The acquisition process

Justin Kan's advice still holds: do not enter acquisition talks unless you are ready to sell. M&A is more distracting than fundraising. Confidential diligence leaks energy, morale and often proprietary data. "Just to see what we are worth" routinely kills momentum and leaves you with neither a deal nor a healthy company.

Assume every deal can fall apart until money hits accounts. Casual "we'd love to acquire you" comments are not offers. The failure rate from friendly interest to signed LOI to closed deal is high. Keep building the company in parallel.

The big idea

A sale is a project with a freeze window. Once exclusivity starts, you have stopped talking to other buyers while this one digs. Time-box that window. Push for a second bidder before signing exclusivity when you have leverage.

The house-sale picture: listing, inspection, contract, keys. The analogy breaks on exclusivity and on how often the inspection kills the deal. Keep the factory running.

Walking through the sequence

Inbound interest. A product leader, CEO, or corporate development ("corp dev") contact reaches out. Corp dev facilitates. The economic buyer is usually a senior product or business executive who believes the deal accelerates their roadmap. Warm relationships with those executives matter more than a cold corp-dev coffee.

Banker or not. Investment bankers run formal processes for larger deals (often tens or hundreds of millions and up): materials, a buyer list, a competitive auction. Fees are real (often a few percent of deal value, with minimums). Early, small, or talent-heavy deals frequently skip bankers and negotiate bilaterally with counsel.

Letter of intent (LOI). A short, mostly non-binding document covering price, structure (cash vs stock), exclusivity window, and key conditions. Exclusivity is the dangerous clause.

Diligence. Financials, cap table, IP assignment, customer contracts, employment agreements, litigation, security, code quality. Employees may be interviewed or given coding interviews in acquihire-shaped deals. Dirty books, missing IP assignments, or a messy cap table kill deals or slash price late.

Definitive agreement. The long-form merger or purchase agreement: reps and warranties, indemnities, closing conditions, escrow, earnouts, employee matters. Closing can take weeks to months after signing (regulatory review, stockholder approval, third-party consents).

Close. Cash and/or acquirer stock changes hands; escrow holds a slice for indemnity claims; retention clocks start. Then see deal consideration.

Common mistakes

• Opening a process to "test the market." The distraction is often irreversible.
• Signing open-ended exclusivity. Time-box it; keep competitive tension if you can.
• Treating a friendly inbound as a committed offer. It is not an LOI, and an LOI is not a close.

Check yourself

Why is exclusivity dangerous for the seller?

You stop talking to other buyers while this one diligences — and the deal can still die.

When do you usually need a banker?

Larger auctions (tens or hundreds of millions and up). Small talent deals often skip them.

Key takeaways

• Do not open M&A talks unless you intend to sell.
• Sequence: inbound → LOI → diligence → definitive agreement → close and escrow.
• Time-box exclusivity. The economic buyer is a product or business executive, not corp dev.
• Assume failure until cash hits. Keep building.

Further learning

The Founder's Guide To Selling Your Company (Justin Kan)medium.com

Next: cash, stock, earnouts and escrow.