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Alejandro Cremades. Selling Your Startup
Table of Contents
List of Illustrations
Guide
Pages
Praise for Selling Your Startup
SELLING YOUR STARTUP
Acknowledgments
Foreword by Bhavin Turakhia
1 Seeding What Would Grow into Panthera Advisors
Accelerated Growth through Acquisitions
Inbound Interest and a Path Forward
Choosing My Wingman
Our M&A Journey
Launching Panthera Advisors
My Unwavering Commitment to Entrepreneurs
2 Getting Your Company Acquired
M&A Is Harder Than Fundraising
The Acquisition Process
Media versus Your Business: What You See in the Press versus Reality
Acquirer Expectations
The Process
Accounting
Investment of Time
Sharing Risk
A Commitment to Making the Most of the Company
Make Them Look Good
Why Most Acquisitions Fail
That Was the Plan
It Wasn't What They Expected
Incompetence
Integration
Changing Markets and Circumstances
3 The Role of Investment Bankers
What Is an Investment Banker?
Good Cop, Bad Cop
Why Bankers Add Value
They Are Experts at Pitching
They Can Run Valuations
They See the Maximum Potential Value of Your Startup
They Handle the Paperwork
They Know the Players
They Know How to Stretch to Help Get Deals Done
Getting the Right Advice
Trusted Referrals
Long-Term Experience
Domain Experience
Not Just What You Want to Hear
Breaking Down the Fees
Retainers and Up-Front Fees
Reimbursement
Success Fees
Breakup Fees
Average Fee Levels
4 How to Plan Ahead
Consider the Reasons Why You Want to Sell
Getting to the Next Level of Scale and Customers
Efficient Growth
Advancing the Mission
The Value Has Peaked
You Get an Offer Too Good to Refuse
You Get an Opportunity to Advance Your Learning
Fundraising Challenges
Creating a Great Outcome for Your Team
Personal Reasons
Moving On to the Next Thing
Tying Up Loose Ends
Cleaning Up Legal
Paying Off the Debt
The Importance of Making Yourself Expendable
The Ability to Sell Your Business
Price
Not Being Stuck Staying On for Years
How to Make Yourself Expendable
Branding
Hire Great People
Set Yourself in the Right Role from the Beginning
5 Preparing the Company's Pitchbook
Packaging the Message
What Makes Your Company Unique?
Nailing the Value Proposition for Potential Acquirers
Defining Transition Plans for Potential Buyers
Crafting the Marketing Plan
Identifying a Powerful Flow and Structure
Acquisition Memorandum Template
Cover Slide
Disclosures
Table of Contents
Executive Summary
Market Opportunity
Solution
Target Market
Competition and Advantages
Market Traction
Financial Results and Projections
Executive Team
Technology Platform
Marketing and Sales
Business History
Reason for the Sale
Buyer Qualifications
Directions for the LOI
Notes
6 Putting Your Finances in Order
Understanding Financials
The Importance of Key Metrics
Burn Rate
Hard Costs
EBITDA
Gross Revenues
Gross Profit Margins
Sales Units
Customer Acquisition Costs
Growth Rate
Debt to Equity
Why Growth and Operating Assumptions Are Critical
Assumptions Are the Basis for All of Your Other Financials
Credibility
Earnouts
Modeling Out a Powerful Five-Year Projection
Anticipating Questions on Numbers
7 Understanding Your Valuation
Variables Affecting Your Startup's Value
Common Methods of Business Valuation
Your Number
Earnings Multiples
The Comparables Approach
Cost to Replicate
Discounted Cash Flow Method
Additional Valuation Methods
How to Value Pre-revenue Startups
The Berkus Method
Venture Capital Method
The Scorecard Method
Risk Factor Summation
First Chicago Method
How to Increase Your Valuation Faster
Improve Your Pitch
Get Those Revenues In
Get Your Prototype or Minimum Viable Product Done Today
Build Out Your Team
Position Your Startup in the Right Way
Valuation versus Terms
Why You Never Want to Disclose Your Valuation
Avoiding High Valuations with No Rationale
8 Building the Target List
The Importance of Building the Target List
Not Alienating Ideal Buyers
Saving Time
Maximizing the Price
Achieving the Best Terms
Optimal Outcome for Your Team
Best Future for Your Mission and Product
Efficiency in the M&A Process
ROI on Your Deal-Making Efforts
Ways to Identify Potential Buyers
Why Are You Selling?
What Type of Buyer Is the Right Fit?
Culture Fit
Ability to Buy
Motivation
Competence in M&A
Trust and Alignment of Values
Vetting Buyers for the Right Fit
Research
M&A Professionals
Interview Others
Build Personal Relationships
Become a Customer or Vendor
Partner Up
Using Partnerships to Trigger Acquisitions
How to Make Contact with Interested Parties
Introductions and Referrals
Networking
Cold Emails
Be So Good They Can't Ignore You
Move Up the List in Reverse Order
Use Brokers
The Golden Rule in Making Contact
9 The Communication Process with Buyers
Liabilities and Responsibilities
How to Handle Communications
Gauging Initial Interest
Nailing the Follow-Up
Awareness and Discovery
Learning
Consideration
Comparison Shopping
Trust
Due Diligence
Negotiation
Email
Social Media Updates
Phone Conversations
Meetings
Finding the Decision-Maker
C-Suite Executives
Corporate Development
Advisors
Transaction Leads
Business Unit Leaders
10 Preparing for a Successful First Meeting
Finding Out the Strategic Road Map of the Buyer
You Have to Understand the Buyer
The Importance of the Buyer's Strategic Road Map
How Do You Learn More about the Buyer's Strategic Road Map?
