I am currently advising a company that has raised a Series A financing round in the past. The founders have built a valuable b2c company with a social component that serves a niche market. Given the market conditions, the leadership team of this company has come to the conclusion that the timing is right to pursue an acquisition now.
While their company is not generating a ton of revenue, they have been able to create a sizable user base that is rapidly growing and that could be of value to a strategic acquirer that could offer their products to the members of the company I advise. Some examples of this type of transactions could be the acquisition of Waze by Google or the acquisition of Skype or Linkedin by Microsoft.
The big question, is how can the leadership team of this company generate a strategic acquisition when there are no suitors or partners that could step forward to make an offer? Furthermore, with 9 months left of runway that the company currently has, given revenues/burn, should the leadership team optimize for speed or for price in terms of getting a deal done?
Thank you for your responses in advance.
This happens often in cases where the company has focused exclusively on the features of a product.
Those interested in acquiring a company buy benefits, not features.
While companies can get funding by touting the features, neither customers nor acquirers will show up and start a bidding war, because there is no sucking sound in the market.
There usually are benefits and we help identify them. They typically exist in the blindspot of the founder and may remain hidden.
I am continually astounded by the 95% of founders who cannot focus outside the technical aspects to see the value outsiders need to see before they take action.
With acquisitions, you really need to know how to communicate with companies that are likely more interested in safety than the risks of acquisitions.
Often a rather simple repositioning is the difference that makes the difference.
Your question might lead someone to believe that the leadership team has lost enthusiasm for running the business. Larry has made a very good point that acquisition is about benefit, not features. It sounds like this company you're advising may be a me too business (small changes in niche appeal), with competitors that are much better known and with far deeper customer assets. Me too businesses are not attractive assets.
If the plan for the business was to be acquired, the most important things to show a potential buyer are REVENUE and the things related to churn. How much of their time and cost is spent acquiring new customers? How much is spent retaining customers? What is the lifetime value of a customer? How do they know this information?
The shorter the time to acquire, the lower the cost to acquire, and the higher the lifetime value of a customer, the more likely the company can find a buyer. Anyone looking at their numbers now is going to see them running out of money in the next year, and if they haven't figured out to be cash flow positive, finding a buyer for a me too idea is not very likely going to happen. The days of product before profit are gone.
This is a trap for a lot of businesses that think they have a great idea or idea variant, and that haven't actually figured out what customers are willing to pay for. Advice for leadership? Fix the revenue problem. Of course if they do that, the company won't need to be acquired to save it.
The first place to look might be the company's partners and see if a deeper integration might be of interest.
1. You have to get the suitors to come to you. You do not provide sufficient information about the company for me to make any specific recommendations on how to do this.
2. Why must you get them to come to you? You may think you know who the most appropriate suitors might be. But your opinion doesn't count. And even within those prospective suitors that are a good fit (in your opinion), only a handful of people might "get it" and none of them might be decision makers with the budget to do it. And even if they are, you do not know who they are.
You do not and cannot know why an acquirer might want to buy the company. Acquirers can have all manner of reasons, good reasons, dumb reasons. It is for them to determine, not for you.
3. "Furthermore, with 9 months left of runway that the company currently has, given revenues/burn, should the leadership team optimize for speed or for price in terms of getting a deal done?"
Should they find a suitor, it will be in the suitor's interest to drag things out and bleed them out to get a better deal. Why would your company assist a purported suitor in doing anything that might slow down the transaction? Time is not their friend. It would be ill advised to act as if it is.
It's up to you and the team to identify suitable companies for acquiring your startup.
Which companies would benefit from acquiring your user base? Why would they benefit? What is the financial benefit?
Answer these questions, then put together a succinct value proposition, then find contacts within those companies that would benefit from acquiring you, start a dialog with decision makers within that company.