05 May 2009

More on M and A for Startups

Continuing the thread on M and A as an exit alternative, here is a good post from the WSJ about positioning your startup to be acquired.

http://blogs.wsj.com/venturecapital/2009/05/04/want-to-position-your-start-up-to-be-acquired-follow-these-tips/

I particularly like these tips:

"Look at it from the acquirer’s perspective."

In other words, what's in it for them? As part of my work at VentureArchetypes, I help startups develop their business plans, pitches, and positioning, and in every one of our engagements, we delve deep into "getting inside the mind" of our target customers.

The same goes for another type of customer (indeed, what could be considered the ultimate customer)-- the potential acquirer. What do they need? Where is their pain? Where are they weak in the marketplace?

In addition, although it's difficult to do, we like to try and forecast where our potential acquirers are going (e.g. with product roadmaps or in new markets) and get there first. To borrow a familiar cliche, like Wayne Gretzky we try to 'skate to where the puck will be'.

The other tip I particularly like is:

"Make sure at least two mortal enemies are bidding on your start-up."

This is critical, not only at the acquisition stage but at the VC (and even angel) funding stages as well. You need to introduce some competition into the game, or you will never get a deal done. If there's no heat on the deal, a single potential acquirer will likely drag their feet ("watch and wait") or even worse, get cold feet...if they think no one else wants you, it can be a red flag.

Having competition for a deal also gives you leverage for negotiations. In the best case scenario, a bidding war may erupt (I-bankers' ultimate dream). Of course, the toughest part is getting the first firm to bite...

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