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VC-Backed M&A Jumps in Q3 2015, VC Investing Deals Drop

By on October 15, 2015

Screen Shot 2015-10-15 at 1.37.18 PMNew reports confirm earlier data that venture-backed M&A activity jumped in Q3 2015. Meanwhile, the number of venture capital investment deals dropped.

There were 127 U.S. deals totaling $17 billion in value in Q3 2015, according to Dow Jones VentureSource. That’s up 30% by number of deals from 98 in Q2 2015, and up 49% in dollars from $12 billion in Q2 2015. However, the quarter was still a drop from the year-ago period, when 138 deals generated $20.1 billion in Q3 2014.

The largest M&A deal of the quarter was Virtustream, which was picked up by EMC Corp for $1.2 billion.

On the public markets, there were 12 IPOs which generated $1.6 billion in Q3 2015, which was down 56% by number of deals and down 37% by dollars from Q2 2015.

VC Funding

Meanwhile, VC investment deal flow dropped, even while overall dollars invested rose. U.S. companies raised $19 billion through 931 deals in Q3 2015, an 11% decrease in number of deals and a 3% increase in dollars invested—companied to the prior quarter, Q2 2015.

On a year over year basis, the number of deals dropped 5%, while dollars invested jumped 68%. The largest drop by stage was at the second round, where the number of deals dropped from 244 in Q2 2015 to 198 deals in Q3 2015. This is the stage where companies are trying to start raising growth capital and a stage where there is less funding to go around than in the more popular early stage seed/Series A or in the later stage growth rounds.

Overall median deal size increased to $6.75 million in Q3 2015 from $5.9 million in Q2 2015 and 5.0 million in Q3 2014—showing the continued popularity of late stage unicorn rounds, as well as larger seed deals.

The largest VC deals in Q3 were SoFi and Uber with $1 billion fundings each, Fanatics with $300 million, DraftKings with $300 million and GitHub with $251 million.

Meanwhile, venture capital fundraising dropped. Data showed that 67 venture funds were raised, totaling $4.71 billion in Q3 2015, a drop of 64% in dollars raised and a drop of 32% in the number of funds raised from the previous quarter. In other words, it wasn’t a great quarter to be fundraising for VC firms.

Venture Deals Drop In Q3 2015, But Total Funding Still Up

By on October 12, 2015

Screen Shot 2015-10-12 at 5.34.47 PMVenture capitalists–particularly at the early stage–are getting more cautious, according to recent reports. New data shows just how much VCs are pulling back.

Venture capital funding deals dropped sharply in the third quarter of 2015, even while total venture dollars jumped yet again as funding continued to flow into late stage companies.

Deal activity dropped significantly in the most recent quarter. There were 1,444 VC deals in Q3 2015, which was down 22% compared the prior quarter, Q2 2015, according to Pitchbook. That’s also down 34% year-over-year, compared to Q3 2014.

Looking at deal activity year to date, volume dropped 27% compared to the the first three quarters of 2014, according to Mattermark.

However, overall venture capital invested is still rising, fueled by massive late-stage deals. Year to date, total venture capital dollars invested rose 41%. Much of this funding is flowing into late stage deals, where dollars invested is up 75%, compared to year-to-date, 2014.

The largest deals in Q3 2015, per Mattermark, were Uber’s $1.2 billion and $1 billion fundings and SoFi’s $1 billion funding. Other large fundings included Avant, Fanatics, DraftKings and FanDuel.

 

 

VC-Backed M&A Rises In Q3 2015

By on October 1, 2015

Venture capital-backed startups had a healthy third quarter for M&A liquidity, with M&A deals jumping, despite not reaching the levels of last year. However, IPOs dropped in the quarter, as market volatility came to the fore.

There were 90 VC-backed M&A deals in the third quarter of 2015, up 21.6% from 74 deals in the prior Q2 2015 quarter, according to the National Venture Capital Association and Thomson Reuters. Of those, 20 disclosed deal value of $5.09 billion, which was up 39.5% from $3.65 billion in Q2 2015.

