5 Tips for Selling Your Startup


Mergers and acquisitions can be overwhelming for any California startup business. With an effective business plan and sound legal advice, the process can often be completed more profitably and with fewer complications. Here are some important considerations for California business owners who are preparing for the sale of their startup:

Clearly Identify Your Goals

Sales of a startup can be structured in many different ways in order to meet the specific needs of both the buyer and seller. A seller may be left with cash, stock options, equity in the buyer’s business, or other combinations of assets in order to finance the sale. A seller can also retain certain management rights, such as voting rights as a stockholder or board member of the new business. All of these things can be negotiated in the sale of a startup. With all these considerations in mind, it is important to begin the sales process with a clear understanding of your goals for the transaction.

Prepare for the Sale Before Seeking Potential Buyers

The more prepared a seller is, the higher purchase price he or she will be able to obtain. By allowing adequate lead time, a seller can improve financial records, business structures, and customer bases in order to increase the value of the startup prior to sale of the business.

Protect Your Confidential Business Information Throughout the Process

The sale of a startup is like in any other sales transaction – the sale can fall apart before it is completed. A buyer may not qualify for financing; the seller may choose not to sell at all; or the parties may be unable to come to terms regarding the details of the transaction. When this happens, a company may have revealed trade secrets or other confidential business information which was disclosed in the due diligence process. Consequently, it is important that startup business owners not disclose more information than is necessary throughout the sales process. Initial inquiries should be answered with information that is as general as possible. If a potential buyer has pre-qualified for financing, this might indicate that the transaction has a chance of success, and more information may be justified. California business owners can protect themselves with confidentiality agreements drafted by superb corporate attorneys who understand the needs and goals of your business.

Due Diligence Applies to Sellers, Too

Like buyers, sellers have a legal obligation to perform due diligence and use reasonable care in the sale of their startup. Shareholders who suffer financial losses as a result of a careless business sale can sue the business and its principals for their losses. Thus, it is prudent that a seller conducts thorough investigations into the creditworthiness of potential buyers, and to utilize the necessary tools and resources to appraise or determine the fair market value of the startup.

Get a Comprehensive Analysis of Fair Market Value

Fair market value is a subjective valuation of many complicated components. Because of this, valuation can vary greatly between buyer, seller, and a valuation expert. Sellers should prepare for this by obtaining as much data as possible about the value of their startup. Sellers should seek multiple valuations from different, independent experts who are not privy to each other’s opinions. Sellers should solicit offers from multiple potential buyers who are not aware of other offers which have been made. More data will lead to a more accurate and comprehensive fair market value

Experienced Legal Representation For the Sale of Your Business

Selling a startup is a complicated process with many potential risks. The skilled corporate attorneys at Startup Company Counsel will work with your business to find a suitable purchaser, identify all potential areas of risk, and mitigate that risk effectively throughout the purchase process. Call (408) 441-7555 today, or email admin@startupcompanycounsel.com to schedule your consultation with an experienced California corporate acquisition attorney.

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