Paul Graham, co-founder of Y Combinator, is a smart dude. Founders rightfully listen to what he has to say. One of his many pearls of wisdom is that founders should not talk to corporate development groups. Having spent the last 3 days in SF doing pretty much nothing but talking to corp dev groups, all I can say is Paul is wrong. Hereâs why:
First, the vast majority of exits happen through acquisition. Less than 10 percent of exits are from companies going public.
Second, the vast majority of exits have no disclosed value or values that are sub $50M. The big exits represent companies that are highly sought after targets with many potential bidders and lots of leverage in exit discussions. The bread and butter every day exits are more modest. You have to work to build the relationship and create buyer demand.
Third, if you reach out to a buyer when you actually want to sell, youâre starting from scratch. Youâre also giving buyers all the leverage. Itâs clear youâre for sale. That wonât result in the best outcome.
Fourth, buying companies is a lot like venture capital: you look at lots of companies and pull the trigger on a small fraction of them. If a company you donât know approaches you, unless they fill a gap that is on your roadmap NOW (meaning a line of business owner has asked corp dev to find something exactly like this), thereâs very little chance that you will engage.
Itâs far better to build a relationship over time. Have integrations, joint customers, etc. Itâs better if product managers, general managers and corp dev execs in your natural buyers know how you see the World.
Done right, early corp dev relationships can be helpful in two key ways:
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Giving you a window into whatâs relevant for that company. If you always imagined youâd sell to Google some day, wouldnât it be great to know if what you do is actually strategic to them? Corp Dev can give you that feedback.
Corp dev teams can help you navigate internally. Why go through the same partner channels that everyone else does? Engage with Corp Dev and have them help escalate you.
Exits donât just happen. Like anything else worth achieving, you have to work on them. Think of your exit as the longest enterprise sales cycle in your business. Ultimately, buyers may come to you. Thatâs what you want. But you pave the way to that inbound interest by building real relationships with buyers.
Syndicated with permission from Mark MacLeod’s StartupCFO blog.