Strategic Acquisitions: You’ll Likely Have to Stick Around

One of the exit strategies early-stage founders often have is strategic acquisition. This means the acquiring company will get strategic value from the company it acquires—it’s not just a financial buy. Buying a company and bringing its talent onboard is often quicker than building something from scratch. And in some acquisitions, a larger company quickly grows the smaller company’s sales by using its massive sales force to offer the latter’s product to its existing customer base.

These options sound great, and they are—but there’s something lots of founders don’t consider. Often these deals are structured so the founder will need to stay at the larger company for a few years. The founder usually has what’s called an earnout—they don’t get all their money from the deal when it closes; they must earn it over time. Doesn’t sound like a big deal, but it can be. Especially If your motivation for starting a company was to be your own boss.

If you’re a founder aiming for a strategic acquisition, get a great deal attorney and be ready to hang around for a few years post close!