What happened when my startup got acquired
The hidden process behind what happens when a startup gets acquired.
Hi, it’s Melissa, and welcome to “your founder next door”, a bi-weekly column with relatable stories of my journey bootstrapping eWebinar to $5m ARR. No BS, just straight-up truth bombs on what it’s like to build a company without an abundance of resources or friends in high places.
The Big Aha! 💡
In my last piece, I shared why I didn’t sell to the highest bidder. This is the sequel: what happened next. Ever wonder what actually happens when someone wants to buy your startup? This is our acquisition story, from offer to close.
Backstory 👩🏫
Last time, I left off on getting into “a process” with HomeSpotter after Aaron Kardell (Founder and CEO) and I discussed what mattered to me most in the acquisition of Spacio. When a startup is “in a process”, it usually means they’re actively engaged in due diligence with a potential acquirer.
In this piece, I’m going to tell you all the things that happened from that moment until closing, to the best of my memory as this happened 6 years ago. My intention is to give you a glimpse into a process that’s typically pretty opaque.
From casual conversations to making an offer 👀
In November 2018, as Aaron and I casually talked about the growth potential of merging our companies and what that might look like, we were also having separate conversations with our respective partners to get their input and support; me with my cofounder, and him with his COO, who was essentially his cofounder, though not by title.
Around the same time, two other companies caught wind through industry consultants we were working with that we might be open to selling and reached out to gauge our interest. Neither conversation went very far. Within a couple of hours, it was clear that one would only offer a low valuation, and the other was led by a CEO I’d never want to work for. It was obvious as soon as something didn’t feel right with both.
Those subpar interactions reaffirmed my decision not to shop Spacio on the open market and made me appreciate Aaron even more; as a person, business partner, and future boss.
I’d known Aaron for three years, so I already knew he had strong character and a high sense of integrity. He was a straight up guy, and was honest and transparent about his intentions in buying us. He had realistic expectations about how Spacio could fit into HomeSpotter’s business, which was important since there would be an earnout tied to the sale. He was a pragmatic risk taker who understood both the limitations of our niche product and of me, a founder who was partially checked out. All that considered, he decided Spacio was a good bet. After a couple of weeks of back-and-forth, he decided to move forward with an offer.
I knew how rare it was to find a buyer who truly sees your startup for its pros and cons, and bets on you anyway. Because of the mental headspace I was in, I was thrilled, mostly because I was able to be myself and honest with him too.
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Coming up with the offer: Valuation + terms 💰
Arriving at the valuation and terms is probably one of the biggest mysteries in startup-land. There are plenty of benchmarks out there, but in reality, it’s whatever the buyer and seller agrees on. They say, “Companies are bought, not sold.” Translation: the better your business, the easier the negotiation.
Spacio didn’t have high revenue, but we were the category leader for digital open house check-ins, and were profitable with low burn. In the next newsletter, I’m going to break down what made us a good acquisition target. Subscribe to get that delivered to your inbox next.
HomeSpotter’s offer was a mix of cash, earnout, and equity as that’s pretty standard when the acquirer doesn’t have access to piles of cash. If you’re one of the lucky ones to land an all-cash deal, congratulations! Aaron and I had previously agreed on a reasonable multiple based on industry standards, and he came up with a cash/earnout/equity split that would be compelling enough for my cofounder and I to accept and stay motivated in the business for at least two more years.
The same multiple was used to determine HomeSpotter’s share price for our equity swap. For simplicity, let’s say that if Spacio’s ARR was $1m (not real numbers as I’m under NDA), and the valuation was 5x revenue, the sale price would be $5m. If HomeSpotter’s ARR was $5m, 5x revenue would give it a valuation of $25m. If the offer was $1.5m cash, $1.5m earnout, and $2m equity, we’d get $2m of HomeSpotter shares at that $25m valuation.
Most of our payout would come later, at HomeSpotter’s own liquidation event when we sold our shares. But that didn’t matter to me. I was just happy to become part of a bigger company, one where I could finally see a path to exiting and no longer carrying the weight alone.
Since HomeSpotter was also planning for their own acquisition (they were later acquired in 2021 by Lone Wolf Technologies), I wasn’t worried about our equity getting locked in indefinitely. In fact, I saw it as an opportunity to help grow their valuation post merger and share in that upside. The idea of this gave me a fresh jolt of energy…one I desperately needed.
