Should we tell investors about acquisition talks?

Depends on the stage. Exploratory: no. Signed LOI: yes, board is legally required to be informed. Manage the tension between confidentiality and fiduciary duty carefully.

How to negotiate a higher price?

Real competitive tension is the only real lever. Even a soft second bidder at a lower price can move the primary bidder up 20-30%.

What happens to employees who don't get retention offers?

Standard severance (usually 2-4 weeks per year of service). Some acquirers give retention bonuses to key non-retained employees for 6-12 month transitions. Negotiate this before signing definitive.

Startup Acquisition: What Actually Happens From LOI to Close

An acquisition process has predictable phases and unpredictable stakes. Here's what to expect and how to protect the deal from falling apart.

Startup Acquisition Process

The average acquisition takes 4-6 months from LOI to close and half of them fall apart in that window. Understanding the phases is the difference between navigating the process and being controlled by it.

The five phases

1) Exploratory conversations (weeks-months, no obligation). 2) LOI/term sheet (2-4 weeks to negotiate, not binding but morally sticky). 3) Confirmatory diligence (4-8 weeks — the deal-killer phase). 4) Definitive agreement drafting (2-4 weeks in parallel with diligence). 5) Closing and integration (1-2 weeks close, integration for years).

What kills acquisitions

Diligence surprises (undisclosed liabilities, IP issues, customer concentration). Founder retention terms not aligning. Board members opposing. Competitive counter-bid from another acquirer. Regulatory delays (antitrust, foreign investment review). Founder cold feet in the final weeks.

The bankers question

Under $50M deal value, bankers usually aren't worth the fee. Above that, a specialist tech-M&A advisor (Qatalyst, Union Square Advisors, Raymond James tech group) can add 15-30% to deal value by creating competitive pressure. Interview 3, pick one based on relevant relationships.

Terms that matter beyond price

Retention structure (typical: 30-50% of founder equity vests over 2-4 years post-close). Earn-out (contingent payment tied to future performance — often disappointing). Non-competes. Indemnification caps. Escrow amounts. Reps and warranties insurance.

Frequently asked questions

Should we tell investors about acquisition talks?: Depends on the stage. Exploratory: no. Signed LOI: yes, board is legally required to be informed. Manage the tension between confidentiality and fiduciary duty carefully.
How to negotiate a higher price?: Real competitive tension is the only real lever. Even a soft second bidder at a lower price can move the primary bidder up 20-30%.
What happens to employees who don't get retention offers?: Standard severance (usually 2-4 weeks per year of service). Some acquirers give retention bonuses to key non-retained employees for 6-12 month transitions. Negotiate this before signing definitive.

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