Getting acquired
Call it a cliché, but if you ask a venture capitalist the best approach to getting acquired, he's likely to remind you of the adage that "Companies are bought, not sold." In short, the relationship between acquired and acquirer is one courtship that can't be rushed. "If you're seeking to be acquired, the best thing you can do is stay heads down, focus on really nailing the single most important part of your business, and let your performance speak for you," writes Union Square Ventures Associate Andrew Parker by email.
Lightspeed Venture Partners general partner Jeremy Liew agrees. "It's hard to have any sort of process to have people want to buy your company," Liew says. But he suggested two factors that may help a company attract attention. The first is to generate buzz, either in the press or in the business community. The second is to open your company to development relationships that could evolve into an acquisition.
Parker also emphasizes the importance of business relationships. "The acquisition conversation often starts as a biz dev relationship, and then if you do well in holding up your end of the biz dev deal, one day you find that your corporate partner is introducing you to the corp dev team. In other words, biz dev deals with large corporations are often the equivalent of a series of dates before the large corporation decides to propose a marriage," Parker writes.
But first, stop and think
Of course, despite the lure of VC millions, there are times when it may be best to avoid venture capital entirely, or at least to enter into a deal with caution.
Babak Nivi and Naval Ravikant warn entrepreneurs to be wary of their own naiveté through their popular Venture Hacks blog. "First-time entrepreneurs usually negotiate sub-optimal deals that leave millions of dollars on the table. Or worse, they negotiate awful deals and screw themselves," they write.
In addition to avoiding bad deals, other tech experts warn that partnering with a VC firm means relinquishing a fair amount of say in a company's everyday operations. "Small business owners want control of their life…When you're a start-up and you sell a third to a half of your company to a venture capital firm, that's not really what you're getting. You're getting a boss out of it," says former Mohr Davidow Partners Entrepreneur-in-Residence Andrew Chen.
Chen suggests honest self-evaluation as the key to determining whether venture capital is the right fundraising route to take. He advises that if you're running a business that may not have an exponential growth potential but offers a respectable return on investment over a long period of time, you may want to think carefully about sharing half to a third of that return with a third party.
And then there's the emotional side of bringing outsiders into a venture. "At the end of the day, you're still giving up a piece of your company and for entrepreneurs it's like parting with oneself. It's pretty painful," says Hsu. Still, Hsu believes that for his company taking funding was the right approach. The process left him happy with his new board structure, happy with his valuation, and confident that the new arrangement will move his business forward.
Leah Messinger is a freelance writer. Read full bio.