What Every Startup Founder Needs to Know to About Acquisitions



The growing trend in early-stage mergers and acquisitions (M&A) is to ditch the suits. According to Dealogic, 73% of acquirers utilized a formal investment-banking firm in 2003. By 2013, only 31% of acquirers used a formal investment-banking firm. Ironically, M&A volume has increased, not decreased.

Acquirers, typically large technology firms with cash to burn, recruit classically trained investment bankers and train them to identify early stage opportunities. We call this function corporate development, as the role finds holes in the corporation’s current technology and uses acquisitions to develop these areas. The focus is not so much on revenue, but product and staffing needs. Hence, the newly coined term acqui-hire, which occurs when a company acquires engineers rather than hire them.

On the other side of the transaction, the acquisition targets don’t have the resources to recruit a corporate development team. However, early stage companies need the same expertise. They need acquirer research, a valuation estimate and a negotiation plan.

Here’s what you need to do it yourself:

  • Acquirer Research– Begin reviewing your competitive landscape for companies that may work well with your team. Look for companies that share your culture, value and vision. It’s good to get to know these companies before you need them. Strategic partnerships are a great way to test the waters.
  • Valuation Estimate– Be armed with a valuation estimate based on related transactions in your industry. You can pay for a service that tracks these numbers or you can research them on your own. Use this guide to help value your company and learn the methodology.
  • Negotiation Plan– If you do your homework (know what you’re worth) and have discussed all the possible outcomes (asset sale, equity sale, or acqui-hire) you should be able to set parameters for negotiating the transaction.

Closing the Deal

Most acquisitions will require you to stay around. If it’s an acqui-hire, the assumption is that you are now an employee of the acquirer. If it’s a traditional equity sale, you will more than likely receive an earn-out in your offer. For example, you will be required to stay on for a set period of time to earn additional compensation based on the company’s performance. If it’s an asset sale, you simply sell certain assets and, in most cases, won’t be required to tag along.

It is critical that you understand what the “NewCo” will look like. Will you replace an existing team? Perhaps you are tasked with creating a new division. Make sure you are on board with the integration schedule. If not, it could hamper your ability to receive compensation outlined in the earn-out.


This post originally appeared on Atelier Advisors. Lili Balfour is the founder and CEO of the SoMa-based financial advisory firm, Atelier Advisors, and Creator and Host of  Finance for Entrepreneurs.

About the author: Lili Balfour

Lili Balfour is the founder and CEO of the SoMa-based financial advisory firm, Atelier Advisors, creator and host of Finance for Entrepreneurs, author of Master the Finance Game, and host of the Finance for Entrepreneurs broadcast on Spreecast.

After spending fifteen years in investment management and investment banking, she decided to develop a firm to cater to the specific needs of early-stage companies. At Atelier Advisors, Lili advises leading brands across industries: from tech to consumer goods. In the past, she has advised over 100 brands, including:

Bag, Borrow, or Steal, Visual IQ, Alpha Theory, Derivix, Practice Fusion, Peeled Snacks, Sustainable Minds, Firescope, Chix 6, Duchess Marden, Erin Fetherston, Eckart Tolle, and Stuart Skorman (founder of Reel.com, Elephant Pharmacy, Hungry Minds, and Clerk Dogs (sold to Netflix)).

While advising companies at Atelier Advisors, she observed a common theme – -brilliant founders avoided finance. She began writing about entrepreneurial finance to solve this problem.

As a native of Silicon Valley and a first generation Mexican American, Lili understands the importance of imparting wisdom learned in Silicon Valley to the rest of the world. Her goal is to teach the entire planet about entrepreneurial finance.

You are seconds away from signing up for the hottest list in New York Tech!

Join the millions and keep up with the stories shaping entrepreneurship. Sign up today.