Because Aaron was who he was, I knew the offer he put together would already be fair. He made a conscious effort to include everything I cared about; most importantly, giving everyone market salaries (for Canada) and keeping the team remote. When he made the verbal offer, I accepted it on the spot. There was nothing to negotiate.
Signing the Letter of Intent 🖋️
Agreeing to the terms of the deal is just step one in a long series of steps before closing. At this point, it might feel like an exciting occasion, but it’s not the moment to celebrate. Many deals fall apart, so you have to be careful not to count chickens before the eggs, and absolutely not spend money you don’t have yet.
After we shook on it, HomeSpotter sent a Letter of Intent (LOI), which we both signed to make the process official. An LOI is a non-binding document that outlines the main terms of the agreement and sets expectations for the transaction. Detailed terms would later be drafted in a binding Share Purchase Agreement (SPA) and any other contracts mutually agreed upon.
An LOI would contain things like:
Statement of intent to purchase shares with cash and equity
A summary of what the SPA will include
Seller liabilities such as employee, tax, and legal matters
Cash holdback percentage in case of outstanding liabilities
Conditions to closing such as satisfactory of due diligence and consent by all shareholders
Confidentiality, termination,, and exclusivity clauses (which prevent you from soliciting other offers)
An LOI is a short document that captures the spirit of the deal and everything that needs to be proven before lawyers start drafting the long version.
Even though it was just the beginning, seeing that LOI in my inbox did make it all feel real.
Going through due diligence 😳
You’ve probably heard that due diligence (DD) is a long and painful process, and for larger companies, it usually is. It can also be nerve-wracking because this is the stage where the buyer might uncover skeletons in your closet that could derail the deal.
For us, it was surprisingly smooth. We were a small company, and I was digitally OCD from day one. Everything required was already in its place.
When I got the list of DD items, it took less than an hour to upload everything to our deal room (hosted on Dropbox).
Some things we did from the beginning that made DD a breeze:
Documented everything: incorporation docs, shareholder agreements, contractor/employment agreements, severance agreements, customer contracts, NDAs, promissory notes, etc.
Maintained digital hygiene: all files named properly with dates to avoid version control issues, no duplicate files, CRM up to date
Kept our accounting and taxes current
Financial projections 2 years out, updated monthly
Company current and future opportunities, reviewed regularly
When someone wants to buy your company, they’ll want to see every little thing that makes up your business. Instead of scrambling when that happens, document as you go and keep your files clean to ensure that the process moves quickly.
Acquirers look for any surprises you may not have (or forgot to) disclosed to mitigate risk. They need to know what they’re inheriting. To give you an example of the level of detail, there was one person who worked with us for nine months and didn’t sign a severance agreement. It didn’t seem consequential at the time, but during DD it was identified as a potential red flag, and we were asked to explain why.
Doing things right as they happen is easy. Doing them retroactively under a deadline is torture. The faster you can pull your materials together, the faster the deal moves.
Don’t forget: Time kills deals. ⌛
Some things on our DD list:
Company documents: Incorporation papers, board resolutions, shareholder agreements, cap table, notes and SAFEs, employment and contractor agreements, NDAs — everything we’ve ever signed.
Customers: Full list, contracts, usage stats, revenue, references, relationship notes, churn risk — proof that our customers were real and happy.
Financials: Statements, taxes, payroll registers, projections, questionnaire from CFO — to uncover liabilities and untapped revenue.
Tech: Access to code base, technical diligence questionnaire from CTO — to understand team, product, and security.
Opportunities: Rundown of current and future plans, competitive landscape, roadmap, go-to-market strategy — to show where growth could come from post-acquisition
Business as usual 💼
Even if it doesn’t take long to gather documents for your DD, it’ll still take weeks to months for the buy side to go through them and come back with follow up requests. Streamlining that process on your end just means they can get started faster, and kicks things off in a positive way by making you look professional and organized.
