4 Ways to Protect Your Business During Exit Talks

12 April 2016 Innovative Technology Insights Blog

There comes a time when just about every reasonably successful startup gets an exit opportunity. For founders, these moments are triumphant. You’ve dedicated years of your life to building something, and now somebody wants to pay you a lot of money for it. That’s not only rewarding, it’s also validating.

Trouble is, an offer is just the first step in an exit process. Selling a company takes time and effort, and entrepreneurs often can’t spare either of those.

Here are four steps to take after a buyer comes knocking — but before you begin serious talks.

1. Get a Letter of Intent. Before you spend time working on a potential deal you need to confirm that the buyer’s interest is real. A written LOI, or term sheet, will provide an early gut check, confirming the buyer is serious and that the two sides aren’t too far apart on price. It also shows you’re not in a hurry to sell, which might help you negotiate a better price.

2. Understand What You Want. That term sheet isn’t only about numbers. It will also determine the human outcomes: are you looking to cash out and take a permanent vacation? Or do you want to keep working on your business, but as part of another, presumably larger, organization? In that case, are you ready to go to work for someone else? The answers to these questions will inform discussions of capital structure and earn-outs. Thinking through all of your motivations and desires from the get-go will ultimately help you determine whether the deal is right for you.

3. Ask for a Breakup Fee. It’s not standard in today’s market, but there’s a legitimate business case for requesting a breakup fee. If you’re going to take valuable time away from your business to work on a deal, you have every right to ask for compensation should the buyer back out. While most suitors will push back and some may not agree to it, it can’t hurt to ask. And again, if nothing else, it shows you’re not desperate to sell.

4. Get Help. At the end of the day, every big decision involving the sale of a business falls to its founder. But every founder needs help reaching those decisions. Trusted advisors, as well as key employees and shareholders, will not only help you find the right answers, but make sure you’re asking the right questions as well.

We will explore this topic, and other trends in Chicago’s technology market, at FoleyTECH Chicago, taking place on May 3, 2016. The half-day event will provide a wealth of insights and best practices from leading technology executives, entrepreneurs and investors. To attend, simply RSVP here.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services