A guide to finding and acquiring your dream startup
In this article, you'll learn:
- How to find your ideal startup
- How to make an offer
- How to negotiate the best deal
- What to ask for in due diligence
- How to close quickly and safely
- What to do after acquisition
This article assumes you've upgraded to either a Premium or Platinum subscription that allows you to contact founders and view their private information.
Learn how to source, negotiate, and sell startups in this FREE 59-lesson course from Fork Equity founder, Ryan Kulp. Start learning now
How to find your ideal startup
You'll find 1,000s of vetted startups listed on Acquire.com.
Your first step in acquiring one is finding one that matches your acquisition criteria.
In other words, a startup that:
- Is within your price range
- In your desired industry and country
- Makes enough revenue and profit
- Has a specific business model
- Uses a desired tech stack
- matches any other criteria important to you
Once you know what kind of startup you want to acquire, your job will be much easier. Spend some time thinking about that first, and when you're ready, tell us your goals.
Instead of trawling through thousands of listings, we'll deliver matches to you instantly.
How does that work?
When you signed up, we'll have asked you to give us your acquisition criteria. You'll find recommended startups on your Listings page. You can also update or add your criteria on the same page by clicking the gear icon that says Edit criteria.
How to build your shortlist
It's unlikely that the first startup you find will be the one you acquire (unless you get lucky or our recommendations are THAT good 😉).
Instead, you'll browse multiple startups and whittle down until you have a few strong contenders. Then you might make an offer on two or three of those before a founder accepts and you move to due diligence.
But let's not get ahead of ourselves. How do you build a startup shortlist?
- First, review our recommendations. If you'd like to widen your search, filter the marketplace on whichever criteria you like, and then add them to your favorites. Now you have a longlist of acquisition candidates.
- Next is to request access to startups in your longlist. Send a message along with your request introducing yourself and what attracted you to the business. This will help build rapport with the seller. (Remember: you're competing with other buyers.)
- If the founder grants you access, it'll appear in your deals list. You can now continue the conversation and view their listing's private information like URL, name, and detailed startup analytics. If a founder rejects your access, archive that startup and move on.
- Next review the startups to which you have access. Archive those you're no longer interested in and arrange calls with those you want to pursue. You'll discover far more on a phone call than you ever will in a chat message.
- Finally, those calls should have narrowed down your longlist to a shortlist of quality startup candidates. Again, archive the deals you're no longer interested in, and start thinking about making an offer to those you are. It's crunch time!
Sellers not responding to you? Here are some tips to re-engage them. 💪
How to make an offer
Your first acquisition offer is just a starting point for negotiations. You don't need to finalize the price and terms yet, just express your interest, which you can do in minutes.
Traditionally, the least committal offer was an indication of interest (IOI). All this does is tell a founder you're interested in an acquisition with a valuation range and basic terms.
On Acquire.com, you skip the IOI and go straight to the letter of intent (LOI). An LOI is a little more formal but is still non-binding (excluding terms like no-shop clauses).
Your first offer on Acquire.com might be in your phone call with the founder. But your acquisition won't progress until you've made an offer formally using our LOI builder.
A letter of intent (LOI) tells the founder you're seriously interested in acquiring their business pending further negotiations and comprehensive due diligence. However, it doesn't legally bind you to acquiring the business in question.
Send an offer in minutes with our LOI builder
You can build and send an LOI from scratch using our builder. It only takes a couple of minutes. Or, you can upload an LOI and use that to send to the founder.
Founders must accept your LOI to move your deal forwards.
When they accept your LOI, they can't discuss their acquisition with any other buyers. Also, any buyers with startup access will lose that access once the founder accepts your LOI. This keeps the process fair for everyone.
If a founder rejects your LOI, don't sweat it – they're probably eager to negotiate.
How to negotiate the best deal
To ensure you get the best return on your investment, consider what fair market value (FMV) is for the startup you want to acquire, and whether it justifies a higher or lower price.
Start with our multiple reports to understand market averages for the business category and size. Then, consider how the startup stacks up against similar businesses – is it better or worse than most? Will the seller shoulder some of the risk with additional terms?
Numerous factors will determine the price you're willing to pay. For example, you might find the seller is prepared to lower the purchase price if you offer an all-cash deal and a speedy close. Or, you might bridge the valuation gap with seller financing or an earnout.
Sellers likely have a range of prices in mind, but understanding what's important to them can unlock hidden negotiation strategies. A burned-out founder likely wants to move on. Another might want protection for their employees. Some want a business partner.
What's in your dealmaking toolbox?
You might ask for one or more of the following deal components to minimize acquisition risk and ensure the business fulfils its potential.
- Earnout. Make a closing payment and then subsequent payments based on the business hitting pre-agreed performance targets after acquisition.
- Seller holdback. Reserve a portion of the purchase price in escrow until the seller or business meets a pre-agreed condition (e.g. the seller providing transition services).
- Seller financing. Ask the seller to finance a portion of the purchase price that you will repay in instalments over time.
- Transition services. Ask the seller to help transition the business and equip you with the knowledge to make it a success (for a period of three to 12 months).
- Non-competition clause. Worried the founder might start a competing business? This clause prevents that from happening by forbidding competition for a period of time.
- Non-solicitation clause. Prevent the founder from soliciting your newly-acquired clients and staff with this clause that prevents poaching.
- Post-closing conditions. Add any free-form condition to your offer in our LOI builder. For example, adding a holdback until pending litigation is settled in the startup's favour.
What to ask for in due diligence
Seller accepted your offer? Fantastic. The next step is due diligence.
You've already been doing "light" due diligence while building your shortlist and chatting with founders. Now it's time to dig even deeper into the details. You don't want any skeletons falling out the closet to ruin your acquisition.
