The Most Important Relationship If You Want Your Startup to Be Acquired
My experience is limited to the time I spent on the corporate development team at Aol and anecdotal conversations, but I want to share what I’ve learned about the process of being acquired. This post was originally published on Benjy Boxer's blog.
If you want to be acquired by a large company, your number one goal should be meeting with the senior manager who will sponsor the acquisition and getting her to trust you. You need to have a strong relationship with this senior manager and convince her that you and your company will help her achieve her goals.
Of all the angel-funded companies (already a very select group of companies) that received funding between 2004-2008, less than 0.7% were acquired between 2008-2012 (these are very rough estimates based on combining two datasets from the NVCA and Center for Venture Research that may not use equivalent criteria). The odds are against you, so you need to know the best path to acquisition is through trusted relationships at a strategic buyer.
The path to acquisition at Aol was similar for almost every company we acquired between 2010 – 2011 (that’s when I worked there). During this time, Aol acquired 9 companies. While I was on the team, we executed and/or integrated 7 of these acquisitions. Additionally, we came close to acquiring 3 or 4 other small companies, but didn’t close those transactions. The two acquisitions I worked closely on were Pictela and the Huffington Post. These two, along with all of the other acquisitions, followed a very similar path.
At Aol, there is a senior management team that is responsible for specific products or brands at the company. In order to be acquired by Aol, a startup needed one of these senior managers to be its internal champion – the one exception being the Huffington Post, which due to the transformative nature of the acquisition and its impact on the organizational structure of Aol was championed by Tim Armstrong.
It’s absolutely essential that the CEO of a startup understands how important this internal champion is to the acquisition.
Essentially, at the time of the acquisition, the senior manager must vouch for the acquisition and commit to a budget that your little startup is supposed to affect. For this reason, the senior manager must believe that you and your company aren’t as risky as they are and that you’re either going to help her achieve her goals or make her job more difficult if you remain independent or are acquired by a competitor.
Of the companies we acquired, I saw four strategies that seemed to convince the internal champion that a company deserved her trust.
- Companies made themselves known as thought leaders in the industry. The founder spoke at conferences and made sure that his product was featured at those conferences. Sometimes, if you get a senior manager to like you enough, she can help get you featured at the conference.
- Founders began a conversation with the senior manager as a business deal and made her realize that she needed the company to drive innovation internally.
- Founders networked and established relationships with the senior managers at every potential acquirer. Senior managers are similar to VCs - they’d rather invest in lines than dots, and they gossip about companies and products.
- The CEO convinced the senior manager that she needed him to lead her new initiatives and execute on an innovative plan within the company. This is a typical path for an “acquihire”.
Once you get the senior manager excited about an acquisition, it’s almost impossible for a corporate development team to derail it. If the senior manager believes you’re the key to her success, she will push the acquisition process and the corporate development team to execute it.ShareThis