Our startupClearBrainwas recently acquired byAmplitude.
This process, while successful, was nonetheless quite challenging at times.
Thankfully we had some great investors and advisors to guide us along the way.
We came to realize acquisitions actually follow a fairly consistent process.
It’s free, every week, in your inbox.
And if youre lucky, all three.
Nothing compensates for building a great product.
Products with unique technology command multiples.
Both Oculus and Cruise were bought for billions before they went to market.
Our own product had just launched but commanded interest due to our patents in machine learning (ML).
Build your product from the lense of is this patentable?
because patented the harder technology compounds in value.
But great technologies can still fail to be acquired.
Acquisition decisions are made by humans, and humans make decisions based on relationships.
Our first offer came from a public company that read about our launch in the media.
Like fundraising, getting acquired is a process.
It is long and grueling.
The process will also be taxing.
verify youre committed to seeing this through.
Focus on those companies that could have a strategic interest in your product.
Focus on companies where you share a user, or your technology enhances theirs.
Plaid was worth $5 billion to Visa, not to Google.
Include both public companies and startups on your list.
Public companies offer more immediate cash, while startups typically offer more future stock.
Start with them, not corp dev.
Ask investors for referrals, or find them on LinkedIn.
Step 3: Email outreach
With points of contact identified, its time to reach out.
Keep your emails concise, expressing value while building urgency.
So start with warm intros.
Email the relationships you built in Step 0.
Again, it is very important to keep outreach tight.
Do not tell friends, family, or employees (or the public).
Premature internal communication can increase anxiety and halt productivity, while external communication can reduce leverage in future negotiations.
A surprising element of the first meeting is you dont actually need a pitch deck.
This is a conversation, not a pitch.
Your goal is to build a rapport over shared values and vision.
We always had our first meetings over brunch or dinner.
Theyll also loop in corp dev to facilitate.
Before proceeding though, you oughta ask for an NDA.
This is important to protect the confidentiality of any information you share.
Specifically, an NDA will enable you to request the deletion of any information from the companies thatdontacquire you.
All companies are willing to sign for this reason, as its in their own best interest.
Going forward, verify all future correspondence, documents, and presentations have a CONFIDENTIAL disclaimer.
The product demo is standard fare.
Describe who the user is, what problem they have, and how your app solves it.
If you could, sprinkle in anecdotes how your product enhances the acquirers.
The architecture overview should mirror the product demo.
Describe the systems, languages, and data flow at each step of your app.
The key is to position your conversation in the context of what was difficult about this to build.
Convey your answers in person, and ensure these points come across.
Be honest and answer with integrity.
Also, know acquisitions are a two-way street.
Ask the acquirer about their business here, just as much as they ask about yours.
Cover tech stack, roadmap, financials, challenges.
Part of what sold us on Amplitude was their thoughtfulness.
Step 8: Q&A
Not all questions asked by an acquirer need to be answered.
There are a couple that seem innocuous, but can be detrimental.
Namely:
The first question is designed to ascertain an anchor.
And if you disclose who that offer is from, you reduce the leverage of imagination.
Google is more likely to bid higher if they believe your offer is from Facebook, not from Yahoo.
The acquirers intent here is to gauge your runway.
The important note here is that the acquirer doesnt actually need all this info to make an offer.
Keep the acquirer focused on that, and push back on unnecessary requests.
Getting a verbal offer is understandably a hard goalpost to get past.
It forces the acquirer to finally and explicitly quantify their interest.
you oughta convert their inertia into qualified interest.
Would love to continue the conversation, but feel we need clarity on the overall deal terms to proceed.
Remain steadfast, and youll get a verbal offer.
Itll be high-level, conveyed by total deal value and percent allocation of cash/stock.
Thats all it’s crucial that you decide if you want to proceed.
This is an important step.
Your team joined your startup for a mission and placed their trust in you.
Its your responsibility to convey that an acquisition is the best way to fulfill that mission.
Prepare a pitch deck.
Review your companys original vision, and reframe the acquisition as the fastest path to achieving it.
Share your product roadmap again, and explain how each acquirer could accelerate it.
The goal is to get the team excited before they proceed to the next stage.
If possible, bring in your champion to meet the team as well.
Step 11: Interviews
The acquiring firm will now formally interview your entire team.
But like a normal interview, success is mostly a function of practice.
Youll get two weeks to prep, so use that time to help your team thoroughly review.
Have regular 1:1s to check-in and assuage any anxieties as well controlling nerves is half the battle.
So schedule your interviews in descending order of company preference.
Mergers have a more favorable tax treatment but involve greater complexity and in turn higher legal fees.
Most acquisitions by consequence fall in the less complex end.
Have your legal counsel review the term sheet, so you know what to negotiate in the next step.
To help navigate the process, we readGetting to Yesby Roger Fisher.
The idea is to not negotiate positions, but instead align interests with facts to negotiate.
Debate the assumptions not the positions, and use competitive offers (without disclosing names) as an anchor.
If you dont have other offers, thats okay find the best alternative.
If the acquirer says they value team retention, anchor compensation discussions with a higher job offer.
you could go through two rounds of negotiation before it gets frustrating for parties.
Startups are a long game, and reputation compounds over cash.
Once youre comfortable with the terms and okayed by your legal counsel, youre good to sign!
Step 14: Due diligence
Signing the term sheet enters you into an exclusivity period.
The diligence stage is where the acquirer tries to validate the information you previously shared.
This document covers the same facets as the term sheet, but in 100+ pages of detail.
Fair warning lawyers love to lengthen this stage of the process (they are billed by the hour).
Be prepared and actively involved.
Once youve agreed on all the final documents, collate them for signature.
Once signed, the deal proceeds are released by wire, and the acquisition is legally bound and closed.
Closing
Congratulations, youve just sold your company!
But while the deal is complete, theres still some work left to shut the business.
Namely, paying off liabilities and disbursing assets.
First, you’re gonna wanna pay off your remaining payroll and or PTO.
The combination of legal fees and taxes will total six to seven figures so plan accordingly.
End-to-end, the entire acquisition process takes about six months.
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Story byBilal Mahmood
Bilal is Head of Product at Amplitude.
Previously cofounder/CEO of ClearBrain, a predictive analytics startup acquired by Amplitude.
He prev(show all)Bilal is Head of Product at Amplitude.
Previously cofounder/CEO of ClearBrain, a predictive analytics startup acquired by Amplitude.