While M&A deals jumped in the third quarter on a sequential basis, M&A liquidity was still not as high as the year-ago quarter, which was extremely hot. The number of deals in Q3 2015 was down 33.82% from 136 deals in Q3 2014, and by disclosed dollars was down 40.745% from $8.59 billion. Overall, there has been $10.93 billion in disclosed M&A value in the first three quarters of 2015, compared to $20.35 billion during the first three quarters of 2014.

Initial public offerings, meanwhile, dropped to 13 VC-backed IPOs in Q3 2015, down 55% from 29 in Q2 2015. IPOs generated $1.7 billion in Q3 2015, down 54% from $3.79 billion generated in Q2 2015.

What This Means For Startups

M&A deals are still getting done, but IPOs have been harder to get out. And there are not as many merger and acquisition deals getting done as there were last year, continuing a recent trend. In particular, larger billion-dollar exits are harder to come by lately. That could present problems for venture capitalists who need to return capital to their limited partners. The harder it is for venture capitalists to return capital, the more likely it is that these investors will be more cautious investing in new companies. So startups that are raising new capital could see the effects of this. At the same time, smaller “boutique” deals are still getting done, as we’ve seen at Exitround.

By sector, information technology led with 69 of the 90 deals. Within IT, software and Internet made up 47 and 17 deals, respectively.

The largest VC-backed M&A deal was EMC Corp.’s $1.2 billion acquisition of Bethesda, Maryland-based cloud company Virtustream. The second-largest M&A deal was Oakland, CA-based Gt Nexus Inc., which was purchased for $675 million by Infor Inc.

 

Semil Shah On M&A Directions In A Venture Capital Drought

By on September 30, 2015

semilSemil Shah is a seed investor who has invested in more than 70 startups (including Exitround) and he’s also a prolific writer. Previously he worked at mobile audio startup Concept.io/Swell, which was acquired by Apple, along with other operating positions. After a crush of billion-dollar valuation “unicorn” funding deals, Shah recently wrote a blog post about a recent pull-back or “drought” in venture capital in Silicon Valley. We caught up with him for a quick Q&A to ask him about the VC drought as well as M&A.

Exitround: You recently wrote about a new drought in VC–it’s not “RIP Good Times” but “traditional venture capitalists have become significantly more cautious since Labor Day.” How much of the caution is the result of VCs or LPs deciding that prices were out of control? Or is it more that these unicorn companies aren’t exiting? Or both?

Shah: ​I think it’s more about the exits, or lack thereof. The VC model is predicated on IPOs (which are happening later) and M&A (which seems to be less frequent). An LP described the issue to me to be less about prices that are too high, and to think of it like an engine which needs money to come in and out in order to be “humming.” Right now, the engine feels clogged.

Exitround: Given that, as you noted in your recent post, VC capital is harder to come by these days, should founders be thinking proactively about exit strategies–or thinking more about them than they would otherwise? (Or do you prefer they just focus on building the company?)

​​Shah: In VC speak, this is taboo, because the traditional VC model is predicated on big outcomes to drive returns. It’s hard for an investor to give generalized advice to a founder, because so much of this is personal. I guess a rule of thumb could be — if venture funding isn’t coming, then what? My point of view is that CEOs/founders hold a responsibility to employees and investors to make sure they are stewards of everyone’s fortunes. In a perfect world.

Exitround: How important is it for your companies to have an idea of potential exit strategies when you invest? Do you like to have an idea of what their exit size could be, who could buy them etc? Or is that too difficult to do given a seed stage investment?

​​Shah: ​It’s taboo to discuss, you know? All I care about is that the CEO/founders are responsible stewards, if anything for their themselves and employees. My hope is to find people to back who have this as part of their constitution. On occasion I’ve been asked to help here, and sometimes I’ll gently float it by a company when I hear of an opportunity, but it’s a very sensitive thing to bring up and has to be done with great EQ and care. When someone does enter an M&A process, they often find it is quite draining and grueling in its own way and can take months. It can be all-consuming and hard to unwind, too.

Exitround: Do you have a target metric or size for your exits? EG some investors like Dave McClure are happy with 3x or 5x on a smaller investment, whereas others seem less enthusiastic (if not completely against) these smaller exits.

