If there’s one big, open secret in the world of startups — in India and around the world — it surely is that not every founder will live to take their company down the IPO route.
For every Facebook and Alibaba, there are thousands of others that either get bought out or, if unlucky, have to shut shop. However, as the industry matures, consolidation has become a much sought-after road to exit. But how does one build a company for an acquisition?
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Industry experts discussed the elusive road to exits today at Tech in Asia Bangalore 2016. Here are four tips they shared:
1. Don’t look for money
If you’re thinking you’ll sell your startup off because you’ve hit a wall and want to wash your hands of it, stop right there.
“You basically sell a startup when you don’t need money but the other person wants you. You can never sell your company if you are in need of money because the other person finds out that you are desperate and the price crashes,” said Alok Goel, managing director at Saif Partners.
Before Saif, Alok was on the team of Freecharge and Redbus, both of which are among the most successful exit stories in India. Freecharge got bought by Snapdeal, while Redbus was bought by Ibibo Group, a subsidiary of South Africa’s Naspers.
2. Know who can buy you
If you are going to sell your company, it is important to know who your potential buyer could be. Companies typically get bought by either rivals or partners. So it is important to make a list of potential buyers. The other important step is to make sure you have a team that can pass potential deal interviews.
“You need a solid team. In India we see that the founders are very sharp, but people one level below fail acqui-hire interviews,” said Sanat Rao of IDG Ventures. An acqui-hire is typically when a company buys another for the expertise of its staff, as opposed to for the products or services it supplies.
3. Strategize on timing
How a company builds itself up for potential exits should depend on what timeline it is looking for to sell itself. So, if you’re looking for a deal in the next six months, your strategy should be different from how you’d do it if you were planning to go on the market in two or three years.
“If you are looking for an exit in six to 12 months, then you’re probably thinking of solving one problem. Solve for it and go after the big names,” said Alok.
“But if you are thinking of an exit in three years, the startup market will change so massively that your one problem solving may be irrelevant. In that case the right frame of mind is to build something inherently valuable that will have relevance years down the line.”
4. Be honest with yourself
If you’re looking for a deal, there is no sense in deluding yourself about the reason why you want to do it.
“While you are building the company, you want to build it with good mentors and good board mentors. There is a need to approach it with intellectual honesty,” said Miten Sampat, vice president at Times Internet.
The other thing to consider is to treat deal offers as a rarity.
“If you have an offer now, don’t think, ‘we are not ready now, so we will take something next month.’ There may not be [another] offer,” he said.
This article by Nivedita Bhattacharjee originally appeared on Tech in Asia, a Burn Media publishing partner.
Feature image via Tech in Asia.
