In the world of startups, one of the biggest challenges is determining who might be interested in buying what they have to offer. Building a successful business involves not only creating a quality product or service, but also finding the right people who see the value in it.
According to industry experts, the process involves a mix of careful research, direct outreach, and a deep understanding of customer preferences. In this story, we explore the practical methods startups use to identify their potential buyers – an essential journey for sustainable growth and long-term success.
For Ivaylo Karmazov, whose startup Silverback Gaming was acquired two years ago, understanding a startup’s unique value proposition before embarking on the acquisition journey is of utmost importance early in the process.
“In our acquisition process, we made sure we understood what made our company special, what we could offer to a larger company and how they would benefit from us. In short, know your worth. Once you understand your value, the next step is to do in-depth research to see what the biggest players in your industry are doing. Look for gaps in their products or services that your business could fill. Ultimately, companies want to increase their value to their shareholders by offering better and more profitable products or services,” Karmazov told The Recursive.
As companies continually strive to increase shareholder value through enhanced offerings, a startup’s ability to address unmet needs becomes a valuable asset in acquisition negotiations, he adds.
Seize networking opportunities
However, most of the time, buyers are already aware of the target: they will either be a partner, a competitor, or an adjacent sector they want to expand into, like investment banker Ben Wong, who is part of MA Moelis Australia, explains.
“I would expect them to contact the founder to explore options. My advice to founders is that they should always be open to these informal discussions, even well before considering selling a company,” says Wong, who has overseen a number of acquisitions over the years.
Both Karmazov and Wong emphasize the importance of networking as a way to initiate acquisition discussions. Although Karmazov advises leveraging personal and professional connections, he also emphasizes that these connections don’t always have to be high-level.
“Once you have identified potential partners, start leveraging your network to introduce yourself. And remember, you shouldn’t just aim for high-profile connections. Sometimes a lower-level contact can help you reach key decision-makers like the CFO of a public company. We were eventually acquired by a company listed on the NYSE, which made the process more complicated,” says Karmazov.
Initiate and navigate the acquisition process
More often than not, buyers are the ones who initiate the acquisition process, says Wong. This usually arises from a strategic interest, such as growth in a specific sector or the desire to partner with or absorb a company with a proven track record.
“In most cases the business is ‘bought’ rather than ‘sold’, i.e. buyers will tend to move closer to the target business because they will have followed the growth, formed a relationship with the management team and the time has come to make a decision. offering as part of strategic acquisition growth,” he told The Recursive.
When the time comes for a startup to consider selling its business, industry experts suggest seeking advice from advisors to gauge market appetite and identify potential suitors.
This consultative consultation provides a valuable compass for determining whether a targeted or broader approach to reaching potential buyers is most appropriate.
“Founders will be clear when it is the right time to test the market for a sale, as incoming requests to buy the business will become increasingly vocal. At this point I’m biased, but I think the company should start consulting with advisors to get their perspective on market appetite and who they think might be interested. From there, a sales process could begin and, depending on the situation, this could be a very targeted process with just a few buyers contacted, or a broader set of potential buyers – it will depend on the “business and market conditions,” says Wong.
A knowledgeable legal team to help you with due diligence
On the other hand, Karmazov also notes that the process of acquiring a startup becomes considerably more complex when it comes to public companies, as it involves a rigorous due diligence process.
Therefore, a competent legal team becomes essential to protect the interests of the startup throughout the negotiations and ensure that all contractual obligations are met.
“They will look out for your interests and make sure all the important little details are covered in legal agreements. The final step was to talk about the deal, such as how much they would pay and what would happen to our team after the sale. It is important to add that the company buying from you may offer a cash and stock transaction, which is normal in our industry. It’s a lot of work, but if you are prepared and have the right people helping you, you can find a buyer who is a perfect fit for your startup,” he concludes.