​​​Shah: I feel like the safe, expected answer here is “of course, we run models!” but the truth is, no. It’s impossible for me to know. I invested a small amount in the seed round of DoorDash. They were pitching ME to invest in them, and I passed 2x before taking a swing on the 3rd pitch. Imagine that. I had no idea. I didn’t really listen, it seems, the first two times and they were patient with me. I didn’t have a target for them and anyone who did is likely making it up.

Exitround: What, if anything, would you like to see your companies doing to be proactive for preparing for a potential exit? EG, getting to know potential acquirers, etc.

​​Shah: ​In my experience so far, it seems like a hard thing for the CEO to initiate. That kind of proactive move could actually waste a lot of energy. Yet, this is probably why many companies wind down versus finding a landing — it’s unclear where to start and can be demoralizing, to boot. The only thing that bothers me is when it’s obvious to everyone the next round isn’t happening, and the founders thumb their nose at a decent acquisition offer. Forget the investors — what about employees?

Unicorn Exits Dip, Boutique Deals Jump

By on September 23, 2015

exitsbysizeThe number of “unicorn” exits have dropped, but smaller M&A deals below $100 million have grown in the first half of 2015. And the IPO window is narrowing.

In the first half of 2015, there were 385 VC-backed M&A exits valued at more than $23 billion, according to Pitchbook. That’s not quite on pace to top last year’s 865 deals valued at about $82 billion.

Looking more closely at the data, M&A exits valued at less than $100 million made up the majority of exits or about 65% of the total number of deals, which was up from about 60% in 2014. This squares with what Exitround has seen in the M&A market in terms of continued strong interest in exits below $100 million. Pitchbook attributes this, potentially, to corporate buyers reacting to the high prices of unicorns and opting to buy younger, cheaper companies instead.

In terms of overall capital, large exits greater than $500 million made up 58% of total capital exited in the first half of 2015, down from 63% in 2014.

Median M&A deal size was $45.8 million in the first half of 2015, down from $60 million last year–but still higher than $44.2 million in 2012 and $39.1 million in 2013.

As for “unicorns,” there were 32 billion-dollar venture investment rounds, but only eight exits valued at $1 billion or more. The number of venture rounds are now “vastly outpac[ing]” the number of unicorn exits, Pitchbook says. That compares to 59 billion dollar rounds and 22 billion dollar exits last year.

Meanwhile, IPOs have slowed down considerably. There were 42 IPOs in the first half of this year, down from 121 last year. Median IPO valuation was $218.8 million in the first half of 2015, down from $251.7 million last year.

Top VC Policy Priority: Immigration; IPO Confidence Remains High

By on September 16, 2015

U.S. venture capitalists’ top policy priority is immigration reform–a key source of talent and employees for many of their startups.

Immigration reform has been debated in Washington recently and Silicon Valley executives have sought to increase the number of high tech workers allowed to immigrate.

The results come from the 2015 Global Venture Capital Confidence Survey from Deloitte and the National Venture Capital Association.

Meanwhile, confidence in the U.S. government’s ability to support domestic investing is among the lowest of countries surveyed, despite increasing this year.

The United States, Israel and Canada had the highest levels of confidence in terms of investing in those countries. Emerging markets such as Brazil, Mexico and Russia had the lowest confidence.

Venture capitalists’ confidence in the global economy over the next year, however, was down 3% this year. Notably, the survey was taken in May and June of 2015, before the recent troubles in China’s stock market.

Initial Public Offerings

Investor confidence in the global IPO market remained high, rising for the fourth year in a row, despite rocky performances by recent public listings. And confidence in VC fundraising from limited partners also remained high–matching recent data that shows increasing dollars flowing into VC funds.

In terms of sectors, cloud computing and SaaS had the highest confidence among investors, with mobile and Internet of things close behind.

Why Fitness Apps Have Seen Strong M&A Interest From Large Brands

By on August 14, 2015

article-110Fitness apps have seen a spike in acquisitions in recent months—with massive non-technology companies jumping to make large deals. Adidas, Under Armour and Weight Watchers have all made recent acquisitions.

