartfelt home-cooked meal, a simple movie night out, or a special activity you've repeatedly postponed. For example, my wife and I considered going back to Northern Italy as that was one of our favorite trips, but ultimately decided to wait until our kids were older. The significance isn't in the grandness of the gesture but in the sincerity of the acknowledgment.
Your children also shared indirectly in your entrepreneurial journey, often experiencing your divided attention or late nights at work. Simple yet meaningful gifts or gestures can communicate your appreciation. In my case, I chose to splurge on books for my kids, especially indulging my son's enthusiasm for the Smithsonian series. Little thoughtful gifts, tailored to their interests, can carry immense sentimental value.
Reflecting further, think about those individuals who were consistently your emotional anchors—friends, mentors, colleagues, or family members who provided unwavering support during tumultuous times. A personalized handwritten card, thoughtfully expressing your gratitude and appreciation, can be incredibly meaningful and enduring.
For your broader team, even those who were not retained, whose hard work and dedication contributed significantly to your success, consider hosting a celebratory event or team outing. It could be as elaborate as a weekend retreat, a team dinner, or even a simple catered lunch at the office. Publicly recognizing each team member's contribution during these gatherings further strengthens team bonds and morale. Another meaningful approach is providing personalized gifts or small bonuses tailored to their individual interests or needs, reinforcing the idea that their contributions have not gone unnoticed. Our Head of Peoples was not offered a position from the acquiring company, but he did an immense amount of work leading to the acquisition. So my cofounder Borui spent money out-of-pocket to accompany him on an all-expense-paid international trip, thanking him for the work he has put in. Borui also went out his way to send referrals to other entrepreneurs who might be hiring for his type of roles. 
Lastly, it's important to express your gratitude to your key contact or sponsor from the acquiring company. Their advocacy, support, and guidance throughout the acquisition process were undoubtedly pivotal. Take a moment to craft a thoughtful handwritten note or consider giving a modest yet meaningful gift. These gestures of appreciation help solidify a strong foundation for the ongoing working relationship, ensuring continued success and collaboration in the future.
Ultimately, closing an acquisition is not merely an ending but a profound moment for expressing gratitude. By thoughtfully acknowledging and celebrating those who helped you achieve success, you nurture relationships that extend far beyond transactional boundaries, enriching both your professional and personal lives.
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53. Your Best Days Are Ahead
As you reach the conclusion of this significant journey, it’s essential to understand one fundamental truth: your best days still lie ahead. Companies can be acquired, they can be sold, they may even face bankruptcy, or achieve the milestone of going public. However, your true identity and value are never fully encapsulated by the business you built. Instead, they reside in the relationships you’ve nurtured, the people you've inspired, and the personal growth you've achieved along the way.
Regardless of whether this M&A process surpassed your wildest dreams or left you feeling somewhat underwhelmed, the future holds abundant potential for continued growth, fulfillment, and success. Leverage the invaluable experiences you've gained from this chapter of your life—both the triumphs and the challenges—to make an even more significant impact in your future endeavors.
Whether your next step is to stick through the retention period, found another company, mentor aspiring entrepreneurs, invest in promising startups, or simply explore entirely new pursuits, let this journey serve as a powerful foundation. Embrace your experiences as catalysts for positive change, and let them empower you to create something even more extraordinary.
Your story doesn’t end here. In fact, it has only just begun. Know with confidence that your brightest days, greatest achievements, and most meaningful contributions still lie ahead. Go forth and continue to build, innovate, inspire, and do amazing things—your best days truly are yet to come.
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Epilogue
If you've made it this far, let me pause for a moment to sincerely acknowledge you. Whether you successfully navigated your way through an acquisition or bravely embarked on the intense journey of finding a buyer without reaching a deal, you’ve earned a badge of honor. Take it from me—going through the process of an M&A is undoubtedly one of the toughest things you'll ever tackle in your professional, and perhaps even personal, life.
When I reflect back on my own experience, it wasn't just the complexity of the deals, the endless calls, or the painstaking diligence that wore me down. It was the emotional toll—the sleepless nights, the constant second-guessing, the moments when silence from a buyer felt deafening. But looking back, every hurdle I overcame reinforced one thing clearly: once you've walked this path, there's very little you can't handle. Your resilience, creativity, and endurance have been tested and proven. Trust me when I say this—the sky truly is the limit for you now.
Yet, amidst all the victories and the setbacks, there's one crucial lesson I wish I'd learned earlier: you don't have to navigate this path alone. The entrepreneurial journey, by its nature, can feel isolating—but it doesn't need to. Throughout my own journey, I leaned heavily on my investors, my cofounder Borui, advisors, and family who understood my struggles and offered guidance or just a compassionate ear. Having people who've been there and genuinely understand your struggles makes all the difference.
So, consider this an open invitation. If at any point you feel stuck, uncertain, or just need someone to talk to, please don't hesitate to reach out. My inbox is always open—I’d genuinely love to hear your story and support you in any way I can. Building a company and successfully navigating an M&A process is incredibly challenging, but doing it alongside others who’ve been there can transform the experience.
My hope is that this book serves as a trusted companion, helping you understand and maneuver through the complexities and uncertainties of the M&A process. But more importantly, I hope you realize that you're never alone. There's an entire community ready to rally behind you, celebrate your wins, and support you through the tougher days.
I'd love to hear your journey, so please reach out. Let's connect, share stories, and continue to navigate this incredible entrepreneurial path together. I'll see you on the other side.


Yours Truly,
Derek
July 26, 2025


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