Data Rooms - Acquire.com Academy

In this video, I'm going to be going over what is a data room? What is that? Virtual data room. We hear about that a lot. So a data room is basically where you contain all relevant information about your startup. And again, the idea when you're speaking with buyers is to give them as much information as you're comfortable sharing up front so they don't have to ask you for it, so they don't have to spend all this time figuring out like, do you have your stuff together? Is this going to be a huge headache? Is this worth acquiring? If you're a startup growing like crazy and you're extremely profitable, you can get away with a lot of these things being missing. But for the majority of startups where maybe you've moved on to another project or you just want to sell the business quickly, these are really good ways to really show buyers that you're serious about selling the business. And that's usually the number one turnoff, at least for me personally, when working with a founder. And it's just not clear that they're prepared. And I'm gonna have to get all this information together. Unless it's an amazing business, I'll put in the work if it's an amazing business. But with so many startups being available for acquisition and your job is to stand out and to really build trust and build that relationship with buyers. And so a data room is a great way to do that. So I've created an example data room so you can copy this and customize everything, but the folders are completely customizable. You can include things like your metrics, just like, what's working, what's not working, what's worked in the past. And I recommend recording like technical architecture videos as well, so people know what tech stack that you're working with. So all these are just examples, but you can see you can do this for financials. So in here I have an example. P and L for the team. I have basically the team, background, operations, what goes into managing the company, product, product roadmap, anything that you, you think would be of value to a potential buyer. So now what I really want to go over is the process. So notice I only have a few decks right here, so the main ones that I want you to focus on are probably these two right here. So I talked about this in an earlier presentation, but this is your timeline. So this is basically showing buyers that you're serious about selling the company and you're looking to do so by a certain date. And this doesn't work. Every single time. But it definitely lets buyers know that you're looking to sell the company. You're speaking to multiple buyers. You have a guided process for them to follow so they don't just drag their feet and ask you a bunch of questions that aren't relevant. Like they're coming into this acquisition conversation with a serious mindset and really with strong interest to potentially acquire your startup. And so I like to have a, basically a process overview which kind of tells the story of the business as well as well as the opportunity. So about me I'm Andrew. The problem selling a startup is difficult. The solution we take the pain out of selling your startups without huge commissions. And, and the easy way to create a startup, or excuse me, to sell your startup is create buyer interest, create a deal room, create a sales process timeline, and then manage those acquisition conversations as they come in. So what does that process look like? So day one, you're going to be preparing, you're going to be looking over things like financials, marketing, sales processes, IP and code base, business model. And this is where you're just documenting it from a high level. And this is probably before you go live on Microacquire and then sale ready. Do you have a data room? Do you have a due diligence checklist? Do you have recorded walkthroughs? These can be huge. So I was looking to acquire a company and I ended up passing just because Microquire started taking off and I decided to focus everything here obviously. But they did a great job recording. How did customer support work, how did sales work, how did marketing work, how did sending newsletters work? And that really just helped me wrap my head around the business on my own time rather than just, you know, an hour long zoom call where I just kind of get to peek in and everything. And that really built a lot of trust with me and the buyer. And so I highly recommend doing that if you have the time and then just determining your terms. You know, this goes into understanding valuation, understanding other parts of the acquisition process that you know will really attract the most buyers as possible. So we have some other videos on how to attract as many buyers as possible with, you know, creative deal structures or working with sellers or excuse me, working with buyers on seller financing and potentially determining a timeline as well to really put some sort of urgency. Because just getting no's from buyers can be a great way for you to understand which buyers to focus on and which ones to skip over. So conversations you're going to speaking to a lot of private equity Groups, investors, executives, entrepreneurs, strategic buyers as well. Then you move on to negotiations. So now that you know we've prepared your startup for sale, it's ready to go onto the marketplace. You don't need these items necessarily to go live on microquire. But as you really start to get serious with conversations and you move into negotiations, this