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The Terminal Plan
How to end your startup on your terms
Most common question
How do I sell my company?
The best startups don’t sell.
Apple. Google. Amazon. Facebook. Microsoft.
LinkedIn.



00: Endings


                                              3
The the worst startups don’t sell.
They die.




00: Endings


                                     4
Most startups won’t IPO. Most startups aren’t suicidal.
Most entrepreneurs must plan for an ending that isn’t
death.



00: Endings


                                                          5
black swan inbound offers
some happy endings are unplanned. we’re not going to
talk about those today.



00: Endings


                                                       6
Humans don’t like to contemplate endings




00: Endings


                                                    7
Entrepreneurs are (super)humans




00: Endings


                                           8
Planning your sale



           1. Rally stakeholders
           2. Map acquirers
           3. Adjust roadmap




02: Plan


                                   9
For most entrepreneurs, selling is a
              process

              1.   Decide
              2.   Plan
              3.   Execute
              4.   Close




00: Endings


                                                     10
Decide to sell:

             1.   Things are not going according to plan
             2.   You’ve run out of alternate plans
             3.   Both 1. and 2. are well-kept secrets
             4.   You have time




01: Decide


                                                           11
When to start the selling process

             1. Things are not going according to plan
                   i.Lack of product-market fit
                   ii.Team conflict
                   iii.No longer believe in vision
                   iv.No fundraising traction
                   v. External threat that is probably lethal

             2. You’ve run out of alternate plans
             3. Both 1. and 2. are well-kept secrets
             4. You have time




01: Decide


                                                                12
When to start the selling process
             1. Things are not going according to plan
                   i.Lack of product-market fit
                   ii.Team conflict
                   iii.No longer believe in vision
                   iv.No fundraising traction
                   v. External threat that is probably lethal

             2. You’ve run out of alternate plans
                   vi. No more restarts
                   vii. No more pivots

             3. Both 1. and 2. are well-kept secrets
             4. You have time




01: Decide


                                                                13
When to start the selling process
             1. Things are not going according to plan
                   i.Lack of product-market fit
                   ii.Team conflict
                   iii.No longer believe in vision
                   iv.No fundraising traction
                   v.External threat that is probably lethal

             2. You’ve run out of alternate plans
                   vi. No more restarts
                   vii. No more pivots

             3. Both 1. and 2. are well-kept secrets
                   viii. Outside world thinks your startup is doing *at least* well, preferably “crushing it”

             4. You have time



01: Decide


                                                                                                                14
When to start the selling process
             1. Things are not going according to plan
                   i.Lack of product-market fit
                   ii.Team conflict
                   iii.No longer believe in vision
                   iv.No fundraising traction
                   v. External threat that is probably lethal

             2. You’ve run out of alternate plans
                   vi. No more restarts
                   vii. No more pivots

             3. Both 1. and 2. are well-kept secrets
                   viii. Outside world thinks your startup is doing *at least* well, preferably “crushing it”

             4. You have time
                   ix. At least 6 months of financial and team runway




01: Decide


                                                                                                                15
The Plan

           Conventional narrative is that companies
           aren’t sold, they are bought.




           The notion of not having a plan for what
           could be the most transformative event in
           your team’s life is simply insane

02: Plan


                                                       16
Planning your sale



           1. Rally stakeholders
           2. Map acquirers
           3. Adjust roadmap




02: Plan


                                   17
1. Rally stakeholders

           I. Team
               •General rule: Until term sheet stage, just co-founders
               •Co-founders must be aligned
               •Align on “stretch goal” and “minimum viable exit”
           II. Investors
               •General rule: Only discuss with those who can/will help
               •Watch outs: (a) participating preferred, (b) double trigger acceleration




02: Plan


                                                                                           18
2. Map Acquirers



           I. Determine acquisition type
           II. Map inbound interest & existing relationships
           III. Identify 3-5 cold prospects




02: Plan


                                                               19
2. Map Acquirers



           I. Determine acquisition type
               •Strategic
               •Talent
               •Technology
               •Asset Sale (essentially death)
           II. Map inbound interest & existing relationships
           III. Identify 3-5 cold prospects




