While a successful exit in the form of an acquisition may be the goal for many startups, the experiences of Backblaze, an online back-up and storage startup, demonstrate how time-consuming, challenging, and expensive the process can be, particularly when, as was the case with Backblaze, things fall apart.
Backblaze was in the process of negotiating an acquisition with one of its partners and then with another business. Both deals fell through, and Backblaze CEO Gleb Budman penned a blog post chronicling the process to offer some insights and lessons learned for other companies entering the process.
The Backblaze Story
As Budman explains, when Backblaze received the first acquisition offer, the company had already discussed internally the three scenarios: The first: the offer would be too low, and Backblaze would not accept it. The second: the offer would be something the company would consider but wouldn’t be thrilled with. And the third and best scenario: an offer the company would accept.
As the first offer fell into that first category – and after some negotiations into the second category – Backblaze approached some other companies to see if they were interested in making an offer as well. And sure enough, another company made an offer that sat better with the startup.
Budman’s blog post explains in great detail (with the names of the prospective buyers obscured) the steps in the very lengthy negotiation and due diligence process. And “very lengthy” may be the key phrase here, as Budman notes buyer kept delaying the signing of a definitive agreement until on the Monday following the end of the exclusivity extension, the CEO called with an “I’m sooo sorry,” telling Backblaze it would need to restructure in order to finalize the deal. Backblaze balked, and said no. And with that, writes Budman, “We were roughly back to where we were six months earlier.”
The Lessons Learned
On one hand, that’s not a bad place to be. Backblaze is profitable and cash-flow profitable. The company has a service that customers love. But as Budman notes, so much time was spent on the acquisition negotiations that other aspects of building the business might have been ignored.
Budman admits that there are far more “lessons learned” than one post can hold, but offers these five pointers:
- Build trust. “Ultimately, the difference between success and failure of a merger is whether the teams trust each other. Start early. Partner. Meet live. Talk to references. Do whatever it takes to make sure both sides trust each other. If either side doesn’t, no amount of legalese in a contract will help.”
- Getting acquired is expensive
- Find great advisers
- Know your wants and walkaways up front
- Require quick movement
The Backblaze post is worth reading in its entirety, particularly for first-time entrepreneurs or those with limited experiences with company acquisitions.
Photo credits: Flickr user Sam
