Pros and Cons of Staying at Your Startup After Exit

January 2023

Pros and Cons of Staying at Your Startup After Exit

The ultimate goal of most founders is to grow a successful startup, attract buyers, and eventually, sell the company for a profit. Sounds pretty simple, but selling a startup can be a long and difficult process!

As a founder, it’s crucial that you understand what options are available and know how to plan an effective startup exit from day one. You need to ask yourself important questions such as ‘what do you want from the sale?’ and ‘do you want to stay at the company after selling?’

In this blog, we’ll tell you everything you need to know about exits and compare the pros and cons of staying at your business after selling.

What makes founders sell their businesses?

  • Wealth: The main reason why founders sell is because they have built a profitable company that has attracted acquisition offers.
  • New business venture: Some founders sell because they want to launch a new startup or pursue a different business venture that excites them.
  • Retirement: Founders sell their businesses when they are ready to retire or want to travel, spend more time with family, or simply no longer want the stress of running a business.

Acquisition is the most likely exit strategy for startups. The global M&A market reached an all-time peak in 2021 and was valued at almost £4.9 trillion – up 64% on the previous year.

Do founders have to leave after selling?

Founders have the option to leave after the business is acquired, but many founders choose to stay on for several months or even years. There is often a minimal period of transition when founders must agree to assist with the handover of the business operations.

According to a Master Class series held by Tech Crunch: “Buyers said they generally hoped the founders would stay with them for many years.” They add that buyers often use earn-outs or shares of the company they are acquiring to incentivise founders to stay after a startup exit.

Pros of staying at your startup

  • Staying on after the acquisition will give you leverage in negotiations and could help you secure a higher purchase price and other favourable terms.
  • Buyers will often offer earn-outs, shares, or re-vesting agreements to motivate founders to stay on after the acquisition.
  • According to Entrepreneur, many founders experience a loss of self and identity after selling their businesses. By staying on, you’ll have the opportunity to remain involved with your startup and help it scale to new heights.

Suggested reading: How does life change after the startup acquisition process?

Cons of staying at your startup

  • You might find it difficult working with a new team or having someone telling you how to run the business you’ve built.
  • You might find it difficult to adapt to a new brand image or company culture.
  • You may not have the time or freedom to start a new business.
  • You may not be able to enjoy your new-found wealth to the fullest.

Key takeaways

Staying on after acquisition will give you leverage in negotiations and could help you secure a higher purchase price, along with other benefits such as re-vesting agreements.

That said, founders become founders because they want to lead. It’s natural for founders to find it difficult to follow a new management team and be told how to run the business they’ve spent years building.

Whether you decide to stay on after exit will depend on your individual goals and the terms agreed upon during the sale.

3 tips to get the most out of your startup exit

  1. Get your business acquisition ready. If an acquisition is your goal, you should start planning from day one. Prepare your startup for acquisition by getting your business records in order, maintaining good finances, and creating effective SOPs (Standard Operating Procedures).
  2. Join a startup marketplace. Selling platforms like Foundy have revolutionised the M&A market and made exiting a startup quicker, smoother, and more economical.
  3. Seek advice from an M&A expert. An M&A professional can give you valuable advice and support you throughout the startup exit process. Browsing an M&A advisor directory is an easy way to find an affordable advisor that suits your needs.

Suggested reading: Everything you need to do to sell your startup

Start planning your startup exit with Foundy!

Join Foundy and you can connect with hundreds of credible buyers who are actively searching for startups to acquire. Our all-in-one platform makes the process efficient, cost-effective, and helps founders sell their startups in as little as 30 days.

If you have any questions, reach out to our friendly team today. We’re always happy to help!

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