Sold Not Bought: Turning the M&A Narrative on its Head

By on December 10, 2013


Geoff Lewis

Editor’s note: This is adapted from a talk given by Geoff Lewis, a venture capitalist at Founders Fund, about how to plan ahead to sell a company. He previously cofounded startup TopGuest. This is the first of three posts.

 Today we’re going to talk about the terminal plan. If startups are all about executing on a vision and changing the world, then selling the company is the last thing you’ll do. But strangely (or not) it’s not talked about much.

As a venture capitalist at Founders Fund, one of the things my partners always tell me is that we’re not supposed talk to our portfolio companies about an acquisition. The conventional narrative in Silicon Valley is that all discussions should be focused on building and scaling–if you build a great company, at some point down the line somebody’s going to buy you for an amazing price, or else you’ll IPO.

But the reality is, that doesn’t happen often. When I take off my VC hat, one of the most common questions I get from my entrepreneur friends, when maybe things aren’t going too well, is “Jeez, Geoff. How do I sell my company, and how do I think about an acquisition?” It’s a question on a lot of people’s minds.


Why isn’t there much literature about selling a company? Why don’t people talk about it (other than when they talk about the price tags of marquee acquisitions)?

First off, the best startups never actually sell. Apple, Google, Amazon, Facebook… They’re all examples of successful tech companies that never sold. They had an IPO, and have existed for a long time. On the inverse, bad startups don’t sell either. They die. Every day there are startups that don’t achieve their vision, run out of money, and quietly die. Then there’s the big in-between: startups that won’t IPO but aren’t suicidal. The truth is this is the place most startups will go.

The implication is most startups have to plan for an ending at some point in their life that isn’t death. You have to develop a plan and figure out how to have a positive, happy ending beyond the IPO or shutting the doors.


I’m not going to talk about “black swan” inbound offers. This is the rare acquisition where a startup is doing exceptionally well and could IPO, but gets an inbound offer too good to refuse. Instagram (acquired by Facebook for upwards of $1 billion) is an example of this.

But there was no plan to sell, and because it was unplanned there’s not much to learn. We hear more in the press about black swans than any other acquisition–massively successful companies sold for an incredible price–but this is rarely reality.

We don’t talk about acquisitions much in Silicon Valley, mostly because humans don’t like endings (the most obvious one being death). Entrepreneurs are considered super-human, able to build something from scratch, to create. We love beginnings and newness, and visions for things that don’t exist today.

People don’t want to ponder “Okay, if things aren’t going according to plan what are we going to do and how will this startup end?” Similarly, the acquisition as a conceptual idea is fraught with the thought of failure. Whether it’s letting down your team, your investors, or not achieving your own vision, no one wants to think they might’ve “failed.”


The final reason acquisitions aren’t talked about is that the secret to selling a company is that people can’t know that you’re trying to sell. If you’re an entrepreneur trying to sell, the number one rule is: no one can know about it.

A classic anecdote comes from my Founders Fund colleagues who founded Paypal. They were in the throes of acquisition discussions with eBay, and after a number of false starts they’d signed a definitive agreement. This was the final negotiation. The narrative finds them at eBay’s office. It was Meg Whitman, the Paypal CEO, and a team from the Paypal board. One of the board members (also a VC) was trained as a Shakespearean actor, and gave an incredible monologue during the negotiation:

“I’m a VC, and my job as a venture capitalist is to fund and sell companies. But every now and then a company comes along that I never want to sell. Paypal is such a company, and we will never sell this company.”

This monologue is insane. Here they are with eBay negotiating the sale, and here’s this VC passionately saying they’ll never sell. And this is exactly what you need to do. This is selling at it’s best. Though his speech was divorced from reality, it was a coded, strategic move to build interest and add personal value. So here, again: we’re not supposed to talk about it. Never sound desperate, even after they sale is complete.

The lesson in all of this is that most startups should plan for a positive, happy ending, and they should start planning early. And this is counter to the narrative we all hear.


Let’s dive in to how to develop a plan if you’re a startup, you don’t have acquirers beating down your door, but the path doesn’t seem to be leading to IPO. How do you develop a plan to get acquired and exit your company? Here are two steps (more to follow in the next blog post):

1. Stakeholders:

Most things with a startup you want to get as many people as possible excited and on board, all your investors, your entire team. If you’re launching a new feature, if you have a big promo coming out, you want to shout from the rafters what you’re trying to do.

