Even if you are years away from an exit, there are some things you need to keep in mind if you want to avoid legal and accounting headaches when you sell.
Here some things you need to keep in mind for M&A deals:
- What are the investors looking for? Do they have blocking or consent rights?
- Is it a merger or acquisition? Or sale? That will determine if two entities are combined. Or if you have stock for stock. Or have stock for assets.
- An asset sale is not the most favoured way of exiting.
- Most startups have probably been set up as a Delaware C-Corp. If you sell for less than $10 to $20 million, you’ll pay a double tax.
- Is the core team willing to move to the acquirer?
- It’s about the team and technology.
- Here’s an example of a technology company acquisition story gone sour: they didn’t have their employees sign confidentiality aggreements. There were no patents and no protected IP. No surprise, the deal fell apart.
- It’s very important that you get books in good order. Make sure your accounting methods are proper.
- Also, make sure you don’t have any personal expenses on your books.