A guide to deciding whether a startup is worth acquiring
Before you start looking for a business to acquire, first set your acquisition goals.
We’ll ask you about this when you sign up so we can recommend you startups matching your acquisition criteria. Or, you can browse the marketplace yourself for suitable candidates.
Whatever approach you take, you’ll need to view a startup’s private information to know whether it’s a good fit. Only Premium and Platinum buyers can do that, and sellers can approve or deny your request. They’re going to evaluate you as much you do them.
Once you gain startup access, you start a process of understanding and measuring the return it would deliver on your investment.
1. Evaluate the potential for a return on investment
Start with doing light diligence to understand the seller’s business and performance:
- Assess the startup’s web traffic, financials, and customer data.
- Research what customers and press say about it.
- Analyze its competitors and market share.
In general, light due diligence should forecast performance, indicate market standing, and support a return on your investment.
2. Get to know the founder and their story
Speak with the founder to learn more about the startup’s history and vision. Determine why they’re selling, what they want from acquisition, and what opportunities they’ve yet to pursue.
Your initial conversations should:
- Establish a culture fit.
- Ensure your goals align.
- Fill any knowledge gaps.
3. Decide whether to make an offer (letter of intent)
Does the information you’ve learned so far support the founder’s asking price? Do you have the capital or financing to pursue the offer? Also, consider your expectations post-acquisition.
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Only make an offer once you have:
- Established a fair market price.
- Understood and minimized risk.
- Predicted a return on investment.
Evaluating startups with Acquire.com founder, Andrew Gazdecki
- How to Choose Your First Startup Acquisition
- 3 Signs a SaaS Business Is Worth Acquiring
- How to Flip a SaaS on Acquire.com
- Acquisition Multiples Report
Letter of intent (LOI)
A formal, written document indicating the terms a buyer is offering a seller in a proposed acquisition. Although not a contract, it is a document stating a serious intent, and may be legally binding in some circumstances. Consider the LOI as a starting point for negotiations.
A process where a buyer inspects a potential investment. Often includes a detailed review of accounting history and practices, operating practices, customer and supplier references, management references, and market reviews.
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