Tech startups have been seeing successful exits in the fitness and wearables sector, driven by strong interest from large brands looking to capitalize on the innovation, new users, revenue, brand lift and complementary products that these startups provide.

At Exitround we’ve seen non-technology companies with strong interest in buying tech companies in a range of sectors. Many of these large companies are looking for new innovative products, or are trying to compete better in a market or are looking to open new digital divisions.

Fitness apps, however, have seen a particular M&A surge in recent months—with some outsized deals. For example, Under Armour acquired nutrition tracking app and device company MyFitnessPal in Feburary for $475 million; Under Armour also bought activity tracking app Edomondo in January for $85 million and Gritness for an undisclosed amount.

With its recent acquisitions, Under Armour now has 120 million fitness app users. Last fall, Under Armour passed Adidas to become the second largest sports apparel brand in the U.S. Perhaps spurred by Under Armour, Adidas in August acquired fitness app Runtastic for $239 million. Weight Watchers, meanwhile, snapped up Y Combinator-backed weight-loss app Weilos in April, then picked up fitness video app Hot5 in May.

Fitness apps and related wearable technology are an many ways an ideal fit for the athletics industry. This technology fits into several massive trends, such as the quantified self and consumers’ interest in tracking their physical data; social media and sharing of information about with friends; and mobile devices that are being used in new ways in everything from extreme sports to running.

Athletics also naturally lends itself to measurement and analytics. Professional athletics today relies on data and statistics—from race times to advanced sabermetrics in sports such as baseball. And amateur athletes want to measure themselves as well, not just because they are following professional athletes’ lead, but also because data is how amateur athletes can measure their improvement, particularly in popular endurance sports such as running, cycling and the like. Athletes have become so dependent on these metrics now that many can’t imagine not using them. As the cycling meme goes, “if it’s not on Strava it didn’t happen.”

Unlike other lifestyle apps like food or photography, which use apps to do things like take photos or book restaurants, athletics use the mobile device as a mobile computer to analyze results and even give real time results during an event. As such athletics, and mobile apps (and new wearable devices) are a natural match.

So why are these large incumbents in the fitness/athletics industry so interested in new fitness apps? Many incumbents are traditional apparel brands with relatively slow growth, while new fitness apps are fast growth startups and have different business models (with larger margins) that appeal to these buyers. Secondly, as mentioned above, there is a natural synergy with health apps or wearables. This new technology makes people want to run or cycle or swim more – and naturally complements existing apparel, sports equipment or other athletic products. In some cases with wearables, they could even be directly integrated. As the CEO of Under Armour recently told the Wall Street Journal:

“One thing we emphatically know is that the more they work out, the more apparel and footwear they’re going to ultimately buy,” Under Armour Chief Executive Kevin Plank said of the company’s customers. Mr. Plank said the company will use insights gleaned from consumers sharing data across its platform to help make marketing decisions for its brand.

Third, fitness or wearable startups provide a brand lift for older large companies. At the same time, these startups often have a strong following among a younger demographic. For a teenager who may see Adidas as a brand that her father wears, Runtastic, Adidas’ recent acquisition, may be an app she uses everyday. Fourth, some incumbents may see moving into technology products as a way to increase their valuation among investors. Instead of being viewed as an apparel brand, they can attempt to be seen as a lifestyle device or technology brand. For companies looking for strategic options or trying to boost their stock price, this can be a factor.

Fitness apps are one of the more active sectors for M&A in recent months. Of course there are other sectors that also have strong interest from non-tech buyers. It would not be surprising to see similar spikes in M&A in other categories that have similar consumer interest along with large brand interest–areas such as personal health, fashion, and many more.

M&A Market Analysis: Preview For Second Half Of 2015

By on July 28, 2015

M&A activity cooled in the first half of this year after a banner year in 2014. Is this the start of a larger downturn or just a short-term blip? To better answer this question, we’ll look at three different (though overlapping) segments of the M&A landscape: VC-backed M&A, global M&A and non-VC-backed M&A.

