Seunghyun Lee

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In 2020 I sold my startup to the US-based design company, and my M&A journey was rocky. Many founders from my community reached out and asked how M&A works. So here are the M&A essentials you need to know. 1 Plan as early as possible Selling a startup is completely different from running one. My exit was bumpier than it had to be and it took longer than I planned. The M&A process can take anywhere from six months to several years depending on the complexity of the deal. Mine was around 7 months long. Your typical process during M&A include: - Planning and Prep - Evaluation, outreach and meeting buyers - Negotiating, drafting agreements, due diligence and closing You should know it works beforehand! This is not a"learn-on-the-go". 2 Understand your true goals All founders are dreaming about successful exit, in one way or another. However, real motives to sell can be different and you need to be honest about your M&A goals with your co-founders and investors. You could want to sell because .... - you need "a graceful exit" - you are tired and want to go for a new idea (let's say after 4 years of 24/7 work on your startup) - you see that can grow faster/simpler with a big partner - the market has shifted and you want to move - you want a meaningful $$$ and someone approaches you 3 Choose the right exit strategy Everyone likes to talk about their exit as if it was a $$$$ acquisition. But, humble aquihire is more common than you think. Generally, the two main M&A strategies are: M&A deals: Getting wholly acquired via Asset Purchase, Stock Purchase or Merge. Acquihires: A form of acquisition where the buyer s focus is on the talent and/or the IP of a startup, not the product, services or customer base. Other strategies most likely won't be realistic for most folks in the PH community but I will mention them: micro acquisitions, partial sales of assets, selling your stake to a partner or investor, management and employee buyouts (MBO), IPO. 4 Decide who is your ideal Buyer Just as you understand your buyer when marketing your product, knowing your acquirer is crucial when selling your startup. Are you looking for strategic acquirers who want you for your tech, team or user traction, or financial acquirers who care more about revenue and growth? What companies are most likely to see your value? 5 Build a target list Using your buyer profiles, build a list of companies (series E-D scale that could be potential buyers. Start building relationships with businesses on your list. Like with fundraising, it starts with relationships. 6 Highlight your startup s value to your buyer From Elad Gil's books: your value is directly correlated with what the buyer is looking for in you. Buyers can look for acquihires or team buys, business assets or technology buys, or getting you as a strategic asset. Sstrategic acquisition is the most interesting M&A for founders, while acquihires the cheapest ones. 7 Defining M&A price There are several methods to calculate your startup s valuation: earnings multiples, the comparable approach, cost to Duplicate, discounted cash flow and "whatever they want to pay" . 8 Get ready to due diligence (DD) During DD you need to build your data room, making sure it s clear for buyers and shows your startup s value. You should have clean and ready financial statements, federal filings, revenue breakdowns, team breakdown docs (including tenure, compensation, and key players), all IPs and agreements. 9 What to check when negotiating One of the most important considerations during the sale is the price of your startups. However, don t focus solely on money. You should also consider leverage like: escrow and holdback, the future of your team, how the buyer plans to pay, and your responsibilities going forward.