Have you ever noticed how some startups are sold to major corporations before they’re fully developed? It’s not an accident. Many startup founders sell their business to a strategic buyer long before they gain momentum in the marketplace. Investors know this, and many specifically look for brand new startups to purchase.
If you’re struggling with capital, selling your startup to a larger corporation could help it grow. If you haven’t considered selling your startup, it’s a worthy consideration that could result in a retirement-worthy profit.
Investors know most successful founders will sell their startup
Investors are always looking for startups to acquire. The problem is, some startup founders avoid discussing potential deals because they don’t think their company is far enough along. However, if your startup isn’t ready to be sold, that doesn’t mean you should avoid discussing the potential sale with buyers. Early discussions might prove beneficial.
Early discussions with potential buyers will help you direct your focus correctly
Opening up discussion with potential buyers even before you’re ready to sell will help your business in two main ways. One, you’ll learn how investors value your business. Two, those discussions will provide insight on what features you need to focus on to strengthen that value. Considering only 20% of small businesses available for sale actually sell each year, you need all the help you can get.
Buyers want your business for its strengths
Investors acquire a business when that business has strengths that will solve their problems or help them grow. Sometimes businesses are looking for complimentary features. You need time to find the right buyer, so why not start discussions as early as possible with those who seem interested?
Someone else has more money and resources than you
If you can’t generate the capital to develop your business to its full potential, someone else can. The key is finding the right buyer who isn’t just looking to make a quick buck by flipping your business.
When you care about your business, you don’t want to sell it to just anyone. Pre-screening potential buyers is a must to weed out unqualified buyers in terms of finances and intentions.
In addition to asking how a buyer will finance the sale, you should be asking about their background in your industry. Without experience, the business is likely to fail.
A buyer with a solid history in your industry is a strong indication your business will succeed under their leadership. However, you should make yourself available during the transition period. Adam Petricoff from VR Charlotte recommends sellers maintain an active role in the oversight of their business for a duration after the sale. He says it’s a critical step to ensure the transfer of ownership starts off on the right foot. You’ll be able to share valuable insight with the buyer and provide answers as questions arise. Doing this gives your business a better chance at succeeding under the new owner’s authority.
Selling early could net you more profits in the long run
If you’re in business to make a profit, you can’t be attached to what happens to your business when you sell it. If you’re attached to your business succeeding once sold, don’t sell.
Twitter’s 2012 acquisition of Vine for $30 million is a good example of what can happen when you sell your company. Vine’s looping, 6-second silent video clips seemed like the perfect complement to Twitter’s existing 140-character posts. Twitter was ready to redefine social media through these videos.
Twitter’s acquisition of Vine occurred long before Vine’s public product was released. In other words, Vine was purchased early due to its clear value to Twitter. However, in an unexpected turn of events, four years later Vine was shut down. Vine couldn’t compete with Instagram and Snapchat, which seemed to be capturing all of Gen Y and Gen Z’s attention.
If Twitter couldn’t make Vine work, the creators probably wouldn’t have been able to, either. Selling the company early was probably the best financial move for them, despite thousands of disappointed users. For Twitter, $30 million is pocket change. For the founders of Vine, it was a significant profit.
While a Tweet posted by one of Vine’s founders echoes regret for selling the company, not all founders feel the same way when their startups are shut down. Some founders invest their profits into new projects and continue to sell each company like a serial entrepreneur.
What you do depends on your priorities. Do you want to make a lump sum of cash and retire early, or are you invested in seeing your project succeed?
Don’t sell your startup unless you’re willing to watch its demise
Once you sell your startup, it’s in someone else’s hands and you have no control over the outcome. If you’re going to sell your startup, you have to be willing to watch it fail. If the sale nets you millions of dollars, you can always start a new project.
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