7 Things I Learned Selling My First Startup

My partners and I sold our first startup two years ago. 

It took us 6 years to build the business, and we made every mistake in the book along the way. But we ultimately realized an incredible outcome for our shareholders, customers, and team.

I learned some extremely valuable lessons going through my first M&A process, which I’m excited to share in order to help other founders navigate to a successful exit.

Paladin co-founders Ole Morten Amundsen (left), James Creech (center), and Thomas Kramer (right) proudly wearing Paladin cufflinks at James’s wedding in October 2022.

But first, a bit of background…

Our Startup Origin Story

In 2016, I started an influencer marketing software company called Paladin with two co-founders. Our COO Thomas and I had previously worked together at an adtech startup, and our CTO Ole and I met working at an early creator network.

All three of us had experienced the pain points of running influencer campaigns firsthand. Back in those days, it went a little something like this… Get a brief from the client, search for the right influencers on Instagram/YouTube/Vine, track their information in a spreadsheet, ask the influencers for screenshots of their social media analytics, and put everything together in a powerpoint presentation you’d email over to the client.

The whole process was tedious, time consuming, and expensive.

So we started building some tools to make our lives easier. And eventually we realized we weren’t the only ones banging our head against that wall. Every other brand and agency that wanted to work with influencers was struggling with the same challenges.

That’s what inspired us to take the entrepreneurial leap – conviction that we were solving an important problem and a healthy dose of youthful naivete.

So after several months of R&D and early customer development, we officially launched Paladin in April 2016.

The original Paladin logo from our April 2016 launch.

We scraped together what little money we had to help get the company off the ground. Thomas invested his wedding funds, I contributed the down payment I was saving for a house, and Ole returned his brand new Tesla to the dealership so he could put the money toward the business. The three of us were all in.

We had barely enough to scrape by and were burning money every month. So we listened to what customers wanted and sold like crazy until we got to break even.

Scaling the Business

The next six years were a blur. We focused on continually improving our technology platform, growing the team, and scaling customer acquisition and revenue growth.

Much of it was your classic two steps forward, one step back entrepreneurial journey. There were exhilarating wins, frustrating losses, and everything in between.

After a few years, things really started to come together. We had the right team in place, knew what problems we were solving, and just kept executing.

From time to time, we’d receive inbound interest from potential acquirers, but these inquiries became more frequent and serious in 2021. The company was healthy, profitable, and growing year over year.

We hadn’t necessarily planned to sell the business at that time, but a few factors convinced us to at least explore the option.

For one, influencer marketing software was becoming increasingly crowded and competitive. We were up against larger, well-funded competitors and had to be deliberate about our strategic planning and differentiation. We knew that to be a leader in this market we’d need to raise a lot of money to accelerate our growth or find a strategic partner who shared our vision.

The other contributing factors were personal motivations. Both Ole and Thomas wanted to spend more time with their young families, and all three of us had other projects we wanted to pursue when we had more bandwidth.

So for a variety of reasons, it made sense to test the waters with potential buyers.  

Navigating the M&A Process

We spent a couple months getting organized – putting our materials together (CIM, financials, and data room), hiring a banker, and mapping out potential partners.

After that, we spent about 4 months in exploratory conversations with interested buyers, trying to find the right strategic fit and future home for what we’d built. We then narrowed the field, evaluated the various offers, and proceeded into due diligence with Brandwatch, which ultimately acquired Paladin in early 2022.

Here are the 7 things I learned navigating the M&A process…

1. Be clear about what you want.

There were a few things I stressed when selling Paladin.

The buyer had to love our product. They needed to be excited about what we’d built and the problems we were solving.

The buyer also needed to value our team. We weren’t interested in an acquisition if it meant reducing headcount.

And finally, it had to be a great culture fit. If we were going to join another company, they had to share our vision and our values.

As a founder, you should also think about what’s important to you personally. Are you willing to stay on, or do you want to work on new projects?