Due diligence is similar to an audit. Your goal is to satisfy yourself, through a comprehensive question and answer session, that the business is exactly how the seller has described it.
But what questions should you ask and what evidence will you accept?
That depends on several things:
- The size and complexity of the business. Large, complex businesses require heavier due diligence because they have more functions, people, assets, and processes to review. Equally, smaller, simpler businesses usually require less due diligence.
- Your tolerance for risk. If you're risk averse, or don't know the business model or industry well, you might ask more questions to eliminate doubt. But if you've negotiated a deal structure to manage acquisition risks, you might need less reassurance.
- Your background and expertise. Your knowledge might be enough to make extended due diligence unnecessary. For example, if you're a developer, you might be more chill about technical debt in the codebase than someone who can't write a line of code.
- Your acquisition goals. If you're only acquiring a business for its technology, you won't need to spend as much time doing due diligence on other departments. But if you're in it for the money, you better give every business department your full attention.
- Your relationship with the seller. If you suspect the seller is hiding something (willingly or not) or has presented an overoptimistic view of their business, you might ask more due diligence questions to assuage doubt. An open, collaborative seller may need less.
Due diligence areas to explore
While we can't tell you exactly what questions to ask during due diligence, the process for online businesses typically falls into the areas below.
You'll ask questions for each area that the seller must answer with evidence. You'll find example evidence in the table that can indicate what to look out for.
| Due diligence area | Example evidence |
| Financial | Accounts, P&L statement, balance sheet, cap table, quality of earnings report, SaaS metrics (LTV, churn rate, growth rate, ARR, MRR, CAC, and so on) |
| Operations | SOPs, manuals, process flows, support tickets, help desk documents |
| Human resources | CVs, employment contracts, contractor agreements, employee records, HR policies, HR systems, disciplinary procedures, compensation and benefits |
| Technical / IT | Technical documentation, onboarding manual, bug tracker, version control system, cybersecurity policies, dependencies, database backups, technical debt |
| Legal | Digital minute book, pending disputes or legislation, business registration docs, stock ledger, cap table, equity grant documents |
| Intellectual property (IP) | Patents, trademarks, licenses, and other IP docs verifying ownership |
| Tax | Tax filings, receipts, returns, and audits, tax accounting method, 1099 forms, foreign tax |
| Commercial | Company's share of market, competitive landscape, competitor analysis, business plan, customer analysis, marketing activities |
How to close quickly and safely
Now comes the fun part! You're not ready to firm up your offer and close on your acquisition. That starts with the asset purchase agreement (APA).
Finalize your offer with an APA
The APA finalizes and legally binds you to the purchase price and terms.
You can create your APA in minutes using the APA builder, or if you drafted one off-platform, upload it and follow the rest of the process.
The APA builder will pull through relevant details for your LOI, saving you from double-keying the same information. If your deal has changed, you can update the APA as you go.
The articles below explain how to use the APA builder, including how to upload, download, and canceling the APA should you need to.
- How to use the APA builder
- How to add additional terms to an APA
- How to download your APA
- How to upload an APA
- How do I cancel an APA
Only sign the APA when you and the seller have agreed on price and terms. You're legally obligated to close the acquisition once you've signed this document. If you're unsure whether the APA accurately reflects your intentions, consult an attorney.
Close with escrow
Always close your acquisition with an escrow service to ensure you get what you pay for. Escrow services can also help resolve any dispute between you and the seller.
On Acquire.com, you'll use Escrow.com to close your transaction. It's free, trusted, and integrated into your workflow, so no need to double-key your acquisition details.
Here's an overview of the process:
- Build your escrow transaction. Use our escrow builder to create your escrow transaction. It'll pull through details from your APA, saving you double-keying.
- Send your escrow proposal to the seller. The seller must approve your proposed escrow transaction before you move to Escrow.com to close.
- Agree to terms on Escrow.com. You and the seller will be prompted to visit Escrow.com where you'll agree to terms and start closing.
- Send your closing payment to Escrow.com. Your funds must be verified by Escrow.com before the seller sends you the acquisition assets.
- Approve or reject the seller's assets. Once you've received, inspected, and approved the assets, Escrow.com will release your closing payment to the seller.
- Review and approve or reject conditional payments (milestones). If conditional payments (like holdbacks) were part of your deal, the seller will notify you through the platform when conditions are met and to request payment.
To get started, follow the prompts when logged in and viewing your deal. Or, refer to the articles below for step-by-step instructions, including for when not using escrow or your own escrow agent.
Once escrow closes, your acquisition is complete! 🎉 You can now get to work growing the business and earning that return on investment. Please remember to mark the startup as Acquire'd from your deals page.
What happens after acquisition?
Congrats! You just Acquire'd a startup. What's next? When the high of your acquisition fades, you might wonder what to do next. How can you maximize your return on investment? What happens if something goes wrong? Who can you turn to for help?
You and the founder will rely on each other long after closing day
Closing your acquisition doesn't mean saying goodbye to the founder.
First, you might have some post-closing milestone payments to make, such as releasing a holdback or paying under an earnout agreement.
Likewise, if you signed a seller's promissory note (seller financing), you'll need to repay your instalments when they're due.
Then you might also have negotiated that the seller stay on for a few months, perhaps indefinitely, to help you maximize your return on investment.
You'll have decided all of these things while negotiating your acquisition.
But even if none of the above apply, your APA will include a representations and warranties clause for a survival period of 12 months or more.
Under representations and warranties, the seller is required to indemnify you if a statement they made later proves to be untrue, resulting in a loss to you.
The point is that even after acquisition, if only for a set period, you and the seller will remain close and likely work together to make the deal a success.
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