In the case of selling your company the opposite is true: Be careful when rallying stakeholders. At the beginning you should tell only the people who you know are going to be helpful and be working with you on the acquisition. My general rule is: Until you have a term sheet, it should be you and your co-founders only. Align and develop the plan together, and then once you’re either very close to a term sheet or at the term sheet stage, bring more people into the process, whether it’s investors or key team members.

As co-founders you need to come to an agreement on what you want out of the acquisition. It may be you don’t care about (financial) consideration, you just want to work at this really cool company and get jobs–that’s perfectly fine. Or it could be that you’ll only sell for one-hundred million dollars cash. Regardless of what you’re looking for, you should align as a team on what your minimum viable exit will be, and stick to it.

You need to be careful about bringing investors into the process. I’m speaking here as an entrepreneur, not a VC. Investors always want to get the best outcome possible with selling the company. But more often than not investors won’t be that helpful early in the process. Where they will be able to be helpful is with negotiations once you have serious interest from acquirers.

So, early on, only talk to one or a handful of your investors–those who could serve as an active advisor–rather than telling all of your investors that you’re going to try an exit.

2. Map Acquirers

The second thing to do on the planning front is map out all of the acquirers out there. First, determine what kind of acquisition you’re likely to be. There are normally 4 types:

A. The strategic acquisition. This is where your business, in it’s entirety, complements something that the acquirer is doing. These are typically the best from a financial standpoint.

B. The talent acquisition. Very common in Silicon Valley these days–the acquihire.

C. The technology acquisition. In this case you’re not strategic to the acquirer, but you have core tech assets that are going to be really useful to them for delivering on their strategy.

D. The asset sale. This is one degree different from the startup simply dying. You’ve run out of money, there’s no talent or strategic acquisition, but you have some very basic assets that are appealing to somebody that will buy for a very low price.

After you’ve determined what you’re likely to be, map out all of the people that you’ve talked to in building your startup. Recall all of the connections and relationships you’ve made, anyone who may be interested in buying you.

This could be customers (at my startup, Top Guest, we were acquired by someone with whom we were initially discussing a partnership), or even friends. All of us here have friends who work at other startups, or who work at a big technology company. It could be companies in your investors’ portfolios, or it could be people who’ve checked out your LinkedIn profile repeatedly. Look at who’s viewing you on social media. If someone on business development or corporate development at Google has been creeping your LinkedIn profile every few weeks, that’s a company that could be interested.

Look at all of these people, and think about whether or not they’d be a fit. Then you should also identify a few cold prospects. These may be competing companies, players in complementary spaces, or both. Importantly, they need to be in high-growth mode.

Typically companies acquire other companies when things are going really well. If they’re a publicly-traded company this may happen when their stock price is way up and they have may have really ambitious plans. If they’re a private company, this may happen when they have a lot of capital on the balance sheet and they’re scaling. You don’t want to look at failing companies that want you as a hail mary, because typically those don’t result in successful acquisitions.

Acquisitions typically happen when the acquirer believes they need you in order to deliver on their plan. This is true of all types of acquisitions. Take the PayPal example. In their case they were the leading payments processor on eBay, so it was really important for eBay to strategically own payments on its platform. So PayPal was very important to eBay delivering on its plan. That acquisition has worked out very well–it was a $1.5 billion price, and is now more important to eBay than the core auction business.

This is also true of talent acquisitions. Look at a company like Slide. Google made a strategic decision that social was important to them and they launched Google Plus. They needed social talent and Slide had excellent talent. That didn’t work out so well–almost the entire Slide team left and the products that Slide launched were later shuttered by Google. But it was important for Google at the time, so they believed that it was necessary to deliver on their plan.

Look out for parts 2 and 3 of Geoff Lewis’ talk in future Exitround posts.

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4 thoughts on “Sold Not Bought: Turning the M&A Narrative on its Head

  1. […] Part 1 of Geoff discussed folding M&A into the fabric of a startup’s roadmap–the terminal […]

  2. […] In Part 1, Geoff discussed folding M&A into the fabric of a startup’s roadmap–the terminal plan–and mapped out how to begin creating this plan; in Part 2 he covered strategy for appearing more attractive to acquirers by controlling the narrative. Here, in Part 3, he concludes his own narrative, discussing valuation, motivation, and the human element at the heart of any deal. […]

  3. […] We all know the saying “companies are bought not sold.” What this means is you typically get acquired if a buyer chases a target, but not vice versa. But that’s just the simplified, dumbed down version of how it works. The reality is that there are many other ways this can happen. […]

  4. […] don’t wait until the last moment. “Buyers smell blood better than anybody. If you have less than three to six months of cash […]

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