02: Plan


                                                               20
2. Map Acquirers

           I. Determine acquisition type
               •Strategic
               •Talent
               •Technology
               •Asset Sale (essentially death)
           II. Map inbound interest & existing relationships
               •Partnerships
               •Customers
               •Friends
               •Portfolio companies of your investors
               •People who’ve checked out your LinkedIn profile repeatedly
           III. Identify 3-5 cold prospects



02: Plan


                                                                            21
2. Map Acquirers
           I. Determine acquisition type
               •Strategic
               •Talent
               •Technology
               •Asset Sale (essentially death)
           II. Map inbound interest & existing relationships
               •Partnerships
               •Customers
               •Friends
               •Portfolio companies of your investors
               •People who’ve checked out your LinkedIn profile repeatedly
           III. Identify 3-5 cold prospects
               •Competitors
               •Players in adjacent/complimentary spaces
               •Must be in high-growth mode
               •Partnership NOT sale


02: Plan


                                                                            22
2. Map Acquirers: Acquisitions happen when the
acquirer believes they need you in order to deliver on
their plan


02: Plan


                                                     23
3. Adjust Roadmap



           I. Remove impediments to exit
           II. Increase strategic value of company
           III. Manufacture the optimal narrative




02: Plan


                                                     24
3. Adjust Roadmap


           I. Remove impediments to exit
               •Extract company from any business development deals that will be viewed as liabilities
               •Kill crazy bet-the-company skunkworks project that will take 2 years to build
               •Settle any pending legal action
               •Align incentives so nobody internally will be motivated to kill a deal
           II. Increase strategic value of company
           III. Optimize optics




02: Plan


                                                                                                         25
3. Adjust Roadmap
           I. Remove impediments to exit
               •Extract company from any business development deals that will be viewed as
               liabilities
               •Kill crazy bet-the-company skunkworks project that will take 2 years to build
               •Settle any pending legal action
               •Align incentives so nobody internally will be motivated to kill a deal
           II. Increase strategic value of company
               •General frame = Low dev complexity, high strategic upside to prospective acquirers
               •Adjust product roadmap to help enable exit
               •Close low-hanging-fruit deals
               •Titles
           III. Optimize optics



02: Plan


                                                                                                     26
3. Adjust Roadmap
           I. Remove impediments to exit
               •Extract company from any business development deals that will be viewed as
               liabilities
               •Kill crazy bet-the-company skunkworks project that will take 2 years to build
               •Settle any pending legal action
               •Align incentives so nobody internally will be motivated to kill a deal
           II. Increase strategic value of company
               •General frame = Low dev complexity, high strategic upside to prospective acquirers
               •Adjust product roadmap to help enable exit
               •Close low-hanging-fruit deals
               •Titles
           III. Optimize optics
               •Perception IS reality
               •Steady drumbeat of PR - If you didn’t care about it before, now is time to start caring
               •Manufacture compelling narrative & scream it as loud as possible



02: Plan


                                                                                                          27
Optics: Narrative


           You must compell third parties to tell a story
           that is technically accurate but otherwise
           detached from reality




02: Plan


                                                            28
Optics: Case Study




02: Plan


                                29
Optics: Case Study




02: Plan


                                30
Optics: Case Study




02: Plan


                                31
Optics: Case Study




02: Plan


                                32
Optics: Case Study




02: Plan


                                33
Optics: Case Study




02: Plan


                                34
Optics: Case Study




02: Plan


                                35
Optics: Crafting a rocket ship narrative is very hard
But it’s not rocket science



02: Plan


                                                        36
Execute

              1. Initiate
              2. Build acquirer’s internal case
              3. Price discussion
              4. Negotiations
              5. Term Sheet




03: Execute


                                                  37
1. Initiating Discussions
              I. Code
                •Roleplay from potential acquirer’s vantage point pre-meeting
                •Partnership vs. acquisition
                •Pick up and adapt to their verbal and non-verbal queues
                •You want them to be the first to say the word “acquisition”, not you
              II. Third parties
                •Customers, investors, or contacts make the introduction
                •CEO must be the negotiator/decider in acquirer’s eyes
                •Close behind the scenes advisor who has been through it before is great
              III. Implicit selling
                •Effective sales doesn’t feel like selling
                •It’s dating, not sex
              V. Optics
                •Meeting locations
                •Personal aesthetics
                •LinkedIn profiles, GitHub, personal and company blogs must all be on message


