Are you an early stage founder trying to figure out what’s next in your startup’s journey? Check out more insights from the Next47 team in our Seed to Series A Playbook.
The best founders don’t just have a Plan A for financing their growth—they have a Plan B, Plan C, and so on whenever possible. They create optionality for themselves and their organizations, ready to step onto a different path if the one they’re on isn’t taking them where they want to go, as quickly as they want to get there.
We often work with founders to develop this kind of “option” thinking—opening up relationships at the best matching acquirers, deciphering signals from buyers, and introducing intermediaries who can help manage the last crucial steps in the process while maximizing value.
Ultimately, you can increase your probability of long-term success by baking optionality into your business’s financing strategy—not losing sight of the variety of different ways most deals get done. In this article, we explore one alternative path: navigating an acquisition.
Set the Table for an Acquisition
If you want to have the option of selling your company, you need to set the table in much the same way you would when pursuing a round of funding. This is because it’s fairly unusual for someone to swoop in and grab a company out of the blue, even in the case of some high-profile acquisitions. It’s much more likely that you already have an existing relationship with your acquirer. So, what should you do to set the table for an acquisition?
To begin, you need to have built a business that is valuable to potential buyers and creates within them some buying intent. You have a great product that the potential acquirers couldn’t have built themselves. Or you have a very talented team—one that would be difficult for the acquirer to assemble on their own. Or you bring in a new capability that they didn’t have, maybe you’re innovating machine learning or LLMs. Or all of the above.
Next, you need to identify the companies that would be most likely to be interested in acquiring your company. Ask: Who are the people that might be interested in us? How do I cultivate those relationships well ahead of time? How do I tell them about the things we do and how good we are without revealing too much sensitive information? In many cases, the universe of companies you will target has a competitive or adjacent product to your own.
Finally, you need to be talking to and building relationships with the people who are most likely to acquire your company, while at the same time letting the world know you have something valuable. Even better, you have partnered with a potential acquirer in some way, and they like how the partnership has gone. Or you’ve collaborated with someone in the other company’s leadership, and the leadership likes your team. That’s how the majority of M&A gets done.
Starting the Conversation
The conversation with the companies you’ve identified as potential acquirers could start with trying to partner with them, and the universe of potential buyers could range from more mature startups that have a big adjacent market that they’re working on, to large established tech companies. When you start the conversation with potential acquirers, it’s important to talk to the right people.
Don’t approach the transaction teams at these buyers—the transaction teams come much later in the acquisition process. Generally, you want to build relationships with the people who are running significant businesses at the prospective acquirers. In the case of a late-stage company, it is usually the founder, CEO, or someone who is running product development. If it’s a large tech company, it’s usually going to be the general manager of the business or someone who has significant P&L responsibility. You might also start building relationships with someone on their team.
In addition to approaching the right people, you also need to give yourself plenty of time to develop a cadence of interaction. You want these relationships to build organically over time and not in a frenzy.
Maximizing Your Financial Outcome
While you might be thinking about whether you want to raise more money or exit, someone you have a commercial partnership with may come to you with an acquisition offer. This is where option value manifests itself in a different way, which is: Do you know more than one person who might be interested in buying you? Because to have a great outcome, it is important that you also have other options.
If you’ve built other relationships and there are other people you can call when you get an offer, you can see whether they also want to engage in that conversation. An exit is a very important event for your company, for your team members, and for your shareholders—it’s not like fundraising. Having at least one more option that you can bring to the table if an acquisition offer becomes real is key to maximizing your financial outcome. You don’t want to get caught flat-footed—the time to introduce yourself to other potential acquirers is before you receive an offer, not after.
Start with the basic steps—making potential acquirers aware of what you do and building a foundation for working together in the future. And don’t wait until you only have a few months of runway left. An acquisition can take longer to complete than a funding round, with more people who need to approve it, and more possibilities that the deal will go south if someone balks during the process—even after you get a handshake agreement. Give yourself at least six to nine months to complete the acquisition process, and don’t celebrate until the money is in the bank.
Conclusion
In every startup’s journey, determining an exit strategy becomes crucial—not just for you, but also for your team and investors. After establishing your initial product and nurturing customer relationships, it’s wise to create options for potential exits and returns. The reality is that most companies don’t reach public status, so having options is essential.
Building optionality takes effort, relationships, and time, so don’t leave it to chance. Instead, plan for it in a very deliberate way and then reap the benefits of all your preparation.
