(@tgoetz) is an
and journalist. He
his digital health startup and now
serves as chief of
research at GoodRx.
How Should You Feel A;er the Deal?
Most startups aren’t going public. So
what happens after you get bought?
THOMAS GOETZ ; LAUNCHPAD
f they’re being honest, most entrepreneurs would say that selling their
company was always the plan. Sure,
we talk about building a billion-dollar,
publicly traded, long-lived enterprise. That’s the dream. But if we’re
pairing our positivity with our pragmatism, the more likely exit strategy
involves some larger company
finding that the product or service
we created is essential to its grander
plans. M&A beats IPO any day.
This is especially true in my neck
of the woods, amid the sprouting
startups of San Francisco. Every year, dozens of tech tykes are
acquired by Google, Facebook, Microsoft, Amazon, and other
such behemoths. There are long-scrolling Wikipedia pages
dedicated to tallying the hundreds of deals that have occurred
over the past decade or two. I certainly have spent time day-
dreaming about how happy those founders must have been
once terms were agreed on and the contract was signed—and
I was certainly not alone in that exercise. How relieved they
all must have been. They finally got there: an exit.
Thing is, while most people see these transactions as the
stu; of terse TechCrunch reports, for those of us involved
they are better described as transmutations—passages from
one state of being into another.
Um, scratch that: At first, even the people involved think
of them as transactions. It makes sense, as the only way to
navigate the acquisition process—the term sheet, the letter of
interest, the due diligence, the contract terms, the reps and
warranties—is to fixate on the promise that there will be, at
last, an end. If you run the M&A gauntlet, the light of getting
the deal done is what gets you through the tunnel.
But once the deal is done, once the wire transfers have
cleared and the assets have been exchanged, after the toasts
and the (hopefully) happy phone calls to investors, reality sets
in. Founders and founding team are now, well, mere employees, employees who have to learn their roles in this larger
company and suss out how to actually merge.
To be clear, I’m talking about startups being acquired by
larger companies, not corporate mega-mergers or a “merger
of equals.” (Which never happens. Somebody always wins.)
In truth, there are several ways to position an acquired
company within a larger enterprise, and each of the variations
is a flavor unto itself. Basically, they boil down to three choices:
Keep the acquired company as a separate operating unit;
digest it entirely, dissolving it and absorbing its employees into
existing teams and structures; or work some hybrid structure
in which the acquired team has some autonomy but shares
certain services and functions with the larger enterprise.
The best path for a small startup—say, 25 or fewer employees—is to bite the bullet and fully integrate the team into the
new company. I’ve seen friends hang hopes on vague promises
that things wouldn’t change (“We just want you to keep doing
what you do best”) only to get a hard phone call a few months
later telling them that autonomy is over. That creates a kind
of double death for the startup: first, giving up ownership, and
then giving it up again when reality sets in.
Better for everyone, I say, to have the hard talk up front, and
focus on how your products and team can become vital to the
acquiring company. It’s all for the good: After being acquired,
the startup team will already be struggling for meaning.
Having lived the mission and dream of startup life, feeling like
a fifth wheel is bad for founders and team alike.
Frankly, given that most startup acquisitions come with
the golden handcu;s of a two- or four-year vest, a lack of
alignment on roles and goals is the worst possible outcome, a
purgatory for people who, by their nature, are entrepreneurial
and eager to make meaningful impact.
So when an M&A has been finalized, celebrate your success
and embrace reality: Your startup days are over.
Until the next time.