Common Mistakes in Startup Negotiation Processes

Help founders get acquired. Most founders are completely unprepared for what happens when it's time to sell. There are no guidebooks. In my conversations, I find the knowledge gap is staggering. Here's the reality of startup M&A that no one tells you: The "acquisition process" feels like navigating a maze blindfolded. I had to learn everything on the fly when my startup received acquisition interest. What I discovered shocked me - and could save you months of frustration. Selling your company is nothing like fundraising. While VCs make quick decisions hoping for 100x returns, acquirers move at glacial speed, obsessively asking "how could this fail?" What I learned going through Stilt's acquisition: 1/ Time kills ALL deals. The biggest mistake? Being wishy-washy. "We're open to selling at the right price" signals you're not serious. Have a number in mind and be decisive - or watch your deal evaporate over months of indecision. 2/ Every internal team at the acquiring company will find reasons not to buy you. "We could build this ourselves" is the default objection. You need a powerful champion inside (CEO or VP) to overcome this institutional resistance. 3/ Each potential acquirer values completely different things. One wants your customers, another your tech, another your team. You must craft 5-10 different narratives tailored to each buyer's specific strategic needs. 4/ Acquisition processes drag on for months. Deals can fail at any stage - even when you're reviewing final documents. The acquiring company can simply say "our strategy changed" and walk away. 5/ At $1M-$5M ARR, bankers won't touch you. They want $10M-100M+ deals where their percentage means something. You'll need to run this process yourself, without the infrastructure bigger companies enjoy. 6/ If your team is distributed internationally, expect a discount. US acquirers see offshore engineering teams as a complexity they'd rather avoid entirely. The market values "clean" structures, even if your distributed team is your strength. 7/ Every founder thinks "they'd be stupid not to buy us - look at all the money they'd waste building this themselves!" Reality: Companies make irrational build vs. buy decisions constantly. Logic rarely wins. 8/ Don't nitpick price once you have an acceptable offer. Remember: you get $0 until the deal closes. Aggressive negotiation just delays closing and increases the chance the deal implodes completely. 9/ Prepare for documentation requests that seem designed to kill deals: "Where's the contract saying you own the IP from that contractor you hired 3 years ago?" Get your data room in order early. Most founders struggle here. 10/ If you're profitable and not running out of cash, you have leverage. Use it. The worst position is when acquirers sense desperation - they'll wait until you're nearly dead for a bargain. Most founders enter this gauntlet completely unprepared. Don't be one of them.

After years of startup fundraising for my own companies and advising other founders, I've seen countless entrepreneurs make the same mistakes. Here are some common pitfalls to avoid: 1. Overvaluing your company: Be realistic. Investors can smell desperation and inflated numbers from a mile away. 2. Neglecting your network: Cold outreach rarely works. Warm intros are gold. Nurture relationships before you need them. 3. Pitching too early: Don't approach investors until you have solid traction or a working prototype. Ideas are cheap; execution is everything. 4. Focusing solely on valuation: A lower valuation with the right investors is often better than a higher one with the wrong partners. 5. Ignoring the fine print: Term sheets are complex. Get a good lawyer. Understand every clause. Don't get screwed on liquidation preferences. 6. Casting too wide a net: Research and target investors who align with your industry and stage. Quality over quantity. 7. Lack of preparation: Know your numbers cold. Be ready for tough questions. Practice your pitch until you can do it in your sleep. 8. Burning through cash too quickly: Raise more than you think you need. The fundraising process often takes longer than expected. 9. Not having a clear use of funds: Investors want to know exactly how their money will accelerate your growth. 10. Forgetting about culture fit: You're potentially entering a long-term relationship. Make sure you actually like and trust your investors. Remember, fundraising is a means to an end, not the end itself. Focus on building a great business first. The money will follow.

I screwed up big time with this when negotiating term sheets. You're not negotiating with the partner at a venture firm on deal terms. Yes, they're the point person from their firm communicating with you. But every time they make changes to their offer, they get sign off from the rest of the partners in the firm. So while a 5% change in valuation might seem trivial to you (the founder), if it's the third time you've asked that firm to change their position, it's putting the partner representing the deal in a hard position. ("Why can't you close this deal?? Are they just going to keep pushing our offer up and up?") And if they don't win the deal, don't expect them to return your calls later as they'll feel burned. Founders often don't understand this dynamic and bad things happen inadvertently. That said, VCs out there that get mad at this, the feedback from a founder would be "this is your job, sorry that you didn't have a slam dunk enough offer to make me want to run and sign your term sheet right away". I'm empathetic in both ways. Founders, communicate early and often about changes on the negotiation side. VCs, come with an overwhelmingly good deal or expect to get negotiated against (and deal with it when the latter happens).