VC Backed M&A
M&A for VC-backed startups totaled 86 deals in Q2 2015, down 26.5% from 117 deals in Q1 and down 30.1% from the year-ago period, per Dow Jones VentureSource. By dollar value of deals with a reported price, M&A dropped to $9.48 billion, down 16.1% from $11.3 billion in Q1 2015 and down 16.8% from $11.1 billion in the year-ago period. VC-backed M&A deals had the lowest number of deals in Q2 2015 since Q1 2003, per Thomson Reuters and NVCA.

The cooling in VC-backed M&A comes after several quarters of scorching hot M&A activity. In Q4 2014, total M&A deal value reached its highest level since 2000. For all of 2014, there were 455 deals, the highest level since 2012, per Thomson Reuters. Because last year’s numbers were so high, this year’s comps look particularly bad.

Median deal size of reported M&A deals was $93 million in Q2 2015, which was up from $55 million in Q1 2015 and $59.9 million in Q2 2014, per VentureSource.

Global M&A
While VC-backed M&A has dipped, global M&A overall has remained strong. Deal count was 3,993 in Q2 2015, down from 5,468 deals in the year-ago period. Total deal volume, however, was $445.4 billion, up 11.4% from $399.9 billion, and median deal size was $40.5 million, up from $30.7 million in the year-ago period, per Pitchbook. What this tells us is that large mega deals are still happening. These deals are to some extent less economy-sensitive than VC-backed deals—see for example CRRC Corp. ($26B) and Lorillard ($24.7B), which were the largest deals of the quarter.

Three Slices of M&A
Meanwhile, non-VC-backed M&A that we’ve seen at Exitround has remained extremely active. In this sector, large buyers have more leeway to acquire startups, because sellers do not have as many restrictions from investors. In addition, if we include in this segment companies that have only raised seed funding, there is even more activity. Companies that have slowed their larger VC-backed acquisitions have not slowed down acquiring smaller companies that are not venture-backed.

Unicorn Stampede
Valuations have reached historically high levels by a number of measures. There are currently 121 unicorns (billion dollar valuation companies), per CB Insights. With so many unicorns, many buyers are likely asking whether this is valuation inflation from investors. Whether the valuations are justified or not, on a practical level, acquiring these companies becomes more difficult as they reach these high valuations. This year there have been much fewer exits above $1 billion compared to last year, according to CB Insights.

Macro Picture
While the boom in Silicon Valley has continued, many have wondered whether this is a bubble and whether a correction or downturn is coming. Rising interest rates and international instability in Greece and China have caused stock market volatility. That may be causing some large buyers to wait on M&A deals, particularly larger ones—just in case they need more cash to weather difficult times ahead. At the same time, these same market factors are also causing private companies to raise larger rounds of capital at higher (unicorn) valuations, as noted above, creating an upward spiral, and making large companies less likely to purchase companies.

Moreover, the poor post-IPO performance of some recently listed companies may give buyers pause. The market capitalizations of some post-IPO companies have fallen below their last private market valuations—raising questions about whether those companies and others are being overvalued as private companies.

Whether this is a dip for two quarters or the beginning of a longer-term trend remains to be seen. So far, the drop in acquisitions appears to be mostly focused on venture-backed companies, and particularly larger venture-backed companies valued above $500 million. The smaller “boutique” M&A market still remains strong, as do the larger non-VC backed mega deals. Many buyers will likely wait to see how earnings perform and larger market factors shake out. From there, we’ll see more direction in the M&A market.

This post previously appeared in the Exitround newsletter. CLICK HERE to subscribe!

M&A Dips in Q2 But IPO, VC Funding Jumps

By on July 16, 2015

MnA acquisitionsMerger and acquisition activity for VC-backed startups dipped in Q2 2015, after record breaking quarters, while both IPO activity and venture funding for startups jumped, according to Dow Jones VentureSource.

Acquisitions of venture backed companies in the U.S. were 86 deals, down 26.5% from 117 deals in Q1 2015 and down 30.1% from 123 in the year-ago period.

By dollar value, M&A dropped to $9.48 billion, down 16.1% from $11.3 billion in Q1 2015 and down 16.8% from $11.14 billion in the year-ago period.

