The truth is, this strategy can work. It’s just super risky.
If you know a particular acquirer well, and you know you are right in the middle of a phase transition for them, and you have a unique asset … it can work.
In my first start-up, our ultimate acquirer offered to buy us for $9m before we’d even incorporated the company. They flew us out, had a steak dinner, and said they wanted to buy us then. Obviously, the interest was real. If structurally we could have done it, we probably would have sold for $9m. But our company didn’t even legally exist yet, and that posed a bunch of challenges in this particular case.
They then offered to lead our entire seed/A round instead. We passed on that.
We then closed $6m in deals with their Top 2 customers. So, 12 months later they offered to buy us for $50m.
That made sense. But … less than a month later, the COO at the public company that drove the deal was gone. He up and left the company. Without him — no deal.
So if the timeline had moved just a month later, this “obvious” deal with an obvious acquirer never would have happened. The champion was gone. And acquisitions don’t happen magically. They happen because the CEO or an SVP/C-level officer wants it to happen.
So I’m not a fan of this strategy. It doesn’t mean it doesn’t sometimes work, however.