Agreeing On the Meeting Location
Who Is Going to Be Part of the Meeting?
Home Games versus Intelligence Gathering
In-Person versus Virtual Meetings
Setting Up the Agenda for the Meeting
Follow Up with Emails to Keep Them Warm
Understanding How to Address Concerns
Questions Potential Acquirers May Ask You
Market
Traction
Team
Competition
Financials
Intellectual Property
Business Model
Corporate Structure
Existing M&A Process
11 Getting to a Letter of Intent (LOI)
Why an LOI Is So Important
Breaking Down the LOI
Who
Overview of the Transaction
Due Diligence
Confidentiality
The Exclusivity Period
Comparing Valuations
Measuring Suitability of the Potential Buyer
Can the Company Buy You?
Will the Company Buy You?
What Will It Be Like?
How Does It Compare?
Hostile versus Friendly Buyers
Considerations before Signing
The LOI Template
[Buyer] [Seller] Acquisition Loi
12 Communication with Stakeholders
The Role of the Board of Directors
Weighing All Options
Guiding Valuation and Fit
Being the Voice of Objectivity
Post-merger Integration
Keeping Investors Updated in the M&A Process
The Dos and Don'ts with Employees
Note
13 Negotiating the Price Tag
Price versus Terms
Communicating Outcomes
Pushing for a Deadline
Increasing Price with a Bidding War
Maximizing Value on the Buyer and Seller Sides
Thinking Like a Buyer
Give and Take
Price Thresholds
Appearing Smart
Paranoia
Where Is the Value for the Buyer?
Will You Move?
14 The Due Diligence Stage
Putting Together the Deal Room
Physical versus Virtual Deal Rooms
Deal Room Software
Who Should Have Access to Your VDR?
What Information Should Be Uploaded to Your Deal Room?
When Should All of This Data Be Uploaded to the Deal Room?
Validating Your Claims
The Dos and Don'ts During Meetings
Managing the Flow of Information
What to Look for in the Potential Buyer
What Information Is The Buyer Asking For?
What Data Are the Buyer Looking At and When?
Making Excuses
Efficiency and Honesty
15 The Purchase Agreement
How to Review the Purchase Agreement
The Definitions
Purchase Price and Payment Execution
Warranties and Representations
Indemnification
Termination Provisions and Breakup Fees
Closing Conditions
Covenants
Terms and Clauses to Watch
Jurisdiction
Stock Exchange Ratio
Asset Purchases
Earnouts
Express Nonreliance
No-Shop versus Go-Shop Clauses
Pandemic and Epidemic Carve-Outs
Typical Purchase Agreement Outline
Lawyers and the Purchase Agreement
Choosing the Right M&A Lawyer
Experience Fit
Global versus Local
Value for the Money
Alignment
Bandwidth and Priority
Dealing with Legal Counsel
16 Strategic versus Financial Acquisitions
Different Types of Acquisitions
Financial Acquisitions
Strategic Acquisitions
Reasons for Strategic Acquisitions
Growth
Roll-Ups
Strength in Competition
Extending Control over the Supply Chain
Legal and Regulations
Entering New Geographic Markets
Buying versus Building New Products and Tech
Economies of Scale
Branding
Acquihires
Removing the Competition
How to Know What Drives the Buyer's Motivation
Consider What Type of Organization the Buyer Is
Ask
What They're Asking and Focusing On
Their Track Record
What's Happening with Its Business
Why Revenues Take a Back Seat on Strategic Deals
17 Ways to Kill a Deal
Not Respecting the Buyer
Making Changes and New Demands
Lack of Commitment from the Team
The Board: Voting Power
Cofounders and the Executive Team
How You Communicate with Employees and Customers
Withholding Information
Debts
Ownership
Accounting Issues
Legal Issues
Liabilities
People and Customers
Note
18 Legal Considerations
Regulations and Regulators
Due Diligence and Assumed Liability
Intellectual Property
Working Capital
Escrows
Contracts
Warranties and Indemnifications
Stockholder Approval
Noncompete and Non-solicitation Agreements
Stock versus Asset Sales
Cash Deals
Stock Purchases
Asset Purchases
Fixed Value versus Fixed Shares
Performance-Based Payments Post-closing
M&A Trends
Taxes
Post-closing Company Performance
Buying Companies That Are Not Incorporated
Not Having Incorporated the Business
Incorporating Less-Desirable Destinations
Not Issuing Founders' Stock
Other Issues
Liens and Encumbrances
Note
19 Closing the Deal
The Anatomy of an M&A Deal Closing
Closing Preparations
Closing Times and Locations
Speed to Closing
Accounting and Taxes
Understanding the Difference among Types of Sales
Rights to Pre-closing Tax Prep and Filings
Tax Indemnifications
Tax Reform and Changes
Understanding Personal Tax Liabilities
Post-closing Financial Adjustments
Closing Checklist
Wrapping Things Up
20 Transitioning to a New Phase
Vesting and Revesting
Earnouts
Revesting
Post-acquisition Integration
Start Early
Leading the Integration
Create a Time Line
Create a Detailed Action Plan
Document a System
Culture
Looking Forward
Notes
21 The Emotional Roller Coaster during Acquisitions
Anxiety
Understanding the Process
The Terms and Conditions
Due Diligence
Renegotiations
The Sprints
The Silence
Anticipation
The Calm after the Storm
Sharing the News with Employees
Depression
Acceptance
Happiness
Glossary
About the Author
Index
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