The second quarter was led by LinkedIn’s acquisition of educational video startup Lynda.com for $1.5 billion.

While M&A activity was down, initial public offerings were spiked to 27 IPOs, which raised $2.5 billion in Q2 2015. Deal volume increased 125% from Q1 2015, while capital raised almost tripled from $912 million. IPO activity in Q2 2015 was up 12.5% from 24 IPO deals in Q2 2014, while dollars raised were up 29.1%.

The largest IPO of Q2 2015 was health device outfit FitBit, which raised $732 million in its offering.

Meanwhile, venture capital fundraising spiked, with 86 funds raising $12.9 billion in Q2 2015, which was up 51% by dollars raised and 23% by number of funds from Q1 2015.

Venture investing in companies also continued to increase, with 1,034 deals totaling $19 billion in Q2 2015. That was up 12% by number of deals from Q1 2015 and 15% by dollars raised. VC investing compared to the year-ago quarter was up 24% by dollars and down marginally by number of deals.

 

 

 

It’s All About Relationships When Selling Your Startup

By on May 11, 2015

laser-288611_640What is actually required for a startup to get to an M&A? While the popular image may be Facebook buying Instagram over one weekend, that’s not how it usually happens. A select few companies may not do anything to try to sell their companies but still get a call out of the blue and then sell for billions.

The vast majority of founders, however, have to work hard for a long period of time to sell their company. And this is not just making a couple calls to potential buyers. So what exactly does this entail? Somrat Niyogi, who has founded and sold Miso and Stitch, and worked at several other startups, describes this as a long-term process.

From early on in a startup’s life, founders should have at least some idea of potential buyers for their company. Just as that sales pipeline can be the lifeline of your company’s growth and future, this CRM for potential M&A can ensure your future via M&A. Sales often requires close attention paid to a pipeline and regular engagement with prospects. That same idea applies to these potential M&A prospects. “You should have a plan treat it with all the care and focus as you would with the sales pipeline for your company,” Niyogi says.

Get Organized

Like many salespeople do, create a spreadsheet of the potential companies that could be best buyers. Then list all the contacts you have at those companies, as well as contacts you don’t know but can be introduced to.

Niyogi color codes them with red, yellow or green based on where they are in the sales pipeline process. Once you have all the people on the list, prioritize them in terms of who are the most important to reach first and who can wait for later. (Niyogi also shares this document with his investors.)

With that framework, you can go about chipping away at that list. You want to find ways to regularly stay in touch with these contacts, ideally every 60 to 90 days — though this depends on your situation. “Have constant touch points,” Niyogi says. “Find excuses to talk to each other.”

Getting to know buyers is a complex multi-step process. It isn’t just getting to know one person. You have to play detective/sociologist/anthropologist to get to know the organization. While many people in a company work on a deal, the actual power to make a final decision often rests with a small number of executives — your goal is to get to know them. The closer you get to them, the better.

So your task as a founder or CEO is to connect with anyone in the company who can help connect you to those top executives. You may only know a mid-level product or engineering person, but that person can connect you with others in the company. He or she can also give you key insights into the company, such as how product or engineering decisions are made or how resources are allocated.

Just as a civil engineer would do a structural evaluation of a building to assess its sturdiness, you want to understand the power centers, pressure points and weaknesses in a company.

“Founders will say to me, “I got inbound interest!’ That’s awesome, but does that guy have any authority to do anything? And who does that person report to? You want to talk to the person at the highest level possible at every potential acquirer,” Niyogi says.

Next, figure out who the key influencers are at the buying company. Top executives will go to the key voices for advice on major decisions, such as an acquisition. You want those people to know you and have a positive thing to say. The influencers are not always defined by the org chart. They can be a key senior engineer, an early employee or a founder. Figuring this out can be difficult, but as you talk to more and more people at the company, you will be able to piece together the puzzle. You’ll also have a better sense of how decisions are made and who actually wields power there.

Think of this as creating a structural analysis of an organization. Just as a civil engineer would do a structural evaluation of a building to assess its sturdiness, you want to understand the power centers, pressure points and weaknesses in a company.