03: Execute


                                                                                               38
2. Internal case




              •Powerpoints & Spreadsheets
              •Planning sessions
              •Management meetings
              •Objective: Build case for them, have
               them think they did it themselves
03: Execute


                                                      39
2. Internal case: Prelim due diligence



              •NDA
              •Do disclose certain potential unpleasant surprises
              •Don’t disclose anything else you’re not asked




03: Execute


                                                               40
3. Price




               • A figment of your imagination
               • A function of your sales skills
03: Execute


                                                   41
3. Price: Don’t negotiate against yourself
                                                   •Acquirer’s capacity to pay


                                                •Optimal opening price




              •Your minimum viable exit price


03: Execute


                                                                                 42
3. Price: Is not as it seems

              •Cash vs. Stock
                •early stage private company stock should typically be valued at zero

              •Earn outs
                •Indentured servitude

              •Contingencies
                •Assign informed probabilities to every contingency
                •Avoid revenue or results based milestones
              •Holdbacks
                •Up to 20%, 2 years is typical




03: Execute


                                                                                        43
3. Price: Multiple interested parties




              Only way to optimize price is to have options
                •You must parallel path acquisition discussions with multiple parties
                •DO lean forward on communicating level of interest from other interest parties
                •DO NOT name the other interested parties
                •DO NOT fabricate other interested parties


03: Execute


                                                                                                  44
3. Price: Generally, the right personal psychology is to
focus on what will be life changing for founding team
vs delusions of grandeur


03: Execute


                                                     45
4. Negotiations: Companies don’t buy
              companies. People buy companies run
              by people.




03: Execute


                                                     46
4. Negotiations: People at acquirers have
         warped incentives. Leverage them

         •Understanding the psychology is critical
               •Almost all decisions at a big company are motivated by internal politics
               •Managers want to look good to their boss
               •New CEO wants to shake things up in role and make a mark
               •Privately held companies may want your investors on their cap table
               •Managers want to build their personal networks

         •Probable that their actual motivations for
              acquiring you are hidden... and warped.




03: Execute


                                                                                           47
4. Negotiations: Hail Mary Passes

         •Have at least a few of these up your sleeve
         .




03: Execute


                                                        48
4. Negotiations: Do not reveal your psychology




03: Execute


                                                          49
4. Negotiations: Avoid agency problems
         •Bankers
              •Bankers are ultimately incentivized to build their long term deal pipeline,
               understand what this means for you
              •Only acceptable use case is (I) multiple term sheets, and (2) strategic or technology
               acquisition


         •Lawyers
              •Some law firms are notorious for dragging deals out to maximize billable hours
              •Have your lawyers call out their lawyers at the first sign this is happening
              •Time is the enemy

         •Internal agency problems
              •There are stakeholders within acquirer who could be against a deal happening
              •Watch out for board members
              •Figure out who they are, and preemptively turn them into deal champions




03: Execute


                                                                                                       50
5. Term Sheet




03: Execute


                              51
The Close


            1. Due diligence
            2. Forward Motion
            3. Definitive Agreement




04: Close


                                     52
1. Due Diligence

            I.Don’t disclose anything you’re not asked
              •The psychology on acquirer side quickly shifts to “we’re scared we are going to screw up”
              •You’ll be shocked by what they freak out about
              •You’ll be shocked by what they don’t ask
              •Roll with it
            II.Lean on your lawyers
              •Now is the time to really engage them
              •Make sure they are great
            III. Stay organized
              •Google docs checklist
              •Shared Dropbox folder
              •Advanced prep




04: Close


                                                                                                           53
2. Forward motion
            I.You and your team must keep moving
              your company forward
              •Make sure only a few of you are distracted by the acquisition process
              •Easier said than done
              •Now is not the time to drop any balls

