The 3 Major Steps To A Term Sheet

By on December 5, 2013

climbFor startups, the acquisition process and all that is entailed to get acquired by a large company can seem shrouded in mystery.

But particularly at companies that make frequent acquisitions, there is usually a well-trod routine and process in place. Corporate development executives from Google, Twitter and Yahoo (as well as our own Exitround) detailed some of their thinking and how they work at a panel yesterday at Orrick.

Jessica Verrilli, corporate development principal at Twitter, says the first and most important thing with a startup, before getting into price, terms or anything else, is talking to get an understanding of the real interests, passions and vision of founders.

“For us we always start out the conversation trying to understand what the (startup) team set out to build and what they are passionate about,” Verrilli says. “What are you so excited about that you quit your job, recruited your friends to tackle that vision? We try to figure out: are we also interested in tackling that vision? In many cases that’s where things diverge.”

For many acquirers, finding out what really makes an entrepreneur tick is the first check box in their minds, says Aaron Crum, vice president and co-head of corporate development at Yahoo. “What are you really proud of? Tell us when your team threw an impromptu party after you solved a problem. Where have you failed? Don’t be afraid to tell us.”

Finding entrepreneurs who really want to work at Google is also an important point, says Dave Sobota, director of corporate development at Google. “We want to make sure they’re passionate about what they’re doing at Google. If they want to be a stand-alone company that probably won’t work for us because they may be asked to work on similar but not the same things. We try to sell you on the scale and audience at Google you’ll not have at your current standalone company.”


While the actual acquisition process can be confusing, there are essentially three big milestones to get to a term sheet, says Twitter’s Verrilli. (Caveat: there are many permutations of this, but these are the essentials.) The first meeting, as noted above, for a startup with a potential buyer’s corporate development representative is to find a fit with the team’s general interest, passion and what they want to build.

If that goes well, the corporate development executive needs to find a “sponsor” at the acquiring company, if there isn’t one already. That person is usually the engineering or product head of the unit that will be owning the new team, business or technology. That is the person who champions the deal. It’s rare to do a deal where there is no sponsor pushing for the acquisition, she says. The second meeting with the startup should include the sponsor to build that relationship and case for the acquisition. “That person needs to make the case (to the buying company) alongside corp dev,” she says.

The third meeting should be some way to vet the technical startup team. That could be through interviewing the team, or it could be through doing a “tech talk.” These are usually where the team or individual will come to the acquirer and give a talk about some area of expertise. “It’s a friendlier and easier way to get to know the technical depth of the team before putting them in front of a white board for a coding interview,” she says. “It sets a better working dynamic and exchange of important information about the quality of talent.”

Once these three steps are passed successfully, the corp dev team usually has enough information to make a case for an acquisition to the buying company, Verrilli says.

If those three major milestones or meetings take more than a month, that’s typically too long, she says. Being put in limbo can be a “nightmare for founders,” she adds. “You can add urgency and ask specifically what it will take to resolve (the delay).”

Once the deal reaches the term sheet phase, both parties should have reached a high-level agreement on the major deal points. This includes signing a letter of exclusivity for negotiations. By this time, “both teams have an incentive to actually get a purchase agreement closed,” she says. There should be mostly smaller clarifying points left to negotiate by this point.

What corp dev professionals at acquiring companies need to sell a deal to their own company is a “deal thesis”–essentially, why this deal makes sense and is worth spending resources on. That thesis could be purely acquiring top talent, buying a business, or buying prized technology assets. The corp dev professional crafts this thesis together with the deal’s sponsor. The thesis has to match the specific initiatives, needs or goals of the company at that specific moment in time.

“Our job as corp dev is to say, this team is exceptionally talented, in design, leadership, or engineering, and in front end or backend or mobile,” Verrilli says. “We’ll have them come here and tackle this specific initiative and these specific goals. Our job is to work with internal teams to craft this central thesis to justify paying for talent beyond (what it would cost) to just hire someone.”

For corporate development executives, deals that come in through executives at their own companies are naturally good leads. “When stuff comes in internally it tends to be a really strong signal,” Verrilli says. “My engineering or product colleagues send me deals I’m really interested. It’s great. You’ve got this high level alignment. You’ve already got that box checked.”

So if you’re an entrepreneur, it’s not a bad idea to connect with the engineering or product heads at the relevant companies, whether that’s at a conference or any other way, to develop that relationship.

Sign up as a a buyer or seller on Exitround. Have a specific question? Send us an email. As always we’re happy to maintain your anonymity–just let us know in your request.

5 thoughts on “The 3 Major Steps To A Term Sheet

  1. […] how a selling company fits with an acquirer can be broken down to three steps, as they talked about in this earlier post. But besides those meetings, there are a number of issues that need to be resolved for deals to […]

  2. […] value if optimized correctly. The second part of the company’s value comes from the actual deal process. A lot of entrepreneurs put more emphasis on the first half but not the second and as a result they […]

  3. […] to know all levels of the buying company is critical. Not just the senior level management but as many of the people in the company you’ll be interacting with as possible. This can help you stay in control after […]

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