is the best way to show a buyer that you're serious. You've done your homework, you're not coming in at a disadvantage in terms of experience or knowledge. And usually if you have one, again one buyer, you have no buyers. So you want to get as many buyers interested as possible. And one of the best ways to do that is to just have your stuff, all your books in order. Like I understand how this works, I valued my company in a range that is realistic and we're going to go through how all this works. So you start with the NDA, move to an LOI agreement, which is a formal offer to potentially acquire company. From there you move into due diligence and then you would move towards a purchase agreement, discuss transfer terms and then a closing date. So this is the date where you have agreed to sell the company to a buyer and you're going to circle a date that on this date we're going to sign the docs. You have this much time to finish due diligence and on that date funds are going to be transferred and we're going to be transferring over the entire business. So closing, like I said, due diligence, financial and technical review. Any disclosures. Do you have like another co founder who owns like 20% of the company? You're going to want to disclose that any sort of material contracts. This could be just large three year contracts with large customers. There's a number of different, even NDAs, stuff like that. Those are always good for a buyer to be aware of, just any sort of partnership agreements. And then once all this is done, you've closed, you're going to be transferring the assets and then the buyer is going to be transferring the funds. Usually these two happen at the same time. And then other things you want to do is create a beautifully organized data room. It takes a little bit of time, but if you start to get serious buyers interested, definitely give them as much information as possible and really don't make it their job to pull all this information out of you if you have the time. And this is like a five or six or seven or eight million dollar acquisition, you can take the time and put this together. It is well worth it and it's a return. You're getting paid like $10,000 an hour if an acquisition goes through. So I highly recommend creating a beautifully organized data room showcase promising growth opportunities. Just how are things trending? What's working, what's not working? Document high level technical details. This is just random example, but you get the idea here. Create a simple and standard P and L. Just going over what is your income, how is it trending, what is your net income and how is that trending over? TTM, which means trailing twelve months, which basically means June to June, June 20, June 2020 to June 2021. Document all sales, marketing and support processes. So as a new buyer, I'm going to want to know how to run your company. That's crucial. Like, like if you leave as a founder and I don't know how sales works, I'm not familiar with your team. I don't know how you how marketing works. You send a newsletter out every week. So my best advice there is record like small videos. Like you don't have to give away the secret sauce of your business. But just like these are the tools that we use, these are the processes that we have in place. The more that you can really take the burden off the buyer to understand all of this information and gather it from you, the higher your chances of creating additional information from multiple buyers. And that's your goal. Create interest from as many buyers as possible and you'll stand out from the hundreds of other acquisitions on Microacquire by just being really prepared and saying like, hey, I have a full data room. Do you want access to it? Please sign this. NDA give you access and they can go through that on their own time. They'll probably come back with questions, you'll schedule a call and that's when you can really start to feel the acquisition process moving forward. Other things showcasing your product roadmap can hurt. Depending on the buyer, some may not care, some may have some different plans for your startup. But this is also something to discuss. Are any of these upgrades relevant to you? Do you see these being of importance? Would you like to retain this for a certain period of time? Showcasing milestones, you know, who are your best customers? What is, you know, the timeline of your startup, when did you launch? When did you get your first customers? How are things trending? Just again, giving buyers a lot of information because you're also selling your company so you want to get buyers excited. Like this is a great company. Here's why. Let me show you. Rather than having a buyer go through everything and Try to figure out what they like and don't like. Now a lot of buyers know what they like and don't like but the more that you can do to point them in the right direction, the better off you're going to be. Document your competitors, why you're different. So again, that's another thing that a buyer would have to go do on their own. But you know, give your own perspective and be honest and transparent and and so this is an example company that sold on Microacquire where they listed out their competitors and why they're different and that really helped them have a ton of interest from buyers and then eventually get acquired by a strategic company over in Europe. So also prepare buyer questions in advance. So these are common questions like what's your