            II.Create a sense of urgency
              •Continuously remind acquirer why it’s important for them to close by X milestone
              •“Rabbits out of hats” - Deploy new features and announce new news that will be a pleasant
               surprise to the acquirer
              •Disclose any and all overtures from new interested parties

            III.Temporarily embrace your inner sociopath
              •If they stop liking you as a person, the deal dies
              •Restrict their contact with anyone on your team who can’t put on a happy face




04: Close


                                                                                                           54
3. Definitive Agreement

            i. Reps & Warranties
            ii. Indemnification
            iii. Employment Agreements
              •If singing up for indentured servitude, ensure you and the team cannot be
               terminated without cause, and that “cause” is tightly defined




04: Close


                                                                                           55
3. Definitive Agreement




04: Close


                                     56
The worst is over for you.
But it’s just begun for the acquirer :-)

04: Close


                                           57
Want more?
@justglew
geofflewis.org




               58
Questions




            59

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The Terminal Plan: How to Sell A Startup [Geoff Lewis Presentation @ SXSW …

  • 1. The Terminal Plan How to end your startup on your terms
  • 2. Most common question How do I sell my company?
  • 3. The best startups don’t sell. Apple. Google. Amazon. Facebook. Microsoft. LinkedIn. 00: Endings 3
  • 4. The the worst startups don’t sell. They die. 00: Endings 4
  • 5. Most startups won’t IPO. Most startups aren’t suicidal. Most entrepreneurs must plan for an ending that isn’t death. 00: Endings 5
  • 6. black swan inbound offers some happy endings are unplanned. we’re not going to talk about those today. 00: Endings 6
  • 7. Humans don’t like to contemplate endings 00: Endings 7
  • 9. Planning your sale 1. Rally stakeholders 2. Map acquirers 3. Adjust roadmap 02: Plan 9
  • 10. For most entrepreneurs, selling is a process 1. Decide 2. Plan 3. Execute 4. Close 00: Endings 10
  • 11. Decide to sell: 1. Things are not going according to plan 2. You’ve run out of alternate plans 3. Both 1. and 2. are well-kept secrets 4. You have time 01: Decide 11
  • 12. When to start the selling process 1. Things are not going according to plan i.Lack of product-market fit ii.Team conflict iii.No longer believe in vision iv.No fundraising traction v. External threat that is probably lethal 2. You’ve run out of alternate plans 3. Both 1. and 2. are well-kept secrets 4. You have time 01: Decide 12
  • 13. When to start the selling process 1. Things are not going according to plan i.Lack of product-market fit ii.Team conflict iii.No longer believe in vision iv.No fundraising traction v. External threat that is probably lethal 2. You’ve run out of alternate plans vi. No more restarts vii. No more pivots 3. Both 1. and 2. are well-kept secrets 4. You have time 01: Decide 13
  • 14. When to start the selling process 1. Things are not going according to plan i.Lack of product-market fit ii.Team conflict iii.No longer believe in vision iv.No fundraising traction v.External threat that is probably lethal 2. You’ve run out of alternate plans vi. No more restarts vii. No more pivots 3. Both 1. and 2. are well-kept secrets viii. Outside world thinks your startup is doing *at least* well, preferably “crushing it” 4. You have time 01: Decide 14
  • 15. When to start the selling process 1. Things are not going according to plan i.Lack of product-market fit ii.Team conflict iii.No longer believe in vision iv.No fundraising traction v. External threat that is probably lethal 2. You’ve run out of alternate plans vi. No more restarts vii. No more pivots 3. Both 1. and 2. are well-kept secrets viii. Outside world thinks your startup is doing *at least* well, preferably “crushing it” 4. You have time ix. At least 6 months of financial and team runway 01: Decide 15
  • 16. The Plan Conventional narrative is that companies aren’t sold, they are bought. The notion of not having a plan for what could be the most transformative event in your team’s life is simply insane 02: Plan 16
  • 17. Planning your sale 1. Rally stakeholders 2. Map acquirers 3. Adjust roadmap 02: Plan 17
