A VC in Vacationland

The day inevitably comes for the entrepreneur when he or she will face a decision on whether to sell the company that they have built over the last few years.  Although you may not end up going through with any transaction at that time, it is useful to consider selling strategies and be prepared to choose which one may be best for you.

Let’s set the stage a bit by saying that you have been approached over the last few months by potential buyers and have developed a relationship with an investment banker to help you decide if this is the right time to sell. And remember that there are a lot of variables in deciding when it is right to sell.  We all want to sell at the peak of the market for our technology, but that is really difficult to predict.  So you will have to decide which selling strategy will work for you, given your readiness and the pulse of the overall market.

There are two principal selling strategies for most entrepreneurs: the rifle or the shotgun strategy.

Under the rifle approach, you would focus on buyers who you would really like to acquire you, or are most likely buyers, perhaps Google or Microsoft, for example.  The investment banker would meet with these companies and see if they are interested. If the market is hot, you are a leader in your space and your technology would fit a hole in their portfolio, you may get lucky and have a few high quality bidders, or one that wants to preempt a deal with anyone else.

Under the shotgun strategy, the investment banker would contact anyone that may be remotely interested in your company and sees if they would like to discuss a deal.  This could yield about 25 parties who request the details on the company, moving down to 5 or so serious parties to negotiate with.  This strategy can maximize value by flushing out all potential buyers.  On the other hand, a protracted process with no sale at the end can make the start up look shop worn.

Of course, you could get lucky and have a bluebird buyer come along, offer you the big bucks you were seeking, be a great home for your people and solutions and make you a leader in their company.  But this stuff happens only rarely.  You need to face the reality that you sold the company and the buyer can do what they want with it, which may or may not include you.

Under any circumstances, it is best to discuss potential sales strategies with your Board sooner rather than later.  The processes associated with each strategy are very different and involve varying time frames and levels of management commitment.  Make sure that the Board understands all this in advance so that an informed decision can be made in advance of any serious moves to sell your "baby".