Post one about deals, M&A, startups.

Post one about deals, M&A, startups.
There are two types of deal:
- the startup gets bought
- the startup gets sold

Most deals on the market are actually the second type and it’s important to understand that. Let’s unpack each a bit.

“The startup gets bought” is when people come to you on their own, without you putting in much effort, and start offering M&A talks (merge & acquisition, merger and acquisition), like, they want to buy you. Usually there are a few tiers of what exactly they’re buying:

• deals up to $100M USD (from here on everything will be in dollars): this is when they mostly buy the team and its expertise in building something (product, sales, marketing, etc.). For example, the acquisitions of Nikita Bier’s startups fall into this category. Same for me.

• deals from $100M to $500M: this is already buying users/contracts/something else that’s super important for your company, they’re buying the so-called North Star Metric, roughly speaking, and its growth rate. Don’t forget the team often comes as part of the package. The brightest recent example is BeReal.

• deals above $500M, with rare exceptions (Instagram & messengers): this is buying a business. In those so-called exceptions it’s usually a very clear understanding that they’re buying a market leader (Twitch, YouTube, etc.) and an understanding of how to use that leading position for the buyer’s business.

They come, they buy (how the deal gets run will be separate), then KPI & 10–20% of the deal amount paid upfront. Rarely more, even rarer the whole deal immediately in cash (Twitch).

But in reality most deals are when you need to find an exit for your startup and sell it. Here it matters more who your investor is or who you have on the founding team. Because it’s exactly the network and the ability to find where your team and expertise are needed and to execute that move fast — that’s the whole point. Selling is way harder than haggling over the price when someone is buying you. So this is where all the qualities of the team show up, and especially the funds that gave you money. In my case in the previous story, when I was doing Capture, the partner from GC very quickly realized we needed to sell and did something like 10–20 different meetings where, in his opinion, we could strengthen a team or expertise (by the way, I think we could’ve sold, I just really didn’t want to go to that company back then and I decided to shut it down).

My advice to those of you building something of your own — think about how you’re going to do an exit and what you need for it. This isn’t for your deck, where you sell the future. This is so you understand which investors and co-founders, besides product-tech ones, you need.

And that’s exactly why more gets invested into experienced founders.