asking price? What's your current true annual recurring revenue? How many employees? What are the cost of them? How many recurring customers do you have? How are you currently growing? How could a new owner grow the business? Are you looking to leave immediately or stay on board? Are you open to a partial sale of the company? This would be probably falling under seller financing. What is the reason for selling your startup? What is an ideal outcome for you? Think through all of these questions because they're very important and if you can even just write them out for a buyer or just think of them in advance, the more prepared you're going to be when you speak with buyers and you're not caught flat footed like I don't know why I want to sell my startup. I'm not really sure what an ideal outcome looks like for me. I'd like you to present that for me. If you have a company doing millions in revenue, you could probably get away with less of this because again, you have a much higher, highly desirable company. But if you have a company that's, you know, it's profitable, the buyer pool is probably going to be a little bit small. You want to and really just for any sort of startup like this is just good housekeeping items to have. So it's not required but it helps, it helps a ton of because as a buyer just letting me wrap my head around the business and understand everything as much as you're comfortable sharing can be, it can be the difference between having an acquisition close and not close. So moving forward talked about this, this would just be the what we call a stage gate process for selecting offers where you tell buyers, hey, we're going to be giving you access into the micro required premium data room by this date. If you'd like them to sign An NDA beforehand you can do. So deadline for submitting an indicative offer, that basically means a verbal offer and then a deadline for submitting a formal letter of intent. Now you could space these out. This is pretty aggressive. It's like a two week timeline. So maybe you have like July, August, September, just so you know, you can really get to know buyers and you can show your progress over time. So up to you. But this is definitely a good way to create urgencies, urgency with buyers to show them that you are serious about selling your company and you want to do it within this time frame and that really what you're kind of saying is someone's going to buy this company and is it you or is it someone else? And we have a process in place and we have all materials ready, ready, readily available. That really helps you stand out because you know, red flags are just there's not enough information. I gotta go digging for stuff. The seller isn't necessarily prepared or educated on an acquisition process. So that's extremely, extremely important. And then I've talked about this in another video. But just being open and transparent about your expectations. And what does a dream exit look like for you? Like what are you looking for? Are you looking to leave the business over a period of three months? Are you willing to stay on with a strategic acquirer for a longer period of time, whatever it may be, Articulate these things early because if you get down to the ninth inning and you're not on the same page, you've just wasted a bunch of time. And so you can easily customize all these PowerPoints. So all these PowerPoints, I believe this one's done. And also I like to have like, you know, customer testimonials just to give a little bit of social proof and then how to contact you. So what you can do is you can go into this data room and you can just duplicate it. So just literally how do I duplicate this anyways? You can figure it out. But all of these templates, P and L information on the team, I put a bunch of stuff in here and it's pretty bare bones. I'm going to be building this out even further. But you know, add things for growth strategy, sales, marketing, just really giving buyers everything that they would potentially ask for, which is metrics, what is your technical, what tech stack are you working on? How does your server infrastructure all work together? So I understand this, can my team understand this quickly? And then really it just comes down to being really, really helpful and just really, really trustworthy. Transparent as you're working with buyers because nothing can kill a deal faster than giving a red flag and making them uncomfortable. And there's a number of reasons why that can happen. It can just be, you know, you're not forthcoming about really material things about the business. Maybe churn is super high. Maybe you're, you know, not being upfront about how you're acquiring customers. You know, if you, if that's of concern for you, definitely consider hiring legal counsel and saying, hey, we have some information that we'd like to share with buyers or even an M and A advisor, which you can acquire through microacquire, and then have you guide you through that process if you're not comfortable with all of this. But this is pretty much how I would sell a company. Long story short, I'd create a data room. I'd have a process and timeline. I'd be really clear in my terms. I would set dates in which I'm going to be expecting verbal offers and then formal offers. And then from there I would move forward with one or two or three of the buyers who have submitted an ly. And then we'd start to figure out who is the best fit and then hopefully that moves towards an acquisition.