Selling Your Startup Crafting the Perfect Exit, Selling Your Business, and Everything Else Entrepreneurs Need to Know

Learn how to sell your startup from an acquisition expert

Many entrepreneurs dream of the day their company is acquired and they secure a perfect exit. But information about the process of getting your business acquired usually comes from expensive investment bankers who typically advise late-stage startups.

In Selling Your Startup, serial entrepreneur Alejandro Cremades delivers an accessible guide on how to sell your startup. With first-hand experience as a fully exited entrepreneur, investment banker, and lawyer, Cremades describes the tips and tricks startup founders need to sell their early-stage to growth-stage business.

In this book, you’ll discover:

• The role that investment bankers play in the acquisition process, how they add value, and how to break down their fees
• Preparing your company for sale, including compiling a pitch book, putting its finances in order, and building a target list of potential acquirers
• How to get to a Letter of Intent, perform due diligence, and reach a purchase agreement

Perfect for entrepreneurs of all kinds, Selling Your Startup is a must-have roadmap to the practical realities of company acquisition and contains proven guidance on crafting your perfect exit.

ALEJANDRO CREMADES is a serial entrepreneur and currently a Founding Partner of Panthera Advisors, a premier investment banking and financial consulting firm. His professional focus is on small- and medium-sized companies seeking M&A advice and fundraising support. He has guest lectured at NYU Stern School of Business, Columbia Business School, and The Wharton Business School. Furthermore, he is the host of the popular DealMakers podcast where some of the most successful entrepreneurs share how they did it.

Contact him at alejandro@pantheraadvisors.com, follow him @acremades, and connect with him at www.alejandrocremades.com

Acknowledgments xvii

Foreword by Bhavin Turakhia xix

1 Seeding What Would Grow into Panthera Advisors 1

Accelerated Growth through Acquisitions 1

Inbound Interest and a Path Forward 2

Choosing My Wingman 4

Our M&A Journey 5

Launching Panthera Advisors 6

My Unwavering Commitment to Entrepreneurs 7

2 Getting Your Company Acquired 9

M&A Is Harder Than Fundraising 10

The Acquisition Process 11

Media versus Your Business: What You See in the Press versus Reality 14

Acquirer Expectations 15

Why Most Acquisitions Fail 18

3 The Role of Investment Bankers 21

What Is an Investment Banker? 21

Good Cop, Bad Cop 22

Why Bankers Add Value 23

Getting the Right Advice 25

Breaking Down the Fees 26

4 How to Plan Ahead 31

Consider the Reasons Why You Want to Sell 33

Tying Up Loose Ends 36

The Importance of Making Yourself Expendable 37

How to Make Yourself Expendable 39

5 Preparing the Company’s Pitchbook 41

Packaging the Message 41

What Makes Your Company Unique? 42

Nailing the Value Proposition for Potential Acquirers 43

Defining Transition Plans for Potential Buyers 45

Crafting the Marketing Plan 46

Identifying a Powerful Flow and Structure 47

Acquisition Memorandum Template 48

6 Putting Your Finances in Order 53

Understanding Financials 54

The Importance of Key Metrics 55

Why Growth and Operating Assumptions Are Critical 58

Modeling Out a Powerful Five-Year Projection 60

Anticipating Questions on Numbers 61

7 Understanding Your Valuation 63

Variables Affecting Your Startup’s Value 64

Common Methods of Business Valuation 64

How to Value Pre-revenue Startups 67

How to Increase Your Valuation Faster 69

Valuation versus Terms 71

Why You Never Want to Disclose Your Valuation 71

Avoiding High Valuations with No Rationale 72

8 Building the Target List 73

The Importance of Building the Target List 74

Ways to Identify Potential Buyers 76

Vetting Buyers for the Right Fit 77

Using Partnerships to Trigger Acquisitions 80

How to Make Contact with Interested Parties 81

9 The Communication Process with Buyers 85

Liabilities and Responsibilities 85

How to Handle Communications 86

Gauging Initial Interest 87

Nailing the Follow-Up 88

Finding the Decision-Maker 92

10 Preparing for a Successful First Meeting 95

Finding Out the Strategic Road Map of the Buyer 96

Agreeing On the Meeting Location 99

Setting Up the Agenda for the Meeting 102

Follow Up with Emails to Keep Them Warm 103

Understanding How to Address Concerns 103

Questions Potential Acquirers May Ask You 104

11 Getting to a Letter of Intent (LOI) 109

Why an LOI Is So Important 110

Breaking Down the LOI 111

Comparing Valuations 113

Measuring Suitability of the Potential Buyer 113

Hostile versus Friendly Buyers 115

Considerations before Signing 116

The LOI Template 117

12 Communication with Stakeholders 121

The Role of the Board of Directors 121

Keeping Investors Updated in the M&A Process 125

The Dos and Don’ts with Employees 126

13 Negotiating the Price Tag 129

Price versus Terms 129

Communicating Outcomes 130

Pushing for a Deadline 131

Increasing Price with a Bidding War 133

Maximizing Value on the Buyer and Seller Sides 133

Thinking Like a Buyer 135

14 The Due Diligence Stage 139

Putting Together the Deal Room 140

Validating Your Claims 153

The Dos and Don’ts During Meetings 154

Managing the Flow of Information 155

What to Look for in the Potential Buyer 156

15 The Purchase Agreement 159

How to Review the Purchase Agreement 160

Terms and Clauses to Watch 164

Typical Purchase Agreement Outline 166

Lawyers and the Purchase Agreement 168

Choosing the Right M&A Lawyer 169

Dealing with Legal Counsel 171

16 Strategic versus Financial Acquisitions 173

Different Types of Acquisitions 173

Reasons for Strategic Acquisitions 174

How to Know What Drives the Buyer’s Motivation 177

Why Revenues Take a Back Seat on Strategic Deals 180

17 Ways to Kill a Deal 183

Not Respecting the Buyer 183

Making Changes and New Demands 184

Lack of Commitment from the Team 185

How You Communicate with Employees and Customers 186

Withholding Information 189

18 Legal Considerations 193

Regulations and Regulators 193

Due Diligence and Assumed Liability 194

Intellectual Property 194

Working Capital 194

Escrows 194

Contracts 195

Warranties and Indemnifications 195

Stockholder Approval 195

Noncompete and Non-solicitation Agreements 195

Stock versus Asset Sales 196

Buying Companies That Are Not Incorporated 199

Liens and Encumbrances 201

19 Closing the Deal 203

The Anatomy of an M&A Deal Closing 203

Closing Preparations 204

Closing Times and Locations 204

Speed to Closing 205

Accounting and Taxes 206

Closing Checklist 208

Wrapping Things Up 209

20 Transitioning to a New Phase 211

Vesting and Revesting 212

Post-acquisition Integration 216

Looking Forward 219

21 The Emotional Roller Coaster during Acquisitions 221

Anxiety 222

Understanding the Process 223

Depression 226

Acceptance 227

Happiness 228

Glossary 231

About the Author 237

Index 241

The New copy of this book will include any supplemental materials advertised. Please check the title of the book to determine if it should include any access cards, study guides, lab manuals, CDs, etc.

The Used, Rental and eBook copies of this book are not guaranteed to include any supplemental materials. Typically, only the book itself is included. This is true even if the title states it includes any access cards, study guides, lab manuals, CDs, etc.