Having worked on both the acquisition side and the startup side, I have seen many challenges that arise for a startup when going down an acquisition path. Sometimes acquisition interest is inbound, and sometimes the startup is outwardly looking for an acquirer. Here are a few of the common challenges I see in that process for startups.

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Fishing for information

There are corporate development teams or competitors that will come fishing for information from a startup. They will pretend to be interested in an acquisition, but really are just trying to learn more insider information about the business. Whether it is malicious or not, they will take up a lot of time and ask for lots of information. A suggestion for the startup is to really vet the interest level, have tiers of information gated by commitments (i.e. exec team meeting, LOI, etc.), and hold back anything deemed sensitive/time consuming until later in the process.

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Struggle to maintain focus on core business

When going down an acquisition path, the CEO/CFO and other executives will inevitably spend a lot of time in meetings and pulling data/analysis. Naturally what happens is that time comes at the expense of time spent on the core business. In most scenarios, this leads to lower sales than expected, delayed progress on key initiatives, etc. If you start down an acquisition path, be careful with your time and ensure appropriate resources are still prioritizing the core business as acquisition processes can take many months to complete.

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Negotiating tricks

An acquirer who has done multiple acquisitions before is usually good at it. They have a process, they know the game, and can use certain tricks against a startup who may be going through this for the first time. Common things like dragging out the process to leverage missed targets (per less focus above), LOIs that don’t really mean anything, negotiating points one off to their advantage, heavy earnouts, comp in acquiring company stock, etc. are all topics for another day. But be aware you have someone on your side who knows how the game is played.

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While getting a signal of a potential acquisition can seem amazing after the long startup slog, be careful that it is not a distraction that ultimately puts the business in a worse position several months later