Financial acquisition vs strategic acquisition | Brand voice
When we compare these two types of acquisitions, we think that the main difference is certainly the direction of the company as a whole. Similar to what you would encounter when financing with safe tickets.
Even during the phase of finding and making a deal with a potential buyer, you still have a responsibility to employees and investors to make the business as successful as possible.
One strategy you can use to reach out to interested parties is to clearly spell out the terms and conditions before any in-depth negotiations begin. Either that or discuss the plans the buyer has in mind. We recommend that you act in the best interests of everyone involved, as this can help preserve your reputation for future endeavors. Although it all depends on how your board votes.
What’s the best route for your startup?
The best way forward is primarily to focus on your goals and objectives, and on your responsibility to do what’s best for the business. If you are looking for an easier method to generate as much capital as possible, you may end up with different types of buyers bidding for your business. You may also want to continue to raise another round of funds from investors or go public as alternative options open up.
If you are doing well and posting some interesting numbers, these different types of buyers will contact you and make initial contact.
If you are more concerned with the success and future direction of the business, as well as the job security of your employees, you may want to seriously consider a strategic acquisition. As mentioned earlier, it might take a bit longer, but it could definitely be worth it.
You can start by contacting other companies and investors in the niche of your choice. If they’re not interested, they might be able to direct you to someone who is.
Other things to consider
Now that you have a good understanding of both terms, here are a few more things you might want to consider before choosing your ideal scenario:
Your return on investment – When browsing through offers from potential buyers, be sure to check the calculations. Be careful not to sell your business short. Know in advance what you and your shareholders want from the deal. Know your trading limits.
Trend niches – Some niches are very sensitive. You want to capitalize when the value of your business hits an all-time high. For example, if your business tends to be particularly busy during the summer, you can wait until then before looking for a buyer. Or your overall market or niche has peaked and growth has leveled off.
Do you need help? – Selling your business is not always easy. You may need the help of a M&A advisor or investment banker, as well as a legal team to get you through this. These costs should be factored into your exit strategy, to help you approximate how much you will ultimately receive.
Inform the appropriate people – If you are determined to find a buyer, be sure to talk to the right people first. Staff and investors could be on the list of people to notify. Just make sure it’s at the right time. The worst way for them to find out about a possible acquisition would be to hear it from someone else. Not only will this hurt morale and productivity, it could also negatively impact your reputation in general.
The next step – Why not start planning your next move before concluding with a buyer? There are a handful of advantages to doing this. You will be more prepared and motivated for the future, in addition to knowing clearly how much you want to receive (if you have planned a budget well in advance). It will also allow you to reconcile emotionally with the sale of your startup, which will reassure you of the next step.
On the other hand, looking to the future can make you think differently about acquisition. It’s all too common to think about selling after a bad day. If you’re having trouble visualizing your next project or goal, think twice before signing on the dotted line.
Strategic acquisitions of startups vs. Financial acquisitions
We hope this article has helped you differentiate between a strategic startup acquisition and a financial startup acquisition, while also giving you an overview of each. There is obviously no set route for every business, so doing your research and weighing the options is extremely important. Regardless of how you plan to seek out an acquirer, remember to keep track of fees along the way and never be afraid to negotiate.
Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a preface by “Shark Tank” star Barbara Corcoran, and published by John Wiley & Sons, the book was named one of the best books for entrepreneurs. The book offers a step-by-step guide on how entrepreneurs are fundraising today.
Most recently, Alejandro started and left CoFoundersLab, one of the largest online founding communities.
Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding where he was involved in one of the largest investment arbitration cases in history ($ 113 billion at stake).
Alejandro is an active speaker and has lectured at the Wharton School of Business, Columbia Business School, and NYU Stern School of Business.
Alejandro has been involved with the JOBS Act since its inception and has been invited to the White House and the United States House of Representatives to voice his positions on new regulatory changes regarding online fundraising.
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