At the end stage of a startup’s lifecycle, equity owners may seek an exit from their positions. For some companies, an IPO may provide a viable option. For others, acquisition presents a preferable alternative.
Prior to going to market for a transaction, however, there are several focus areas in which crucial effort yields a better startup acquisition. Attractive companies tend to have strong visions, superior products, strong talent, proprietary work product, and demonstrated profitability.
The first key step in positioning for a startup acquisition is to ensure that all company books and records are in good order. This means anything from board resolutions and minutes, to HR documents, key contracts, and beyond.
Second, if the company has any protectable intellectual property (patents, trademarks, or other IP), having registrations or other forms of strong protection (e.g., trade secrets with strict data confidentiality protocols in place) can go a long way to demonstrating to a potential acquirer that the business is being run with a focus on value and would make a good startup acquisition.
Third, and perhaps most importantly, is a focus on demonstrating either a) profitability; or b) a clear path to profitability. This is very business-specific, and depending on the demand for startup acquisitions in the particular business’s market, actual profitability may not be a requirement in order to get a deal done.
When considering the startup acquisition route, companies should consult with a startup attorney in order to understand the process and how best position themselves for acquisition.
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