By Murat Abdrakhmanov
In my experience as a seasoned investor, if a startup doesn’t go bankrupt in the first few years, it lives for an average of five to 10 years. Then the startup is sold or — in about 10% of cases — it goes public via an IPO.
But M&A deals are by far the more likely outcome for an exit, and when done right, can be a favorable deal for both parties: The acquirer expands its product line and customer base, while the startup’s founders are rewarded for their hard work.
If a founder initially plans to sell a startup as quickly as possible, they should consider it immediately. As a serial entrepreneur and investor, I can tell you what acquirers are looking for in founders who want to spin up a project quickly and sell it to a big actor.
Important considerations for corporations
When considering the purchase of a startup, corporations evaluate its ability to achieve its strategic and financial goals. Corporations most often consider:
- Market share and stable growth: Corporations are interested in projects that have already gained tangible market share and demonstrated stable growth along key indicators. In this case, the startup allows the corporation to immediately expand its market presence.
- Team: To ensure a smooth transition and integration into the corporate culture, the acquiring corporation may prioritize the retention of the startup’s team. Key team members should possess the flexibility and adaptability necessary to thrive under the new conditions and within the corporate environment.
- The cap table: A deal can fall through because people in a jurisdiction under sanctions or affiliated with Politically Exposed Persons are in the startup’s сap table.
- Due diligence results: Corporations may refuse a deal if an audit shows errors in documents that cannot be corrected. They pay attention to the level of intellectual property protection, the form of business registration, how shares are distributed, and how labor contracts with employees are executed.
- Startup’s jurisdiction: It is essential for potential acquirers that the jurisdiction of the country where the startup is registered is internationally recognized and has a stable legal system
Things for founders to consider
From the outset, founders must prioritize their startup’s eventual exit strategy, not just product development.
My recommendations:
Consider exits from the get-go: Before launching a project, analyze the market for potential customers and for potential acquirers. Corporations often prefer acquiring companies from the same industries in which they operate. For example, last year fintech giant Stripe announced it would buy stablecoin platform Bridge for $1.1 billion. Market intelligence platform AlphaSense agreed to buy its competitor Tegus in a $930 million deal. Or here’s a local example from Kazakhstan: Freedom Holding Corp., which provides financial services, acquired air and rail ticket booking services Aviata and Chocotravel for $32.3 million in 2023.
Stick to operations: When a product achieves early success, founders often start attending conferences instead of focusing on development. They mistakenly believe the business model will scale up. This illusion leads to scaling up an invalid model rather than finding one that works. Eventually, startups burn money on marketing without building a loyal customer base, making them unattractive to corporations.
Maintain good relationships with potential buyers, but don’t let anyone control you: Oftentimes, corporations invest early with large checks, offering deals like $1 million for a 20% stake. For a startup, such a deal with a would-be acquirer is like a deal with the devil — these agreements can create lifelong dependence on the investor, deterring other buyers. Don’t give strategic buyers more than a 5% stake and limit early investor shares to 10%-15%.
Don’t skimp on proper startup legalities: Many startups try to save money by handling everything themselves, but often make costly mistakes. When it comes to negotiating with a corporation, these mistakes can delay or derail the deal altogether.
Murat Abdrakhmanov is a venture investor and serial entrepreneur. In his 30-plus years in the tech business, he has built dozens of successful projects, and in his decade’s worth of experience as a venture investor he has invested in 52 innovative startups. In total, he has invested about $25 million in startups and has had more than 10 successful exits. In 2024, Abdrakhmanov created a structured system for managing and scaling investments and launched MA7 Ventures, a comprehensive framework encompassing MA7 Self-funded Rolling Fund, MA7 Angels Club and MA7 Community.
Illustration: Dom Guzman
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