This political/sociological/anthropological analysis is what people in politicized organizations, such as government entities, large corporations or large nonprofits, do in their everyday jobs if they want to survive and thrive. You have to do it from the outside. “It’s just like selling,” Niyogi says. “Are you talking to a decision maker? Who are the other influencers in the company? In these big companies you need a plan. Then you try to connect the dots.”

Buyers want to buy people they like. Not just companies or products.

One way to get to know a company is through a partnership. While talking or working with them, you can show how you add value for the potential buyer. Partnerships can also turn to deeper collaboration. But a partnership doesn’t have to be elaborate. It can be a simple co-marketing agreement. “You want a way to get in there and have a conversation,” Niyogi says. “This is an excuse to engage in dialogue.”

Relationships

The key to this whole process is relationships. This may not come naturally for some founders, especially those who are laser-focused on engineering and product. One little-discussed aspect of M&A: Buyers want to buy people they like. Not just companies or products. People. “If someone buys you, they want to hang out with you. If they have their choice, it’s going to be someone they like. It may not be socially acceptable to say. But it’s a fact,” Niyogi says.

You want to have so many relationships with a company that you’re in conversations with when you’re not even in the room, Niyogi says. If there are 10 executives in the room talking about your product, and one person says he’s heard of your company, you want another person to say he knows you, then another one. If four of the 10 are interested in you, it may dawn on them to buy you. That’s what you want. “The hardest part is when you’re not even in the conversation,” he says.

You want to have relationships with potential buyers long before you enter into any sort of M&A conversations with them. This will give you options in the event that you decide to sell or really need to sell, you’ll have people who will pick up your call. “At some point you may have to make a call. You want them to care. If you haven’t built a relationship and say ‘Oh my god I’ve got to sell’ and start making calls, it’s too late,” Niyogi says.

Corporate Development

So how do you handle corporate development if your objective is to get to the real decision maker or highest person possible, but the corp dev executive is not that person? Some suggest avoiding corp dev, but corp dev executives are just doing their difficult job, Niyogi says. They have many of the same challenges you do. They can also be helpful in connecting you with those you want to meet. Corp dev also sometimes has a business development function that could be useful for you.

Some people feel it’s a waste of time to meet corp dev. If you’re really busy and have no interest whatsoever or it’s a bad time, you can say, “Thanks so much for getting in touch. I’d love to chat in a few months.” Also, you can ask, “I’m curious why you’re reaching out? What’s the nature of you reaching out? Are you acquisitive or what are you trying to accomplish?” These are fair questions.

Tough Decisions

If and when startups get to the point of negotiating acquisition terms, many have to make difficult decisions. For smaller acquisitions (which make up the majority of all deals), startups don’t generate large returns for investors, so there often are choices about who gets what proportion of the total value of the acquisition.

If you want a lasting career in entrepreneurship, you should play the long game and treat everyone with respect.

Startup CEOs and founders often have to choose between investors, employees and themselves. People have different opinions on whether investors or employees should be taken care of first, but either way, Niyogi believes the founders should take care of themselves last. “The team took a risk joining you. The investors gave you the opportunity. You should always be on the bottom of that list.”

This decision can sometimes be exacerbated by buyers who want to cut investors or employees out of the deal. So founders should already have a plan of who gets prioritized. “An acquirer may say, ‘Hey we want to give you a lot but the investors won’t get anything.’ Another one says ‘We’ll take care of the investors but not the team.’ So you have to already have a framework in mind.”

Niyogi also has a warning: Every action you take and decision you make at this time will be remembered. People will remember how things ended at your startup — investors, employees and colleagues. You want to be remembered as generous and grateful to others for helping you with your startup. “It doesn’t matter how great of an outcome you created. You’ll be remembered for how you handled the transaction and how you treated the people impacted,” he says. “The way you communicated, negotiated and how you really listened to everyone.

If you want a lasting career in entrepreneurship, you should play the long game and treat everyone with respect, Niyogi says. People will remember that and will help you make your next startup even better than your current one.

This story originally appeared on TechCrunch

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