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Joy Randels is an expert in buying and selling businesses. The Tampa-based serial entrepreneur has successfully bought 17 companies and sold nine. But still, every purchase is unique, she says.
There are a few different approaches to selling: You can gain attention by partnering with a larger company, focus on strategic fundraising, concentrate on retaining top talent, or find a niche audience that another company wants, Randels says.
Partnering allows you to take advantage of a bigger sales force to build your customer base and generate revenue. But it also helps establish your credibility and sets you up for an acquisition, she adds.
Strategic fundraising is a good choice if you have a handful of niche customers. Pursuing “strategic capital,” or an investor who has a portfolio with a similar customer base and a proven track record, is a good predictor of success. “Look at the average life expectancy of a company like yours, if they exit every one, two, three or four years and if they go through a series A, B or C funding,” Randels says. Make sure the investor has quality exits with good acquirers. It can show how much the venture capitalist pays attention. “If there are a lot of companies strung along, that's a bad sign,” she adds.
You can also gain attention from having “rockstar alpha hires,” where a company is mostly interested in you because they want your talent.
Companies looking to get snatched up by a big name like Facebook or Google, for example, must keep in mind what they're seeking. “They are not acquiring you because they think you are awesome,” Randels says. “They're trying to get more loyal fans.” They may want to expand to a niche that they haven't achieved, and they know buying your company will be a fast way to do so.
“The smartest thing to do is to get customers,” Randels says. “That's why people notice you.”
Selling tips
Do: Have a fixed number offer on the table.
Don't: Agree on a number of shares. This can change as the company changes ownership. “It can come back to bite you,” Randels says.
Do: Protect your intellectual property, even if you don't have a patent.
Don't: Share too much information during the bidding process. A nondisclosure agreement is not enough.
Do: Build board of directors or advisers with skill sets or contacts you don't have. This can be hugely helpful in a sale.
Don't: Go into an acquisition talk when you're not ready to sell.
Do: Have a third party negotiate the sale or partner with a banker. They'll make up their fee in negotiating.
Don't: Try to negotiate yourself. You'll end up creating baggage from the deal, which can linger.
Do: Structure your own employment contract based on how involved you want to be and your exit plan.
Don't: Put off finalizing the legal language in the term sheet. “Any negotiation after won't be in your favor,” Randels says.
Do: Track your time spent, and include it in your valuation. This provides you room for negotiation.
Don't: Sell yourself short by forgetting to take into account your personal investment.
Do: Make closing as fast as possible. Thirty days is great.
Don't: Drag it on. “Every day you draw it out is a chance for the company to renegotiate,” Randels says.
Do: Sell early, even if you're not as big.
Don't: Dilute yourself by raising too much money.
— Traci McMillan Beach
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