From the Crowd

Commentary and analysis from outside voices in venture capital, hedge funds and economics

5 steps for handling an acquisition offer

April 8, 2013: 7:50 AM ET

GGV.400.seventhpost1Even if your company is 'going long,' you need to be prepared for possible suitors.

By Glenn Solomon

FORTUNE -- As a growth-stage entrepreneur committed to building a big company, your focus should always be on moving forward, looking down the field and thinking long term. That said, most successful companies ultimately get acquired. As an entrepreneur with investors, there's no shame in selling your company and making a return for you, your employees and your VCs. Fact is, even if you're ardently focused on remaining independent, you can't control when an unexpected suitor may come calling. Although you ultimately may opt to remain independent, you need to take such advances seriously. Here are five key steps to take when that offer comes.

1.    Have a Full Dance Card. Since you don't know when a potential suitor may come forward, you need to expect that it may happen at any time. Make it a priority to keep relationships with your potential suitors as you scale. As soon as a serious offer comes in, alert them to the possibility you may sell. Without multiple suitors, you'll never get an optimal price for your company. You won't be able to gin up sufficient additional interest if you reach out to others for the first time after receiving a serious offer.

2.    Know the People Who May Acquire You. You'll never be acquired by a company; rather you'll be acquired by a person or group of people at a company. As you navigate the landscape of potential acquirers to build your dance card, make sure you find the right people – folks with authority, wherewithal and gumption. At many possible suitors, the right person will be within a business unit and not necessarily a corporate development executive. Spend the time to get to know these folks and assess who is a true contender to acquire you someday.

3.    Approach Your Board With a Plan. Should you receive a serious offer, you want to manage the process rather than let it manage you. Make sure you think through the alternatives carefully and approach your board with a clear recommendation. If you ask your board for advice without having developed and articulated your own point of view, you may end up disappointed with the outcome.

4.    Keep the Group Involved Small. As a growth-stage entrepreneur, you've undoubtedly worked hard to develop a vision and culture focused on creating long term value. You need to do everything you can to preserve this focus. The likelihood that an M&A conversation will consummate is very low, but news of a possible acquisition can be very distracting to your employees. Try to keep the group of your employees involved in the acquisition conversation as small as possible. Best case, if you don't end up selling, your company will not miss a beat.

5.    Don't Be in a Hurry. As an entrepreneur, you've likely been rewarded for decisiveness – picking a path and moving forward expeditiously helps keep you out in front. But this approach will hurt you in an M&A context. Acquisition negotiations are complex and the potential buyer usually has a lot more experience than you getting deals done. Good advisors will help you approach the process methodically and ultimately get to the best outcome.

Although there are plenty of quantitative factors to consider in an acquisition context, the decision to sell your company is deeply personal as well. Your investors, employees and partners have entrusted you with their capital, time and reputation. There's a lot of responsibility riding on your shoulders. Following the steps above will help you think clearly and make right decision.

Glenn Solomon (@glennsolomonis a Partner with GGV Capital. Some of his recent investments include Pandora, Successfactors, Isilon, Domo,  Square, Zendesk, Quinstreet and Nimble Storage. This post is part of a series for growth stage entrepreneurs who are thinking big; the full series can be found at www.goinglongblog.com.

Join the Conversation
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.