If you are planning for an exit, you should be planning for the highest company valuation possible. This is a reality for every startup, regardless of your growth stage. To get the highest possible business valuation for your company’s acquisition, you need to approach your business like a product.
These are the things possible acquiring entities will look for in your company:
A robust client base
An acquiring company looking to buy your company is really looking to buy your current client base, as well as the potential for growth in that client base. You can convince buyers of growth potential with the use of growth plans and sales pipelines, but that is of little worth if your existing client base is not robust. Ensure that you have many clients, and a diverse client base. If your company is overly dependent upon a few large clients, that makes your business valuation subject to more risk, and inevitably lowers the price acquirers will be willing to pay for your startup.
Regardless of your company’s current revenue and proven revenue growth, acquiring companies will want to know how much revenue they can expect after company acquisition. If you can only offer estimates and pipelines, they will have to carry the risk of those prospects not materializing. However, if you have clients locked into contracts that obliges them to pay recurring fees, future revenue is much more certain, and business valuation will increase to reflect this.
A rigorous IP portfolio
Chances are that your business’s most valuable asset is its intellectual property. Especially in the case of startups, this is almost always the case. If you can’t prove that you have the exclusive, enforceable right to commercialize your inventions, designs, brand, and trade secrets, your business has little value for an acquiring company.
If you want to sell your business, you have to sell just that: the business. Too often, startups’ value lies in individual persons, and in “soft” rules, behaviors and cultures that developed over years. Acquiring companies want to buy business processes, figured out sales cycles, proven customer service best practices, and a company that can run even when its big personalities depart. To offer this, your company has to show that it has management depth, and that its value lies in processes, not individuals.
Essentially, you are looking to sell your company’s future success. In addition to showing current recurring revenue, you need to show a concrete plan and achievable process through which that revenue can grow. There is no better way to do this than through having a well established sales pipeline.
Hire a startup attorney
LawTrades is a marketplace of online legal services that is committed to helping startups with their legal issues. We offer services for all stages of business, and we’d be happy to do the same for you. Because startup law is multifaceted, you may need ongoing assistance. We believe that quality legal help should be both affordable and attainable no matter the size of your business.