Ask @StartupCFO: should I talk to corporate development?

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. Here’s 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, you’re starting from scratch. You’re also giving buyers all the leverage. It’s clear you’re for sale. That won’t 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 don’t 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), there’s very little chance that you will engage.

It’s far better to build a relationship over time. Have integrations, joint customers, etc. It’s 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:

    Giving you a window into what’s relevant for that company. If you always imagined you’d sell to Google some day, wouldn’t 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 don’t 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. That’s 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.

Mark MacLeod

Mark MacLeod

Since 1999, Mark MacLeod has been helping fund, grow and exit venture-backed startups. Mark has over 14 years experience as a CFO for leading companies such as FreshBooks, Shopify, Tungle and many others. Mark’s deep experience and passion for startups led him to found SurePath Capital Partners in order to guide and advise founders on how to fund, grow and ultimately exit their companies.