  • 18. 1. Rally stakeholders I. Team •General rule: Until term sheet stage, just co-founders •Co-founders must be aligned •Align on “stretch goal” and “minimum viable exit” II. Investors •General rule: Only discuss with those who can/will help •Watch outs: (a) participating preferred, (b) double trigger acceleration 02: Plan 18
  • 19. 2. Map Acquirers I. Determine acquisition type II. Map inbound interest & existing relationships III. Identify 3-5 cold prospects 02: Plan 19
  • 20. 2. Map Acquirers I. Determine acquisition type •Strategic •Talent •Technology •Asset Sale (essentially death) II. Map inbound interest & existing relationships III. Identify 3-5 cold prospects 02: Plan 20
  • 21. 2. Map Acquirers I. Determine acquisition type •Strategic •Talent •Technology •Asset Sale (essentially death) II. Map inbound interest & existing relationships •Partnerships •Customers •Friends •Portfolio companies of your investors •People who’ve checked out your LinkedIn profile repeatedly III. Identify 3-5 cold prospects 02: Plan 21
  • 22. 2. Map Acquirers I. Determine acquisition type •Strategic •Talent •Technology •Asset Sale (essentially death) II. Map inbound interest & existing relationships •Partnerships •Customers •Friends •Portfolio companies of your investors •People who’ve checked out your LinkedIn profile repeatedly III. Identify 3-5 cold prospects •Competitors •Players in adjacent/complimentary spaces •Must be in high-growth mode •Partnership NOT sale 02: Plan 22
  • 23. 2. Map Acquirers: Acquisitions happen when the acquirer believes they need you in order to deliver on their plan 02: Plan 23
  • 24. 3. Adjust Roadmap I. Remove impediments to exit II. Increase strategic value of company III. Manufacture the optimal narrative 02: Plan 24
  • 25. 3. Adjust Roadmap I. Remove impediments to exit •Extract company from any business development deals that will be viewed as liabilities •Kill crazy bet-the-company skunkworks project that will take 2 years to build •Settle any pending legal action •Align incentives so nobody internally will be motivated to kill a deal II. Increase strategic value of company III. Optimize optics 02: Plan 25
  • 26. 3. Adjust Roadmap I. Remove impediments to exit •Extract company from any business development deals that will be viewed as liabilities •Kill crazy bet-the-company skunkworks project that will take 2 years to build •Settle any pending legal action •Align incentives so nobody internally will be motivated to kill a deal II. Increase strategic value of company •General frame = Low dev complexity, high strategic upside to prospective acquirers •Adjust product roadmap to help enable exit •Close low-hanging-fruit deals •Titles III. Optimize optics 02: Plan 26
  • 27. 3. Adjust Roadmap I. Remove impediments to exit •Extract company from any business development deals that will be viewed as liabilities •Kill crazy bet-the-company skunkworks project that will take 2 years to build •Settle any pending legal action •Align incentives so nobody internally will be motivated to kill a deal II. Increase strategic value of company •General frame = Low dev complexity, high strategic upside to prospective acquirers •Adjust product roadmap to help enable exit •Close low-hanging-fruit deals •Titles III. Optimize optics •Perception IS reality •Steady drumbeat of PR - If you didn’t care about it before, now is time to start caring •Manufacture compelling narrative & scream it as loud as possible 02: Plan 27
  • 28. Optics: Narrative You must compell third parties to tell a story that is technically accurate but otherwise detached from reality 02: Plan 28
  • 36. Optics: Crafting a rocket ship narrative is very hard But it’s not rocket science 02: Plan 36
  • 37. Execute 1. Initiate 2. Build acquirer’s internal case 3. Price discussion 4. Negotiations 5. Term Sheet 03: Execute 37
  • 38. 1. Initiating Discussions I. Code •Roleplay from potential acquirer’s vantage point pre-meeting •Partnership vs. acquisition •Pick up and adapt to their verbal and non-verbal queues •You want them to be the first to say the word “acquisition”, not you II. Third parties •Customers, investors, or contacts make the introduction •CEO must be the negotiator/decider in acquirer’s eyes •Close behind the scenes advisor who has been through it before is great III. Implicit selling •Effective sales doesn’t feel like selling •It’s dating, not sex V. Optics •Meeting locations •Personal aesthetics •LinkedIn profiles, GitHub, personal and company blogs must all be on message 03: Execute 38
