When you can’t get that A round

Giff Constable startups

The startup ecosystem is currently at the “thousand flowers blooming” stage. The number of large second-stage angel or VC-led A rounds will not be able to keep up with the number of new companies. Consequently, there are going to be a lot of frustrated and disappointed entrepreneurs out there.

But just because you struggle to raise money does not mean you have not created value with your hard work. There is another alternative: selling the business.

However, you don’t want to try selling your business from a cold-start once you realize your runway is almost over. Relationships with potential buyers take much longer to build.

One way to hedge is to think, realistically, about who the most likely buyers of your business might be. Come up with a partnership angle and start talking to them. You want to get on their radar, and get their bizdev and product people excited about what you are doing. You want them to respect your vision and execution ability. You want them to imagine what it might be like to have your energy and productivity on their team.

The goal isn’t necessarily about closing a concrete bizdev deal. So many bizdev deals fail to deliver great results, so it’s easy to back-burner this kind of work in favor of higher priorities. ┬áBut that can be a mistake if you want to hedge your outcome against a fundraising gap. The hedge, not the bizdev deal, is the justification for allocating your precious time on this work.

Your goal is to have the relationships in place so that you can kickstart an acquisition process when the time is right (note: one way to start is to hint that you’ve got a bid from another party and are debating what to do).

You do *not* want to delegate this task to a junior person. It should be handled by a founder-caliber person, because early stage deals are so often about acquiring incredible people. Think of it like a slow-burn, highly strategic sale.

Don’t wait until the last minute to try to kickstart an acquisition process because, just like raising money, it takes several months to get a deal done, even with an early stage company where due diligence is not that complex.

If you have some very connected angel investors and it becomes clear that an A round is impossible, they might be able to help make a tuck-in “acqui-hire” happen that lets everyone preserve face, but I would not put all my eggs in that basket if you can help it.

There are reasons not to prioritize all of the above, and at times I have consciously done exactly that, but it will make it harder to sell your business if you do. That’s fine as long as it is a conscious choice. Everything is a trade-off, and all you can do is make the smartest choices you can each step of the way.

Related post: Selling Your Company – some core questions and answers