The German startup scene is booming. Never before have aspiring digital companies been able to capture so much money through investors, IPOs or crypto investments. According to the start-up barometer in 2018, 4.8 billion euros were invested, seven percent more than in the previous year. Money and interest in innovative startups is therefore readily available. How does a deal between digital entrepreneurs and larger buyers work best? Anyone who acts awkwardly in a takeover offer not only forfeits his chance of a high investment, but can even throw himself over with his team and, in the worst case, end up without a company. Here are the 7 bids for founders in the sales process.
1 Ensure internal unity
It is fundamental that the partners of the startup agree on the price to be achieved and the future vision of the company. For example, can the founders live on the assumption that only the technology will be acquired, but sooner or later all employees will be dismissed? Should the company be transferred to a new, perhaps much stiffer, corporate culture? Who needs to be asked about decisions now? These and other questions should be clarified before requests from prospects are answered
2 Earn out define
Because most corporates are desperately looking for patent digital entrepreneurs, the management team will probably stay with the company for a period of between one and five years, or take over responsibilities from the buyer – and probably not drive Ferrari right away. To motivate, the founders team should agree on an appropriate six- to seven-digit cash payment immediately after the deal and later tie the remainder to bonuses. So the salespeople do not feel gagged and the buyers incentivize the founders team, committed to staying on board for a while longer.
3 Do not put all your eggs in one basket
Selling when you do not have to sell is the best situation. So: create solid financial cushion to be able to go on more confident in sales negotiations. Therefore, the company should be deprived of little cash or negotiated with the bank for taking up a working capital loan. In addition, in a sales process at least two buyers should always compete against each other. Startups, for example, can also bring in their own customers as a purchase object in the game, they know the company and are already fans.
4 Understand the buyer
Even before the start of the negotiations, the founders should try to understand the company and especially the persons directly involved in the deal and their motivation very well. Exact inquiries, even with external market partners, helps to negotiate better in the sales process.
5 Calculate costs
One of the most important questions before the sales process is: Can we afford a sale at all? An M & A process usually takes a total of nine to 18 months. An operational imbalance can quickly arise because there are high costs for tax consultants, travel, non-operational time and IT systems added. This is neither good for the negotiating position nor – in the non-sale case – good for the company. Setting a budget for the sales costs and a timetable are elemental. In addition, the management team must not neglect the operational work. Success in sales processes is less than five percent. Preferably choose two people specifically for this process and shield, otherwise there is restlessness in the team.
6 Operative suck
Are there written contracts with all customers? Did the freelancers sign their NDA’s? Is the technology sufficiently documented? How long are the leases? Each of these points will be used by a skilled buyer to push the selling price. Clean with cleanliness shine, because any attack surface can be expensive.
7 Only celebrate at the very end
M & A transactions break with good regularity the night before the notary’s appointment. A well-known negotiation tactic in the US is to call the founders at night and say, “We like to do the deal, but the purchase price is only 50 percent of the agreed amount.” In such a case, one must be able to say goodbye and fall back on other interested parties (see Tip 3). Nothing tastes as stale as too early open champagne.
Also published on Medium.