You might imagine that every tech entrepreneur is just waiting for the moment when they can cash out of their company. But if you’re selling – rather than going for the vaunted IPO – doing the deal can be a complicated process, not to mention an emotional journey. For starters, there’s setting a fair price for the venture. And, if you’ve spent years building the technology behind the company, as well as handling the nuts and bolts of running the business, selling your “baby” can be a defining moment.
If you’re thinking about selling, here are some points to consider.
What’s Your Motivation?
Ask yourself who and what is driving the sale. If you’re looking to cash out, think about the reasoning behind it, and take a long hard look at your long-term career and entrepreneurial goals. Maybe your initial investors are longing to cash out, too, and are pushing for an acquisition. Make sure you’re on board with the move, or see if you can buy them out for a reasonable price. In either case, you’ll want to know the specifics of the deal and if it will sit well with your vision. As part of the sale, you’ll likely be asked to stay on and help lead the company for some period of time. Whatever happens, you’ll want the transition to be a smooth one.
Even when you step down, you’ll forever be attached to the company. Many a tech entrepreneur has walked away only to find the acquiring company pivoting and taking the firm into a totally new direction — or even shutting it down eventually. Be prepared for all possibilities.
What’s Your Worth?
You’ll need some wise counsel to advise you through the process. Hopefully, you already have a great corporate attorney and accountant at the ready — ones who’ve handled acquisitions many times before. If not, find some. Then make sure you understand the terms of the deal. Don’t simply defer to your advisors — ask questions. Get expert advice beyond your legal and accounting team and be an active party in the process. Be prepared for a rigorous investigation of your business plan, customers, financials and operations.
Most legal experts and accountants will tell you that it’s difficult to determine a fair purchase price for a company. But the market will set it. A good M&A lawyer can help you through the process and will keep you from nitpicking the deal to death. That’s a common problem.
Once you settle on the amount but before you sign the papers, you’ll need to understand all of the deal’s terms, in detail. Be sure you’re clear on how you’ll be paid, and that approach is acceptable to you. Will it be a mix of capital and stock options or straight-up money? Will it be wired to your bank account? Will financing be needed? Obviously, this is where a smart lawyer and accountant can help.
Should I Stay or Should I Go?
If you like being the captain of your own ship, you may want to take your leave when the sale’s complete. So be sure you’re clear on how long you’ll be required to stay on after the acquisition if that’s part of the deal, and what kind of authority you’ll have.
Pay special attention to the terms of any non-compete agreement. Those are a common part of most acquisitions. Find out how the agreement defines and limits your working in a similar space. Does the non-compete apply to starting a brand new company, and what type? Typically, the sale price for a tech company is much higher than in other industries, so non-competes can be pretty detailed. The reason: There’s simply more money on the line.
Cashing out of your company can bring you a lot of money and a lot of satisfaction. Plus, it’s a great credential for future opportunities. But it’s not a simple process, and it doesn’t happen quickly. Don’t be rushed, and before you sign make sure you’re as familiar with the deal as you are with your company itself.