Should you build a startup expecting to be acquired by a specific company?

Unless you have a decent traffic or hugely demanded items larger comps might no be interested. Access to market is what leads companies to buy one another. I rencently bought a commercial cleaning company and merged it with my residential one to create an improved service with my people but leveraging the other company's subscriptions. I would not buy based on services, but buy either access to data, people or market. So your approach can be based on that rather than pitching a retailer with zero margins. Finding companies to pitch to is harder than it sounds and it literally simply comes down to you picking up the phone as much as you can. Good luck!

Fast growing, UK B2C SaaS doesn't really give me enough information. The most critical piece of information is your revenue/growth rate or valuation. That's going to determine both who your potential acquirers are and who the best type of firm is to help you sell. M&A firms tend to be broken into four big groups, generally based around size: full service investment banks, boutique investment banks, M&A advisors, and business brokers. At the top are Full Service Investment Banks. These are firms like Goldman Sachs, Morgan Stanely, JP Morgan, etc. They work on the biggest and most complex deals, usually nothing less than $1 billion in transaction value (their 'midmarket' teams will do $500M transactions occasionally, but not often). They also tend to offer more than just advisory, including providing funding, other capital markets transactions, banking services, etc for massive corporations. When Dell was taken private by Michael Dell and Silver Lake, bankers from Barclays and Parella Weinberg advised them. JP Morgan Chase advised Dell, the company. Barclays was also one of the four banks to provide the $15 billion in loans to finance the deal along with Bank of America Merrill Lynch, Credit Suisse and RBC Capital. Parella Weinberg is an example of the next level down - a boutique investment bank. Boutique investment banks tend to focus on larger transactions as well, usually in the $300MM-$50B range. Some firms, like Parella Weinberg, Jeffries, Moelis, etc will be the boutique bank attached to a very large deal like the Dell deal. Most often though, boutique banks are running their own transactions in the $100MM - $1B range. Boutique banks also tend to focus on a few industries where they have expertise or will have teams of bankers focused on specific industries for mid-market companies. Piper Jaffray and Cowen both have Technology, Media and Telecom (TMT) focused banking teams, for example. Boutique banks won't provide financing most of the time, unless they're a merchant bank, as they're specifically focused on helping you close a deal. Below boutique banks is a group of people called M&A advisors. They'll often refer to themselves as investment bankers, but in most cases they aren't actually registered with FINRA as an investment bank. Or they will be registered, but through a different firm. M&A advisors tend to work deals in the $20-100MM range, though they will occasionally work larger deals. Typically the larger, more complex deals are run alongside a boutique bank, in some ways similar to how boutiques will run alongside a full service bank. Once you get to this level of advisor/banker, there starts to be thousands of bankers who all have different expertise. Some of the advisors used to work at boutiques or full service banks and decided to go out on their own so they have very good contacts. Others started out in a very small advisory and have worked their way up. You're going to want to make sure you really vet their contacts and understand what deals they've *closed* in the past (not just worked on). GrowthPoint Technology Partners is an example of a good bank of this size that is focused on technology deals. M&A advisors tend not to have a lot of deals happening at once, so they'll spend more time with you helping you value your business, structure the pitch deck, etc. The bottom rung of the ladder is what are called business brokers. Brokers tend to be more focused on volume than strategic buyers. They're going to help you widely advertise that your business is for sale and then will help you manage the process of dealing with buyers. Relative to the other options, they're going to feel a little bit more like a real estate agent. A technology example of this is FEInternational. They'll help you sell your website/business by advertising it widely to other individuals who would potentially be interesting in buying from you. Their average sale prices are in the $100k - $10MM range. At this level, they'll have expertise helping you close the deal, but mostly as a straightforward transaction. It's unlikely to be a stock for stock sale or have any complexities other than some sort of escrow and a bit of due diligence. One of the best ways to figure out how you should value your business, who you should be chatting with, and how to get the most value for your business would be to work with Axial (http://www.axial.net). They have a network of 20,000 investment bankers, private equity groups, and corporations. Axial has put together a very good guide that will help you better understand your options, what you should be doing next, etc as you prepare to sell: http://www.axial.net/forum/ceo_library/ I hope that helps. I'm happy to chat more in-depth if you have further questions, just connect with me here on Clarity. Good luck selling your business.

