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Prepping for Exit - a Founder’s Perspective on M&A - Issue #35

Issue #35 — View online — Suggest a link
Prepping for Exit - a Founder’s Perspective on M&A

Is it time to consider selling your startup? Looking for a founder’s perspective? Dave Parker is a five-time founder with >10 exits. This reading list is practical advice on prepping for exit, pricing and the process.

This is the fourth in the series of breaking down the DD checklist and current M&A news. You can find an M&A Due Diligence Checklist here.
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Current M&A News
How to Manage an Acquisition During the Pandemic | Inc.com
CEO Gender ‘Primary Determining Factor’ To Get Funded: 48,000-Company Study
The 5 Biggest Startup Trends for 2021 | by Richard Liu | The Startup | Medium
Investor Names Top 10 Trends, Predictions for 5G in 2020 - eWEEK
Due Diligence Breakdown - Part 4
Intellectual Property
  • Patents, Trademarks, Copyrights - most startups don’t have a lot of IP, depending on the stage. At very least you should have your Trademark and Word Mark, This is also called a “standard character” mark. 
  • Domain Names - if the company has purchased other domain names for the products or other ideas than they belong to the company and will likely be transferred. I have a friend with the last name of Fine. His company was named Fine.com and after the merger integration was finished, he had negotiated to transfer the name back to his ownership.
Material Agreements
  • Standard Form Agreements - these are the templates you use for contracts as well as your terms of service.
  • Insurance - if you don’t have Directors and Officers (D&O) insurance, I would suggest you get a quote. Usually this is a policy you have in place as soon as you have outside investors on the board. You can also get a price on a D&O Tail policy which would be the first line of defense should you get sued after the transaction for an allegation of a prior claim.
  • Indebtedness - this includes all formal and bank debts, including SBA PPP loans as well as the EIDL Loans. Timing on forgiveness may matter here, a buyer may not want to wait on the government to waive the obligation.
Leases
  • Real Estate - all current leases plus any sublet agreements from earlier locations. This could also include vehicles in the company’s name.
Disputes/Litigation
  • Any correspondence or documents threatening action of any kind. I have seen deals held up because prior employees threaten a suit. Disclose what you know, surprises in a transaction are bad, especially legal surprises.
Regulatory Matters
  • Inquiries or applications - if you have any government related claims or regulatory matters. Documentation should include current updates, prior communications and last action dates.
Taxes
  • CPA Firm - yeah for accountants, the track everything so they will have a copy of all of theses documents. Include their contracts for professional services.
  • Tax Returns - since initial filing date.
Other
Some other topics that will come up for tech companies is open source code and GitHub repositories. Expect the buyer to hire an outside firm to run a Black Duck Scan on your code base, identifying open source components and any known vulnerabilities.
Techstars Startup Digest Prepping for Exit - a Founder’s Perspective on M&A is curated by:
Dave Parker Dave Parker
dave.parker@startupdigestmail.com
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