5 Questions to Ask Before Selling Your Tech Business

5 Questions to Ask Before Selling Your Tech Business

In the rapidly changing tech world, a lucrative M&A deal is the dream of many business owners, especially those with innovative startups. The goal is to start the business, grow the business, get enough publicity to get investors, and then either go public or cash out (and sometimes both). So when an investor approaches you with an offer that seems too good to pass up, you may be inclined to sell even if you were planning to give your business a few more years to grow. Before selling to anyone, here are five questions you need to ask yourself.

How much is my company really worth?

Value is of course in the eye of the beholder, and springs forth from the buyer’s assessment of your company. But there are some objective ways to measure value. A buyer who approaches you out of nowhere may be banking on the hope that you’ll accept the first offer. But the first offer is rarely ever the best offer. You need a professional valuation before you make moves to sell your company.

What is my plan for after the sale?

Why are you selling your company? You need to know what comes next for your own psychological benefit, but also because your next chapter may determine how much you need to make from the sale. Talk to a financial advisor about your plans before agreeing to a sale.

Do I have the right team in place?

Some sellers, especially those selling their first small startup, hope to manage the transaction themselves. After all, the thinking goes, they grew the company from the ground up. Why wouldn’t they also be able to manage a sale? But a merger is a complex transaction that requires real expertise. Going it alone almost guarantees it won’t realize its true value.

What is the buyer’s plan for the company?

What do you want the buyer to do with your company—or do you care? Many sellers are primarily focused on getting the highest possible sale price, but that doesn’t mean they don’t care about what comes next. Consider how the sale will affect your people, the long-term health of your company, and the reputation of the business you’ve invested so much of yourself into. The right buyer will do the right thing with your company. They’re worth holding out for.

What will be my obligations after the sale?

The sale of the business doesn’t necessarily mean your obligations to the company end, especially if you have negotiated an earnout provision. Make sure you understand and are happy with your post-sale obligations. That may mean learning to step back if you no longer hold an ownership stake, or having the energy to keep going at full speed if realizing the full value of the transaction is contingent upon hitting certain benchmarks. Talk to your advisory team about whether your anticipated post-sale role is reasonable and positive or likely to cause conflict.