Q) What info would a buyer need in order to make an offer? Unsolicited offers rarely start out as offers. They start as conversations. Cold inbounds from potential acquirers are usually done to establish some facts and also willingness to entertain an offer. They need to have enough information to form a rationale (i.e. explanation as to why it makes sense to the acquiring company) and enough confidence that there is interest by the seller. Q) Would that info need to be verified or can an offer be made on the condition of verifying later (if the conversation gets serious)? A) Offers are always conditional. There is a delicate balance between knowing how much to disclose and when to disclose information, versus trying to force more commitment on the part of the potential acquirer. Q) What is a general rule of thumb (formula?) for how to valuate a SaaS business? A) Depends on the size and business of the acquirer. The smaller the acquirer (especially where its valuation is $100m or less), the more it becomes a relative valuation argument (what do we have and what do you have), but the larger the acquirer it is typically a talent acquisition model where the business dynamics are less important to what the team has demonstrated it can do and the perceived value that that team can make internally. This is even more true when the target (you) is generating less than $5m ARR on a trailing basis. Finally, you phrased this question as "how would one go about entertaining an offer to buy my company?" so let me speak to a few general rules. 1) If you're willing to sell, be polite, efficient and courteous to any potential interest. 2) Quickly qualify who you are dealing with and their ability to make a decision (are they junior and just doing research or are they VP Corp Dev?) 3) Quickly establish mutual interest in a desire to dive deep, and get them to explain their process including other decision-makers etc. 4) Ensure that you have competent legal counsel who has significant experience in M&A, ideally with the buyer you're talking to. 5) *GET A TERM SHEET*. You have nothing until you have a term sheet and even then, you don't have a deal. 6) As soon as you have a term sheet, begin aggressively marketing your Company to other potential acquirers. 7) Try and put the impact of the financial outcome aside for a moment (very hard to do) and begin evaluating your suitors based on who you really want to work for over the next 3+ years. Do your due diligence on this question as much as possible. 8) Don't take your eye off the business or celebrate the deal until it's done. I've seen too many friends celebrate prematurely only to see the deal die or radically change at the last minute. Happy to talk through this in a call with you in more detail.

I think the best place to start is your startup's net worth which includes all assets, the salaries of your staff, and total sales. Say for instance, your business' net worth is $300,000. That's a good middle ground starting point, but your price to this other company can rise or drop from there. The next step would be to study your competitors and see if you can estimate their approximate net worth. If you can research about 3 to 5 companies in your competition and space, take the average, so the average could be $450,000 for instance. Next, have several meetings with this company and see how bad they really want you and how far they are willing to go to acquire you. When I say several meetings, you need to really see what they are willing to pay and compare it to your net worth and average net worth of your competitors. You may be able to go higher from there and let this company negotiate your price down. Be prepared to show them the average net worth of your competition and yours, but only show them the higher figure so they can negotiate your price down. Have an absolute lowest price that you are willing to go to sell. Good luck. Bruce

As you may know, we acquired Clarity recently and have done numerous acquisitions at Startups.co so we spend a lot of time thinking about this. I've also personally been acquired a few times so I've been on both sides. With that said I think the earlier comment about how much value you can bring to the acquirer is always a great place to start. For example, if your company had $100k in sales per year, no reasonable multiple of that is going to get you into a meaningful acquisition price. So scratch that. Instead - try to determine what kind of revenue the acquirer might generate in the first and second year post acquisition. That at least gives you a starting point. What you can't do is start thinking about what Instagram sold for. None of that type of silly math matters. Those are one of conditions where a company is in such hot demand is so singular in it's value (no one else was that big at that time in that particular segment) that they play by entirely different rules. What's nice about the 'what value can we bring' discussion is that it shows that you are thinking about what's in it for them, not just what's in it for you.