9 Insights on Startup Exits 🚀
Selling a company is a challenging moment.
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For many founders, selling their company is a challenging moment—often more frustrating than anticipated. After years of being evaluated by VCs with high revenue multiples, founders can face a harsh reality: when it’s time to sell, the evaluation criteria and expectations can shift significantly.
In most cases, buyers in slower markets rarely exceed a 5–6x revenue multiple. This comes as a shock to many founders, compounded by the fact that they’re often unprepared for the process. Managing a business is complex, and preparing for an exit can feel like an impossible task.
To help address this, we’ve compiled 9 critical insights about M&A and exits that every founder should know.
1. The Truth: "Great Companies Are Bought, Not Sold"
Contrary to popular belief, even the best companies need to actively position themselves to be sold. Being “bought” is often the result of strategic preparation and creating optionality for potential exits.
Start by asking yourself: Do you want to be rich, or do you want to be king? This simple question helps clarify your vision of success and whether you're ready to take the steps to position your company for acquisition.
2. Create Competition to Maximize Deal Value
The best way to secure a strong exit is to create competition among buyers. A single offer opens the door to solicit others, driving up your valuation.
For example, when Nubank (Brazil) acquired Plataformatec, it wasn't a straightforward deal. Plataformatec leveraged an initial offer from a competitor to engage other clients, eventually securing a better, acquisition-friendly deal from Nubank.
3. Preparation for Exit Is a Value-Building Journey
Preparing for an exit isn’t a last-minute effort; it’s a long-term project of value creation. This involves:
Develop a thesis on why your company is a strategic acquisition target.
Identify potential buyers beyond the obvious candidates.
Build relationships within those companies long before you intend to sell.
This proactive approach ensures you’re not scrambling to sell or accepting the only offer on the table.
4. Timing Shapes Valuation
The valuation of your company during an M&A process depends on its stage:
Early-Stage: Buyers focus on team and product potential, with less emphasis on financial metrics.
Growth-Stage (~$5M Revenue): Revenue and scalability become more relevant, but EBITDA may still be secondary.
Mature Stage (~$50M Revenue): Profitability takes center stage, with EBITDA driving valuation and attracting a broader range of buyers.
Understanding your company's lifecycle helps frame buyer expectations and improves negotiation outcomes.
5. Earn-Outs Can Be a Double-Edged Sword
Earn-outs tie part of the acquisition price to post-transaction performance, often based on revenue or operational metrics. While earn-outs may seem like a way to increase deal value, they can create misaligned incentives or restrict integration potential.
Founders should negotiate earn-out terms carefully, ensuring they’re realistic and aligned with the company’s post-acquisition strategy.
6. M&A and Shifts in Technology Platforms
Major technological shifts often drive M&A activity, as established companies seek to stay relevant. For instance:
The move to cloud computing spurred acquisitions by companies like TOTVS and Linx (Brazil)
The current AI boom is fueling deals, like Nubank's acquisition of Hyperplane.
Strategic acquirers look to startups for innovation they can’t build fast enough internally, making platform shifts a golden opportunity for exits.
7. Relationships Begin Long Before the Deal
Many acquisitions start as partnerships. By the time acquisition talks began, both sides had tested the relationship, reducing risks and ensuring alignment.
Such partnerships can act as a “test drive,” proving viability before committing to a full acquisition.
8. Most Tech Companies Exit After 7–9 Years
In Latin America, tech startups typically take 7–9 years to reach acquisition. Founders can only go through a handful of such cycles in their careers.
While founders focus on building their businesses, buyers are also evaluating numerous opportunities. Proactive planning can help ensure your company stands out when it’s time to sell.
9. Not Every Startup Can Be "Above Average"
The Lake Wobegon effect leads founders to believe their startups will achieve exceptional outcomes. While optimism is crucial, it’s important to remain realistic about how your valuation compares within your sector.
Founders who overestimate their standing risk being unprepared when buyers offer less-than-expected multiples or conditions.
Conclusion: Build Your Exit Path Early
Exits don’t just happen—they’re the result of careful planning and strategic relationship-building. While building an exceptional product and scaling your business are critical, the real payoff comes from creating optionality for your exit.
Whether you're aiming for a strategic acquisition or navigating an acqui-hire, preparation is the key to securing a rewarding outcome for you, your team, and your investors.
👉 Are you ready to take the first step toward a successful exit? Schedule a call with us today to discuss your exit strategy.
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