  • 39. 2. Internal case •Powerpoints & Spreadsheets •Planning sessions •Management meetings •Objective: Build case for them, have them think they did it themselves 03: Execute 39
  • 40. 2. Internal case: Prelim due diligence •NDA •Do disclose certain potential unpleasant surprises •Don’t disclose anything else you’re not asked 03: Execute 40
  • 41. 3. Price • A figment of your imagination • A function of your sales skills 03: Execute 41
  • 42. 3. Price: Don’t negotiate against yourself •Acquirer’s capacity to pay •Optimal opening price •Your minimum viable exit price 03: Execute 42
  • 43. 3. Price: Is not as it seems •Cash vs. Stock •early stage private company stock should typically be valued at zero •Earn outs •Indentured servitude •Contingencies •Assign informed probabilities to every contingency •Avoid revenue or results based milestones •Holdbacks •Up to 20%, 2 years is typical 03: Execute 43
  • 44. 3. Price: Multiple interested parties Only way to optimize price is to have options •You must parallel path acquisition discussions with multiple parties •DO lean forward on communicating level of interest from other interest parties •DO NOT name the other interested parties •DO NOT fabricate other interested parties 03: Execute 44
  • 45. 3. Price: Generally, the right personal psychology is to focus on what will be life changing for founding team vs delusions of grandeur 03: Execute 45
  • 46. 4. Negotiations: Companies don’t buy companies. People buy companies run by people. 03: Execute 46
  • 47. 4. Negotiations: People at acquirers have warped incentives. Leverage them •Understanding the psychology is critical •Almost all decisions at a big company are motivated by internal politics •Managers want to look good to their boss •New CEO wants to shake things up in role and make a mark •Privately held companies may want your investors on their cap table •Managers want to build their personal networks •Probable that their actual motivations for acquiring you are hidden... and warped. 03: Execute 47
  • 48. 4. Negotiations: Hail Mary Passes •Have at least a few of these up your sleeve . 03: Execute 48
  • 49. 4. Negotiations: Do not reveal your psychology 03: Execute 49
  • 50. 4. Negotiations: Avoid agency problems •Bankers •Bankers are ultimately incentivized to build their long term deal pipeline, understand what this means for you •Only acceptable use case is (I) multiple term sheets, and (2) strategic or technology acquisition •Lawyers •Some law firms are notorious for dragging deals out to maximize billable hours •Have your lawyers call out their lawyers at the first sign this is happening •Time is the enemy •Internal agency problems •There are stakeholders within acquirer who could be against a deal happening •Watch out for board members •Figure out who they are, and preemptively turn them into deal champions 03: Execute 50
  • 51. 5. Term Sheet 03: Execute 51
  • 52. The Close 1. Due diligence 2. Forward Motion 3. Definitive Agreement 04: Close 52
  • 53. 1. Due Diligence I.Don’t disclose anything you’re not asked •The psychology on acquirer side quickly shifts to “we’re scared we are going to screw up” •You’ll be shocked by what they freak out about •You’ll be shocked by what they don’t ask •Roll with it II.Lean on your lawyers •Now is the time to really engage them •Make sure they are great III. Stay organized •Google docs checklist •Shared Dropbox folder •Advanced prep 04: Close 53
  • 54. 2. Forward motion I.You and your team must keep moving your company forward •Make sure only a few of you are distracted by the acquisition process •Easier said than done •Now is not the time to drop any balls II.Create a sense of urgency •Continuously remind acquirer why it’s important for them to close by X milestone •“Rabbits out of hats” - Deploy new features and announce new news that will be a pleasant surprise to the acquirer •Disclose any and all overtures from new interested parties III.Temporarily embrace your inner sociopath •If they stop liking you as a person, the deal dies •Restrict their contact with anyone on your team who can’t put on a happy face 04: Close 54
  • 55. 3. Definitive Agreement i. Reps & Warranties ii. Indemnification iii. Employment Agreements •If singing up for indentured servitude, ensure you and the team cannot be terminated without cause, and that “cause” is tightly defined 04: Close 55
  • 57. The worst is over for you. But it’s just begun for the acquirer :-) 04: Close 57
  • 59. Questions 59