Q: When should a CEO walk away from an acquisition?
I’ve thought about this a lot. I’ve walked from acquisitions where I, to be honest, did want the money but still walked. And I’ve taken several offers, too, sometimes when it turned out to be the wrong choice.
You have (at least) 4 constituencies in an acquisition:
- You and your co-founders.
- Your employees.
- Your investors. And …
- Your family.
All four may have different views. (Your customers are also a constituency, but it’s hard to include them in this dialogue).
- If your gut say you 95%-100% should sell, then sell. That’s a strong signal.
- If your gut says you don’t want to sell, but probably rationally should — talk to all 4 constituencies and see what they say. This will likely push you a tiny bit in one direction or another.
- The toughest scenario is when you feel differently from the other 3 constituencies. Sometimes, your family can really benefit from financial security. Sometimes, your investors may push you hard one way or another. And finally, your management team’s views can vary widely. Sometimes, they are tired and love the idea of an exit where they can make some money. Other times, they are just getting started and really do not want to sell.
In the end, liquidity is much rarer than we think. Most of us are lucky to ever get 1 great M&A offer. Most VCs who have seen it all will tell you to never regret selling. They will quietly tell you to almost always take a good deal (even if they’d prefer their own portfolio companies to push on and hold out for a higher price). If you don’t sell and have a good offer, you have to assume you may never get as good an offer again.
But our lives as entrepreneurs are often “shorter” than we think, too. Most of us can only start from scratch so many times. And the longer you’ve been doing it, often, the harder it is to sell.
I don’t know the right balance. But I think my learning is that if your gut says it’s time to move on, then it’s time to move on and take the deal, even if the price isn’t quite what you’d hoped for. But challenge your thinking. We all get too emotional and clouded. Talk to your other constituents. If you feel different after, maybe take the deal. It’s the rational thing to do.
Most importantly, if you need more time — ask for it. Most deals don’t really explode if you handle it right. Be honest and tell the acquirer you need another week or two to talk it out internally. Someone in corp dev may push back. But in the end, they’ll probably say take the time you need, if they don’t think it’s a price negotiation ploy. It’s even OK to be honest and say you are interested, but right now just isn’t the time. Do it right, and you’ve burned no bridge.
A little more here: When Should You Sell Your Startup? | SaaStr
(note: an updated SaaStr Classic answer)