Being acquired: Lessons after 3 exits
Andrew Gazdecki's secrets to getting acquired after launching and selling three companies
Andrew Gazdecki is a four-time startup founder with three exits, and the founder of Acquire. Last valued at over $110M, the acquisition marketplace has helped 100s of startups get acquired and has facilitated $500m+ in closed deals.
Andrew launched his first company, Bizness Apps, as a broke, twenty-something entrepreneur. Eight years later, he sold it to a private equity firm. Since then, he has launched and sold two more companies.
Andrew is a super positive and brilliant guy, and a great founder to share his wisdom on how to navigate the acquisition process successfully.
Rethinking "Businesses are bought, not sold”
There are many challenges faced by startup founders when it comes to acquisitions. As Andrew puts it, "Most founders hope for a big company like Google to approach them with a giant check, but this is not the reality for the majority of startups."
According to Andrew, the saying "businesses are bought, not sold" is only true for a very small percentage of startups. The remaining 99.9% of startup founders need to actively sell their businesses. He explains, "This requires understanding due diligence, finding buyers, navigating the legal process, and preparing your startup for sale."
This is particularly challenging since there is a significant gap in the startup ecosystem when it comes to education and resources for handling exits. "While there are many platforms and tools for launching products and securing investments, there is nothing specifically tailored to the exit process."
This is what Andrew was hoping to fix when he started Acquire.
Planning for acquisition from day one
Andrew believes that preparation “is arguably the most important part of the acquisition process.” He explains, “Founders should prepare for a potential acquisition from day one, at least by setting up a data room with essential information because you never know who could come knocking.”
Buyers need specific information, and if a startup does not provide it in advance, the company may be perceived as unprofessional and not serious about the sale. As he puts it, “The goal is to create a perception that the business is ready for sale, and it is just a matter of finding the right buyer.” As with fundraising for your startup, optics are critically important.
Only seek a buyer if you're ready
Andrew shared his experience with his first company, Business Apps. He recalls hiring an investment bank to sell the company, which turned out to be an expensive endeavor. The process cost him $150,000 upfront and an $800,000 minimum closing fee.
He recalls, “We ended up getting some offers but turned them down. The lesson there is to only go to market to be acquired when you're ready.” He emphasized that being indecisive can quickly deter potential buyers. Instead, founders should be fully committed to the process when the time is right.
That’s because acquiring a business involves considerable effort from the buyer's side. They need to analyze various aspects of the company, such as product functionality, team composition, financials, customer acquisition and retention strategies, and growth opportunities, etc…
As such, Andrew found that being serious and transparent with potential buyers can streamline the process. He admitted to making the mistake of performing a "weird dance" of “we're not for sale but we're definitely for sale at the right price.” This approach ultimately proved to be counterproductive.
Assessing potential buyers
Andrew emphasizes the importance of due diligence when selling a business. “There is nothing worse than signing an LOI, telling your whole team that you're selling the business and then the deal doesn't go through.”
To avoid signing the wrong LOI, he suggests asking buyers about their deal history, LOIs that didn't go through, and references from acquired businesses. For instance, when he sold his first startup to a private equity firm, he contacted other CEOs who had gone through the same process before. Andrew also advises pressing potential buyers on their funding sources. “It's perfectly appropriate to ask for a bank statement or some sort of proof of funds,” he says.
Andrew also recommends having “candid conversations with buyers” before signing an LOI to understand their process, and know the expected timeline for due diligence. This is especially important if you are signing a 'no shop' clause which prevents you from speaking with other potential buyers for a specified period, usually two to three months. You certainly don’t want to be locked into the wrong potential buyer and waste all that time.
Never stop selling
Andrew emphasizes the importance of never stopping selling when going through an acquisition. He remarks, “A common mistake among founders is thinking they've sold their business and that they only need to answer a few questions until the deal is finalized.” Instead, it's essential to continue selling until the end.
To do this, he would frequently present growth opportunities to the acquiring firm. He shared strategies like price increases, product ideas, outbound sales, or marketing opportunities. He says, “I was constantly providing them positive aspects to focus on, mitigating any negative ones they could find.”
The key is to keep selling the business throughout the acquisition process, without being pushy. Instead, you should constantly highlight new opportunities and reasons for the acquirer to remain excited about the deal.
People buy from people
During the acquisition, both parties are likely to feel uncomfortable so it’s essential to establish a good relationship. “When on the first call with a potential acquirer, keep things light and conversational and establish a connection. Acquisitions rarely go through if there's tension between the two parties.”
Andrew still recalls a moment during the sale of his first business when he felt tense and defensive, "You put so much blood, sweat, and tears into what you've built, and then someone starts questioning it. We were super offended by it.”
However, the individuals buying your business are often very smart and might have different views on how to run the company. And that’s fine. “Be responsive and easy to work with. It's important to remember that people buy from people, and this is especially true in the context of selling a business,” states Andrew.
This is particularly important when you consider that there is always a transition period after being acquired. As Andrew points out, ”It's rare to be completely out of the business on the first day, and you will have to work with the other company anywhere from three months to four years.” With that in mind, it's important to maintain goodwill and a positive relationship with the buyer throughout the due diligence process.
In addition to his advice on getting acquired, Andrew also discussed his approach to building a sales team and executing kick-ass marketing strategies—such as sending a bunch of cakes from Acquire to Elon Musk's office at Twitter to try to entice him into giving Acquire the @acquire Twitter handle!