3 things startup founders need to know about M&A
When startup founders think of mergers and acquisitions (M&A), we tend to think of “Mad Men”-esque processes, involving dramatic office reshuffling and expensive rebranding. The reality though, is that M&A isn’t limited to flashy corporate businesses nor does it have to bulldoze through company culture.
In fact, since the beginning of 2021, of 530 startup acquisitions, more than half were startups buying other startups. More early-stage businesses are climbing aboard the M&A train to take advantage of fellow startups’ tech, talent and to absorb competitors. They’ve also realized that deals don’t have to have heavy price tags and red tape that larger companies navigate.
I know this firsthand from 15 years buying and selling companies. I previously worked at JP Morgan, facilitating M&A for corporate banks, and I’ve taken what I’ve learned to the startup space. I conducted 12 acquisitions at my retail platform Kiwoko, which helped it grow to over €150 million in revenue, and it was eventually sold five times.
M&A is particularly beneficial for startups that struggle to scale operationally because they essentially buy cash flow, revenue and other companies’ traffic, meaning startups grab a bigger share of their markets. They’re also a good way for startups to find, consolidate and experiment with their value proposition. The problem though, is that most founders don’t know how to get started with M&A and resign themselves to the shadows of bigger players. But mergers are accessible and advantageous to businesses of all sizes.
The human side of M&A is always the hardest to get right.
These are my three insider tips for startup M&A:
Let your in-house team get the ball rolling
M&A naturally comes with some friction and cost, but unlike corporates, startups don’t need to outsource people to smooth out the steps. You don’t need investment banks, advisers, legal teams and consulting firms to ensure all goes well.
Founders can run business and financial checks with the support of in-house resources like the accounting department and lawyers, as well as leverage their network and do due diligence through trusted connections. Granted, you have to spend a lot of time and focus in this vetting stage, but it is possible and effective without bringing new players in.
Beyond the logistics, founders need to actively analyze the value of the targeted company. For example, every one of the acquisitions I have made — even with significantly smaller companies — had better purchasing terms with at least one supplier.