As this is all happening, it’s important to carry on business as usual as if the sale will not go through. If it doesn’t, you’ll still be in a strong position to enter the process with another interested party. It’s an effective way to manage your excitement level and stay grounded. Nobody else will know this is happening as you’ll be under confidentiality so you won’t be distracted with premature congratulations. Your acquirer will reach out to your customer references, but there’s unspoken business etiquette to prevent word from getting out.
Your acquirer needs to know that they’re buying an appreciating asset. The best way to show them that is to keep closing deals and getting glowing reviews from customers, who they’d want to upsell later. Spacio had some large accounts that HomeSpotter didn’t, so proving we had great relationships with key accounts was imperative to demonstrating our influence to future revenue opportunities.
One of the reasons Spacio was a good fit for HomeSpotter was because we were a natural addition to their suite of products, something that their customers could add to their stack, and vice versa. For example, HomeSpotter had an ad product for promoting open houses, and by integrating that into Spacio’s open house check-in platform where agents’ properties were already listed, they could boost an ad on social media to drive traffic to their open house a few days prior to the event.
Treat DD as the most important period to show growth. Keep selling like your life depends on it, because it does if you want the sale to go through.
The muscles behind our deal: Lawyers and accountants 💪
I’ve always believed in spending money for three things:
Lawyers
Accountants
Foundational software (backbone of operations like database, hosting, payment processing)
As a bootstrapped company, we were very mindful of our spend. But these three areas are not worth cutting corners on because they keep your business in order. For all my companies, I’ve always retained lawyers and accountants who typically work with startups bigger than ours because I’d rather grow into them and prepare for a liquidation event from day one by having my ducks in a row.
I come across founders who try to do things themselves to save money, but not documenting things properly often means spending more money and time to fix it later. And remember, time kills deals. It also just makes you look bad at a time when you need to look like a superhero.
Nothing will matter more when you sell than your company documents, shareholder agreements, subscription agreements…and any clause that might increase the risk of inheriting your company’s issues.
Beyond DD, hundreds of pages of agreements (like the SPA), contracts, and financial statements will be produced by both sides. You need people on your side who can review them and respond to requests quickly and accurately, who know the common pitfalls, and how to negotiate terms that protect you.
During an acquisition is when these professionals really earn their keep. Our lawyers and accountants were the real muscles behind our deal, and they were compensated accordingly. Because we were a Canadian company selling to an American one, there were a number of cross-border complexities that needed to be navigated for tax efficiency on both sides.
Every transaction has its own complications, which can be minimized by keeping things clean and vanilla from the beginning in anticipation of one day being acquired.
Dodging a bullet 🫣
One of the main jobs a CEO has during a sale is to gather signatures of all shareholders to approve the sale. It doesn’t matter how few investors you have, the real kicker here is every shareholder matters even if they own 0.5%. A shareholder is a shareholder, and you’ll need their signature before the deal can close. One missing signature can stop your entire deal from closing. I didn’t know this, and learned this the hard way.
Let me tell you a side story…
When we first founded Spacio, we traded dev work for equity because we didn’t have any money. A friend I trusted (and shouldn’t have) ran a dev shop, and offered to help in exchange for 1.5%.
Turns out, instead of delivering the quality he promised, he tested new junior hires on our project. The work done for us was terrible, the relationship fell apart and we lost touch.
Years later, without my knowledge, his company, which held shares in Spacio, was sold to a publicly traded company. (This is why you should have a non-transferable clause in your shareholders agreement.) I was never introduced to anyone at the new company that owned our shares, but I didn’t think it mattered…until I needed their signature for the sale.
For weeks, I couldn’t get a hold of someone. The CFO ignored my emails and voicemails. I didn’t mention it to our lawyer because we had a drag-along clause, and I assumed we could force the sale even without the signature.
Two days before closing, I told my lawyer I couldn’t get a signature from that shareholder and asked him to execute the drag-along.
“You can’t just execute the drag-along,” he said. “If you can’t locate them, we’ll have to get court approval for a judge to confirm the deal is fair for everyone. Only then can we force a sale. This could take months. We can’t close without their signature.”
(I’ve heard this isn’t the way it works in the US, and there are almost certainly ways to avoid my situation from happening, but it wasn’t my case back then.)
You can imagine the look on my face. 😱
By some miracle, I found the CFO’s mobile number and sent him a desperate text begging him to sign, which he did that night. In the end, we got the papers signed but it could have gone the other way.
