“Acquisition risk” is a subset of a whole category of “vendor risk”.
Until you IPO, or are the de facto leader over many years, Big Cos are always going to look at “vendor risk.”
My #1 answer in Vendor Risk: be transparent. Big Companies know how to take this risk — they just want to assess it. You don’t need to hide or hide things. Share your balance sheet. Give them what they ask for. Maybe the most optimistic version of what they ask for, but give it to them. Don’t pretend you have 500 employees, or $50m in the bank, or are cash-flow positive, if you aren’t.
M&A risk in particular is a real one. The best thing you can do is:
- Tell them the company has no plans to ever sell, and
- Tell them you will provide the customer a 3+ year contract — without a clause allowing any acquirer to terminate the contract upon “material change” or acquisition.
I.e., tell them no matter what happens, you are committing back to them for 3+ years. If Google or Salesforce buys you, they cannot cancel the contract.
This isn’t a perfect answer. At a practical level, your acquirer may force you to renegotiate the contract in M&A anyway if they really don’t want it — this isn’t that uncommon. And your prospect may not see it “as enough”. And your lawyers and others may tell you not to do this. They will always tell you not to do a lot of things, to not assume any risk.
But usually, granting a “No Vendor MAC/M&A Out” to your customer works here.
It doesn’t eliminate the risk. But it mitigates the risk.
You are a tiny startup. You should take the risk. Not the customer.
