Have you founded a tech company that you want to sell? We know what that’s like — and we’re here to help.
At NorthStar Venture Partners, we work every day with entrepreneurs like you. You want to know how to sell your company by negotiating a great deal and walking away with the money (and reputation) you deserve.
Here’s what you need to know to get it done.
Get Your House in Order
Before you think about finding a buyer for your company, get your house in order. That means:
- Auditing your financials and making sure everything is accurate and current.
- If you’re required to, making sure that your accounting has been done in accordance with Generally Accepted Accounting Principles (GAAP).
- Review all existing contracts, including clients, suppliers and employees, to ensure that everything is properly executed and in place.
A little housekeeping will minimize the risk of surprises during your negotiations.
Know What Your Business is Worth
The next step is to calculate your startup valuation and you should have your valuation carried out by a professional, especially if you have intangible assets that you expect to be part of the negotiation.
Knowing the fair market value of your business will help you manage your expectations and develop a negotiation strategy for the acquisition.
Know Your Walk Away Number
One of the best pieces of advice we can give you is to know your boundaries when it comes to the purchase price of your company. Your walk away number is the bare minimum you’re willing to accept for your company.
You need to be realistic, but you also need to be firm. Accepting a price that’s less than your walk away number won’t serve you well in the long term. Not only will you have negotiated an exit that didn’t meet your expectations, you may wind up resenting yourself and the buyer down the line.
Talk to Multiple Buyers
You’ll almost always be able to negotiate a better price if there is more than one buyer interested in your company. You might not end up with a lucrative bidding war, but it helps for each buyer to know that there’s some competition in the arena.
You can attract multiple buyers through networking, or you can hire an M&A advisor who might be able to bring some unexpected players to the table, thus giving you more leverage than you’d have otherwise.
Do Your Due Diligence
Any buyer is going to perform due diligence on you and your company before making an offer. You should do the same. Research will ensure you know who you’re dealing with and may also turn up some useful information to help you during negotiations.
Think of the research as your ace in the hole. Anything you learn should be documented and brought with you into negotiations — where you can use it as needed to get the best deal possible.
Be Prepared to Make Strategic Concessions
One of the best negotiating strategies is to go into your negotiation with a list of strategic concessions you’re prepared to make. By strategic, we mean that you’re willing to give them up to facilitate the deal — and you’re prepared to sell their importance and value along the way.
Just as important as the concessions themselves, is being prepared to request concessions from the buyer. Remember, every concession is a favor that requires reciprocation.
Consider Making the First Offer
This is one piece of advice that goes against the grain, but it may be something to consider. Most negotiation experts will tell you never to make the first offer because you may inadvertently show the other party your hand — and lose out in the process.
However, we think there are some circumstances when it makes sense. There’s a cognitive glitch — basically a mental shortcut — known as anchoring. It happens when a consumer hears a price for a product or service, thus “anchoring” it in their mind as what the item being negotiated is worth.
Use this tactic with caution, but if you’re confident that you can come up with an anchor price that will work, you may want to try it.
Don’t Settle for a Bad Deal
Another cognitive bias that can lead to less-than-ideal acquisitions is something called the Sunk Costs Fallacy. It’s a glitch that tells us that it’s a mistake to walk away when we’ve already made an investment of time or money.
You calculated your walk away price for a reason. If a buyer won’t give you what you know your company is worth — if your instincts are telling you to walk away from a deal — then do it. Not every deal is worth taking.
Bring an M&A Advisor with You
Finally, consider hiring an M&A advisor to help you out during the negotiations. Specifically, look for someone who has more than one exit under their belt as a seller. Many M&A advisors only know the buyer’s side of things, and don’t understand the unique needs and concerns of founders.
NorthStar Venture Partners knows what it’s like to be a seller because we’ve been there. Selling a startup can be lucrative if you know how to negotiate properly. The tips we’ve listed here will help you get the deal you deserve.
Don’t want to go it alone? Click here to apply to work with NorthStar Venture Partners on the sale of your startup.