This is why I would never, ever trade equity for work again. It doesn’t matter how small someone’s stake is, their approval will be required on a major transaction.
If your shareholders aren’t on your side, you’ll feel it during your acquisition. Be thoughtful about who you let in.
Equity is like toothpaste. Once it’s out of the tube, you won’t be able to get it back in.
Closing the deal 🎉
It was an emotional roller coaster leading up to the close because you never know if it’s going to happen. One day I was dreading running my company, the next I was signing an LOI and putting my life’s work in a Dropbox for my maybe-future bosses to review.
After submitting everything for due diligence, nobody tells you how things are going. You get requests for more information. Then endless pages of legal documents come through with language you can barely understand. All the while, you’re expected to run the company better than ever because the stakes just got higher.
Our process started in November and the deal closed in mid-January. It was record time because there was an industry conference we wanted to announce the acquisition prior to so Aaron and I could visit customers together there. The compressed timeframe plus year-end holidays created even more added pressure for everyone involved, especially on the buy side as they were doing the heavy lifting and had to figure out their finances to fulfill the cash portion of our deal.
But once the i’s were dotted, the t’s were crossed, and every signature was finally collected, a massive weight lifted off everyone’s shoulders. A closing date was set. Cash would be distributed. Shares would be transferred. The companies would merge. We all realized it was actually happening.
The energy shifted and we were ready to celebrate with an impending press release and the optimism that it was the start of something new together; something bigger, better, and stronger.
Once the cat was out of the bag, my phone blew up with congratulatory texts from friends and acquaintances I hadn’t heard from in years, all asking the same question: How do you feel?
Reflections 🪞
So, how did I feel?
Relieved. Happy. Proud. Tired. Uncertain. Calm. Numb. Lost. Hopeful.
For the first time in a long time, I felt like I could breathe.
Spacio was the best and worst thing that ever happened to me. I had some of my darkest days as a founder running that company because I was green, and because the product never had the market potential to become an exceptional business. It’s what they would call a vitamin and not a painkiller.
But it was my real-life MBA. I made endless mistakes trying to get that company off the ground, and learned lessons that I’ll carry forever. It taught me things about life and business through failures I couldn’t have experienced any other way.
While it wasn’t the financial outcome I hoped it would be, it was the best outcome I could’ve asked for. We found the perfect home with a company that appreciated and respected our team and the product we built.
We’re made to believe startup exits should be in the tens or hundreds of millions. But most aren’t the kind you read about in the media. They’re Spacio-sized exits that never make the news because they’re not headline-worthy. They’re not retirement-level payouts, but still life-changing for a founder like me who was drowning in debt, paying herself less than $50k a year, and had no disposable income before her exit.
Because of Spacio, I finally checked off a bucket list item, a week in the Maldives in an overwater bungalow as a reward for years of hustle.
I bought my first home with my partner in our favorite city in the world, Amsterdam.
I earned the badge of honor as an “exited founder”, a title that opens doors in a career I’m still building.
Most importantly, Spacio gave me the capital and confidence to start eWebinar on my own terms; the company that now powers the life I dreamt of when I left my job 15 years ago.
For that, I am endlessly grateful.
The biggest lesson I learned through all of this is:
Find a way to build your nest egg so you can build the next company on your own terms, while taking care of your personal runway. 🪺
When you get out of survival mode, you’ll have the space to think clearly, be creative, and make good decisions.
You don’t need millions. A few hundred thousand dollars will go a long way if you started with nothing.
Stuff mentioned in this article 👇
Thank you for reading!
— Melissa, your founder next door ✌️
Newsletters I follow (and think you should too) 🗞️
Dr. Julie Gurner: Ultra Successful - Insightful, easy to digest advice & executable strategies that makes you think, by a nationally recognized executive performance coach.
Kyle Poyar: Growth Unhinged - In-depth case studies and deep dives on pricing & packaging, go-to-market strategy, SaaS metrics, and product-led growth.
Greg Head: PracticalFounders - Weekly interviews with founders who have built valuable software companies without big funding.
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The only way this grows is by word of mouth, so I’d really appreciate all the help you’re willing to give. 🙏
That's a value packed post, and a great format too, thank you so much for sharing this.