On December 9th, Venture Archetypes and Greenberg Traurig pulled together a panel of some of the top entrepreneurs and most active acquirers in Silicon Valley to answer your questions about start-up M&A. So whether you’d like to know what the serious players are looking for or how to position your start-up for a healthy acquisition, you’ll find the wisdom right here!. Read the rules.
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What are some of the most common reasons deals fall apart? How can start ups avoid pitfalls that could cause a deal to derail?
Twitter (sold Mixer Labs)
|I have seen it happen more recently with a large private company. A friend of mine was one of their first acquisitions and in this case, there was of a lot of ambiguity in the term sheet and I think it was just a lack of savvy on both sides which led to a lot of heartbreak and issues later on in the process. So that's one thing. The second thing is, we're talking about the deal falling apart, but I think another thing to consider is your company falling apart during the process, because it's a huge distraction. As a founder, you are trying to run a business, and you're trying to go through this process against some well-armed professionals -- sorry, with, not against. Hand in hand. I am just joking with that, of course. I think there are a lot of things that can be really disruptive, including having your employees interviewed by the company. That can go a bunch of different ways. One is if the company doesn't want to bring someone on board, for one reason or another. In our case that didn't happen, but I've seen it happen. Or, alternatively, the people on the team can get really excited: "I’m going to Facebook, Yahoo or Google," or whatever it is. And that can be extremely disruptive. People get extremely distracted, and instead of executing on the business, which is really what you should be doing, people’s minds start to wonder. So that means, as your going through the diligent process, I think you really need to choose the right time for your teams to be exposed to the other company. And it's tricky timing because you don't want your team to get enormously distracted in case the deal falls apart. It's a really fine line and a something to balance. That's why I was for getting quick deal cycles, if you can pull it off.|
Director, Corporate Development
|In our case, the few that have were because we had some key assumptions regarding why we were doing the deal. So, if we're doing the deal based on the strength of the technology to do X, Y, and Z, and we go in and actually do diligence and see that it's snake oil? That could fall apart. Or if you’re considering a team that you think is strong at doing X, Y, Z, and you go through the interviews and find out that's not the case, it could fall apart. But if you're acquiring a small technology, and that's why you're doing it, whether their balance sheet showed $200k in debt, and in diligence you somehow find out it's $300k, at least for a company like Google, is not going to be dispositive of whether do the deal.|
Senior Director, Corporate Development
|By the time you get to a term sheet, so much work has been front loaded that it's extraordinarily rare for something to fall apart. I think when things fall apart before that oftentimes it's people trying to be too cute or cagey. At some point, you lose that trust. You are not selling us a used car, right? We're trying to put something together. It is an acquisition, but it is fundamentally a partnership trying to get started. And it’s not just with the deal lead or that you guys would have to build that trust; it's also with the business sponsor, the technology lead and all that stuff. And the things that lead things of course are when people aren't forthcoming. You know, it's a lot better to say, Look, I've got a great team, this guy's great, this guy is doing OK, he’s serving a purpose now and I think he has some upside. But realistically, if you call it like it is then you develop creditability. We have all seen a lot, whether it is technology or people or market risk or whatever. You should absolutely position yourself in the best light that you would want us to perceive you in. And that's fine, and we're comfortable with that. But you should also do that with a full set of facts. Perhaps the worst thing you could possibly do is try to duck and dive, and think that we're not going to find something. Because by the time we're done with diligence, we’ll have found pretty much everything. It's better to just get it off there early and then we'll work through it together and see if we can get something done.||