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How to Find an Early Stage Startup to Acquire

early stage startup

Growing a company through acquisitions can be a good way to increase your revenue and profits. It can be an affordable strategy, especially if you focus on finding an early stage startup to acquire. In the early stages, it’s possible to find a bargain if you have an owner who is eager to sell.

At NorthStar Venture Partners, we have experience on both sides of the negotiating table. We work with buyers and sellers and we know how important it is to find the right partner -- no matter what side you’re on.

Here’s what you need to know about finding an early stage startup to acquire, so you can grow your business.

The Benefits of Acquiring an Early Stage Startup

There are some significant benefits to acquiring an early stage startup. Here’s how doing so can help your company:

  • A startup in its early stages may be more affordable to buy than a well-established company because you’re paying for its potential instead of its worth. There’s more wiggle room in negotiations with an early stage startup than there is with a company that’s been around for a while.
  • Investing in the potential of an early-stage startup means that you’ll have the opportunity to meld the startup’s products and brand with your own, reducing some of the growing pains that can come with acquiring a company.
  • You can seek out early stage startups that complement your company, whether your focus is on their technology, the talent of the owner, or the demographic their products target.

Of course, there is a potential downside to acquiring an early stage startup. Paying for potential is one thing, but there’s always the risk that the potential you see in a company may not be fulfilled.

Tips for Researching Early Stage Startups to Acquire

If you decide you want to buy an early stage startup, the research phase is crucial if you want to be sure you’re making the best acquisition possible. Doing proper research will ensure that you know as much as possible about the startup and can proceed with a complete understanding of what you’re buying.

Here are some tips to help you during the research phase:

  1. Look closely at the startup’s financials and business plan. Make sure that the numbers add up and that any projections the startup owner provides make sense.
  2. Likewise, evaluate the potential expense of running the business you acquire and helping it live up to its potential. Can you afford to continue the work or development of a product that’s still in the early stages?
  3. Consider whether the startup has an established brand -- and whether that brand’s message and values align with your own brand. It’s not impossible for companies with divergent brands to merge, but it’s a lot easier if you’ve got some things in common from the start.
  4. Look at the potential audience for the product or service that the startup provides. Does that audience align with your own? Could it help you reach a new audience? Ideally, you want a company whose products will appeal to your existing customers and help you attract new customers.
  5. Finally, make sure that you have an accurate business valuation of the startup to use as a jumping-off point for negotiations. Even an early stage startup should have a value assigned to it based on its R & D and overall potential.

We suggest knowing what your priorities and requirements are before you start the research process. Then, you can eliminate potential acquisitions based on what you learn, narrowing your list until you’ve found the right company to acquire.

Partner with an Experienced M & A Advisor

Ultimately, startup research can be time-consuming and so can negotiations to acquire a startup. One of the best ways to streamline the process and find the right companies to acquire is to partner with an experienced M & A advisor.

At NorthStar Venture Partners, we work with sellers and buyers because we have experience on both sides of the table. We understand what goes into an early stage startup -- and we understand what buyers are looking for when they decide to acquire a startup.

We can help you identify potential acquisitions, assist you with detailed and comprehensive research, and help you decide whether a company is a good match for your brand, audience, and business goals.

While it’s certainly possible to identify potential acquisitions, research them, and negotiate on your own, you’re likely to make a more informed decision -- and a more advantageous deal -- if you have a partner who understands acquisitions.

Conclusion

Acquiring an early stage startup can be an effective way to expand your company and increase your profits. The key is finding a partner who can help you navigate the ins and outs of research and negotiations.

If you enjoyed what you read about when is the right time to sell your business and would like to know more about what we do at NorthStar Venture Partners be sure to check out this page: https://www.northstarvp.com/startup-ma-advisory.

Julien Meyer

Written by Julien Meyer

NorthStar Venture Partners is led by Julien Meyer, MBA. A veteran of the tech community, Meyer is a 3x startup founder with 2 exits, a published author, a Harvard Business School Leading with Finance Alum and a Top Rated Startup Consultant (UpWork, 2018). Meyer advised on over 50 successful transactions before starting NorthStar. His experience has helped him understand the unique challenges that founders experience when trying to exit their ventures.