How to sell your company (and not get screwed):

F*ck!!! That’s the fourth rejection in a row.

I really thought this was the one. They were the most logical buyer.

Desperation. I’m sure they smelt it. I certainly felt it.

We were in the fight of our lives. Our largest shareholder was trying to take over the company.

We had less than six months of runway. Plan A? Raise money and buy them out. Plan B? Sell the company.

We hired a banker and started pitching possible buyers.

But all we got was a bunch of “no’s” and a few crappy offers.

Shareholder dispute. Performance dipping. Running out of money.

I don’t blame them for passing.

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The best companies don’t sell, they get bought. 

With time running out, we scrambled to raise enough money to buy out that shareholder. It came down to the wire, but we hit the buzzer beater and pulled it off.

Without the constant distraction, performance skyrocketed. Revenue doubled in eighteen months.

Three years later we accepted an offer at ten times the valuation.

This time, we didn’t’ sell. We got bought.

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How to (get bought) without getting screwed

The first time around, we were selling the company at the wrong time. Most everything about our approach was off. We had no leverage.

The second time around we got it right. But still, there are things I’d do differently. This stuff isn’t easy!

That’s why selling your company is one of the hottest topics inside Highland. There’s not a lot of great advice out there.

So I found a guy who knows more about the subject than most people on the planet. Dave Sobota.

He’s run M&A at three giants: Google, Instacart, and now GoFundMe. And has been the buyer on hundreds of deals, including:

• Youtube (bought by Google for $1.65 billion)

• Waze (bought by Google for $1.3 billion).

• Casper (bought by Instacart for $350 million)

So I asked Dave to cross the table, put his founder’s hat on, and answer one question:

What advice would you give founders about selling their company?

Here’s a great clip from the Highland Fireside talk, with highlights below:

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I. Spot serious buyers early 

• Building relationships w/ potential acquirers is good (especially strategics)

• But don’t overshare or waste time with too many, too early

• Directly ask questions about their intent if they reach out

• Be skeptical if the corp dev person gives vague answers

• Avoid random calls from low level associates at PE firms

II. Be smart about timing

• Avoid selling with low momentum (a local minimum)

• Consider selling when you have wind at your back (local maximum)

• Had a banner year, landed a whale, launched a killer product, etc.

• Consider testing the M&A market during a fundraising round

• Gauge interest w/out the stigma of a failed sale if it doesn’t pan out

III. Don’t avoid valuation discussion  

• Valuation is a top reason deals fall apart

• It’s OK to talk about your valuation number early on

• Risk is low that corp dev team would start with a higher offer

• Anchor them up and negotiate from there. Even if it doesn’t happen right away.

• Consider using AI to get an objective take on your value to bridge the gap

IV. Approach earn outs with caution  

• Earn outs are “seldom earned but often litigated”

• You’ll lose significant control over your company post-acquisition

• And market conditions could (and often do) change

• Both of these things make earn out targets harder to hit

• Advocate for tiered payouts; avoid “all or nothing” structures

V. Prioritize non-financial terms 

• Of course valuation is important… but so are the other terms.

• Push for a fully fleshed-out term sheet upfront

• Understand what autonomy and control you will retain

• Clarify risk allocation terms like escrows and indemnities

• Ask for defined responsibilities of your role moving forward

VI. Build trust through transparency 

• Almost any problem can be solved with good discussion

• Avoid surprises late in the diligence process

• Proactively disclose any potential issues or “dirty laundry”

• Ensure the buyer understands and accepts the challenge upfront

• Keep them updated as things progress through the process

VII. Have your house in order

• Time kills all deals. The due diligence period is no different.

• If you can’t produce the right materials fast enough…

• The deal could stall, terms could change, or it could blow up.

• Make sure you have all company materials in a sharable folder

• Give access to assets as you progress in process (deck, model, cap table, etc.)

⁂

Focus on building a great company.

This was one of my biggest take aways from the Fireside. If you’re obsessed with selling, you’re obsessed with the wrong thing.

Focus on building a company that could last 100 years. Do that and you’ll have buyers lined up around the corner!

Till next time,

Never say die 🏴‍☠️

Scot

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P.S. I love seeing stuff like this…

Highland members are usually blown away by the value, especially with how affordable we’ve made the program.

If you’re a CEO, you really should become a Highland member.

Masterclasses, Expert Speakers, Coaching, Events, Slack community & more.

Even if you’re not a CEO, you should get your CEO to become a Highland member (there’s perks for you too).

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