For most startups, acquisition is more likely than an initial public offering. However, founders can lose money, better offers, and years of their time when buyers use complex or unfair practices. Some investors may seek sensitive operational information while appearing interested in acquiring a company, potentially using what they learn to benefit another business in their portfolio. A NDA can require confidentiality and deletion, but it cannot prevent people from remembering what they saw.
A headline acquisition price does not determine what a founder ultimately receives. Complex contracts can reduce upfront proceeds and make the remainder dependent on difficult post-acquisition performance targets, including KPI contingencies . Founders should seek simple deal structures, meaningful cash upfront, and valuations based on the company as it exists rather than future performance hurdles. Buyers should not need access to a startup’s secret sauce to offer a fair valuation.
Potential buyers can use a letter of intent, or LOI , to keep a startup off the market while delaying a decision. Unless the transaction is worth billions of dollars, founders should seek to complete the process within 60 days after an LOI is signed. A lengthy process can prevent founders from considering legitimate competing offers. Post-acquisition work should also be limited to a reasonable transition period, ideally six to nine months or less when feasible.
Some acquirers cut most of a target’s staff after closing to maximize short-term profits. Founders should conduct due diligence on a prospective buyer’s reputation and speak with other founders who have exited to that company or group. Protecting employees and customers can support a healthier transaction. Fair treatment also strengthens an acquirer’s reputation and helps attract future sellers.