If they're being honest, most entrepreneurs would say that selling their company was always the plan. Sure, we talk about building a billion-dollar, publicly traded, long-lived enterprise. That's the dream. But if we're pairing our positivity with our pragmatism, the more likely exit strategy involves some larger company finding the product or service we created is essential to its grander plans. M&A beats IPO any day.
This is especially true in my neck of the woods, amid the sprouting startups of San Francisco. Every year, dozens of tech tykes are acquired by Google, Facebook, Microsoft, Amazon, and other such behemoths. There are long-scrolling Wikipedia pages dedicated to tallying the hundreds of deals that have occurred over the past decade or two. I certainly have spent time daydreaming about how happy those founders must have been once terms were agreed on and the contract was signed--and I was certainly not alone in that exercise. How relieved they all must have been. They finally got there: an exit.
Thing is, while most people see these transactions as the stuff of terse TechCrunch reports, for those of us involved they are better described as transmutations--passages from one state of being into another.
Um, scratch that: At first, even the people involved think of them as transactions. It makes sense, as the only way to navigate the acquisition process--the term sheet, the letter of interest, the due diligence, the contract terms, the reps and warranties--is to fixate on the promise that there will be, at last, an end. If you run the M&A gauntlet, the light of getting the deal done is what gets you through the tunnel.
But once the deal is done, once the wire transfers have cleared and the assets have been exchanged, after the toasts and the (hopefully) happy phone calls to investors, reality sets in. Founders and founding team are now, well, mere employees, who have to learn their roles in this larger company and suss out how to actually merge.
To be clear, I'm talking about startups being acquired by larger companies, not corporate megamergers or a "merger of equals." (Which never happens. Somebody always wins.)
In truth, there are several ways to position an acquired company within a larger enterprise, and each of the variations is a flavor unto itself. Basically, they boil down to three choices: Keep the acquired company as a separate operating unit; digest it entirely, dissolving it and absorbing its employees into existing teams and structures; or work some hybrid structure in which the acquired team has some autonomy but shares certain services and functions with the larger enterprise.
The best path for a small startup--say, 25 or fewer employees--is to bite the bullet and fully integrate the team into the new company. I've seen friends hang hopes on vague promises that things wouldn't change ("We just want you to keep doing what you do best") only to get a hard phone call a few months later telling them that autonomy is over. That creates a kind of double death for the startup: first, giving up ownership, and then giving it up again when reality sets in.
Better for everyone, I say, to have the hard talk up front, and focus on how your products and team can become vital to the acquiring company. It's all for the good: After being acquired, the startup team will already be struggling for meaning. Having lived the mission and dream of startup life, feeling like a fifth wheel is bad for founders and team alike.
Frankly, given that most startup acquisitions come with the golden handcuffs of a two- or four-year vest, a lack of alignment on roles and goals is the worst possible outcome, a purgatory for people who, by their nature, are entrepreneurial and eager to make a meaningful impact.
So when an M&A has been finalized, celebrate your success and embrace reality: Your startup days are over.
Until the next time.