2. Don’t waste time with window shoppers.

It’s easy for M&A conversations to drag out, so be sure to qualify each buyer’s interest upfront.

Avoid talking to companies that don’t have the funds or competitors on a fishing expedition. They’ll just spin your wheels.

I learned this one the hard way. We had a couple of competitors I thought would be a natural fit for us (e.g. they had a larger domestic footprint whereas we had a stronger international presence, or they had a great influencer discovery product but our campaign management and reporting features were more robust). But at the end of the day, we presented more strategic value to companies looking to add influencer marketing capabilities to their offering.

The takeaway: set clear expectations about your process and timeline. Focus on buyers that have strategic fit and a clear mandate to pursue a deal.

3. Tell people why not to buy your business.

There’s a natural tendency to avoid or downplay your company’s weaknesses. Instead, you should tell buyers all the reasons they shouldn’t acquire your startup.

Why? They’re going to find out eventually, so it’s better to be transparent upfront. It’ll save you time and headaches later.

This also helps you qualify the buyer’s interest. Do they have the conviction to work through the tough stuff, or will they get cold feet at the first sign of trouble?

I remember being nervous about a meaningful part of our revenue that came from third-party referral fees. I was worried that the buyer would discount this revenue for valuation purposes, but it ended up not even being a concern during due diligence. 

4. Surround yourself with trusted advisors.

For most founders, selling your company is a first-time experience, so it helps to bring in experts.

Start with a banker or advisor who knows your industry and is stage appropriate. A great banker will source potential buyers, negotiate key terms, and be the “bad guy” when needed.

Hiring an advisor also frees you up to continue operating the business and hit your targets. There’s nothing worse than poor company performance during a sales process, so make sure you can stay focused on delivering good results.

Not only that, but research shows that hiring an external advisor results in ~25% higher valuation premiums than trying to manage everything yourself.

Online marketplaces are another great option for certain startups. Flippa, for example, offers in-house M&A advisors to help founders with everything throughout their exit journey, from marketing materials to sell-side negotiation and advisory, in order to maximize your sale price

The other key ingredient is a great lawyer. You want a firm with M&A expertise (ideally in your industry), so make sure to shop around. A small generalist firm typically isn’t going to cut it.

How do you find the best M&A lawyers? Ask your banker, investors, and other founders for recommendations. Pick the top 3 and take each of them to lunch. You want to make sure you’ll work well together and that they have a clear understanding of your goals for the transaction.

5. Pay attention to deal structure.

Acquisition mechanics can be complex. Liquidation preferences. Working capital adjustments. Warranty escrows.

Don’t just leave this to the bankers and lawyers. You need to understand and feel comfortable with the deal structure, not just the headline number. How a deal is structured can have a significant impact on the economics and what happens to your company after you sign over control.

I read every word of the more than 1,000 pages in our deal docs. And I made sure to understand every aspect of the transaction so I felt confident about what we were getting into.

6. Every deal falls apart 3x.

You’ve probably heard this one before. That’s because there’s a lot of truth to it.

M&A deals are challenging. Many don’t work out.

Our deal was no different; there were a few times I worried we wouldn’t close. But those stories are better shared over a beer than in a blog post.

Bottom line: have patience when you run into issues. Make sure both sides work collaboratively to find a solution.

7. Stop and smell the roses.

Completing an acquisition is exhilarating, but the M&A process is exhausting.

I was lucky to have friends, family, and a great team around me who helped me be present and enjoy the moment. Like my wife Jen and good friend/colleague Sebastian Wulff who brought over a bottle of champagne at 10 o’clock the night we signed the final purchase agreement (even though I was exhausted and just relieved the deal was done).

And do yourself a favor: take a vacation when it’s all over. 🌴

James is a 3x entrepreneur and M&A advisor who has spent over a decade in digital media, tech, and the creator economy. Since selling his first startup (Paladin) to Brandwatch in March 2022, James has been helping founders navigate the M&A process to a successful exit. To learn more, visit James' website or reach out to him directly on LinkedIn.

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