Knowing when to hold 'em and when to take a potentially lucrative acquisition offer is tricky business.
And on Friday three Austin CEOs who have been through some of the city's most notable exits -- HomeAway, RetailMeNot and Favor -- shared insights about what went into their decisions to accept acquisition offers and offered advice to fellow tech startup founders and CEOs.
For background, follow these links to learn about the acquisitions in our prior coverage: Favor, RetailMeNot and HomeAway.
Below are some select insights from their SXSW panel discussion.
On How They Decided to Sell
Brian Sharples (HomeAway): As a public company, there are several reasons to sell. You have to look out for shareholders. That doesn't mean you have to accept a deal, even if it offers a 30 percent premium. But you have a duty to provide strong returns.
Also, sometimes an acquiring company offers resources that can help you scale and expand in ways you couldn't as a standalone company.
“With the case of HomeAway it was kind of a combination of all three," Sharples said.
Jag Bath (Favor): Favor was a relatively small company, but they were the only on-demand delivery company that had found a way to become profitable. The company wasn't looking to sell, it was focused on market penetration in Texas.
“We were not ready for it, at all,” he said.
Cotter Cunningham (RetailMeNot): We were public and got a great offer.
“My heart wasn’t really in it," he said. "I didn’t really want to sell, but I felt like it was the best thing for our shareholders.”
Advice For Fellow Founders and CEOs
Bath: "Think about building a great business first, not selling," he said. “When you focus on that first, other things fall into place.”
But once an acquisition deal gets underway, it's a ton of work.
“It’s really hard," he said. "You start getting these phone calls. If you’re small and you get an opportunity to be acquired and it makes sense, it’s a lot of work and at the same time you have a business to keep running.”
Sharples: Many founders think they will love being part of the company that's acquiring them and plan to stay on for three to five years. But, quickly, founders often decide they want to run a business -- not work for someone else.
“Many entrepreneurs just can’t deal with that," he said, noting that HomeAway, which made about 40 acquisitions, came to a point where they'd plan on a founder's exit even when the founder planned to stay on.
“I think the hardest thing in these kinds of deals is having a real true self-awareness of what you want to do," he said.
He said it's smart to start a dialog with competitors who might acquire you -- it helps give you a sense of what life post-acquisition will be like.
Cunningham: Acquisition interest often comes from competitors, and sometimes those competitors are looking for business knowledge -- not a deal.
“All too often the person that’s going to buy you or is either in your business or a business right on the sides of yours…" he said. "What so many people don’t think about is that pretty quickly in the discussions you’re showing your secrets to a competitor.”
He also said that once the lawyers get involved in the acquisition offer, things tend to move fast.
“In general, when you hire an attorney, you’re selling," he said. "The train is leaving. All the momentum is on doing the deal.”
On Attracting Acquisition Interest and Starting a Company in Austin
