I’ve been learning more about start-ups recently and have noticed a lot of them want to be acquired. Why is this? Could they also choose to grow their business?
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Most of these answers are correct. The decision very much depends on the founder’s motivation.
If the goal is to exit quickly, then an acquisition is cleaner since you don’t have to worry about the preparation or the lockup period.
Preparation for an IPO includes finding a sponsor and an underwriter. While both IPO and M&A include due diligence processes, the IPO due diligence is more restrictive since it requires abiding by SEC regulations.
Lockup period refers to the time after an IPO when the company’s stockholders are NOT allowed to sell. This is a rule by the SEC to protect investors but it means that if the stock price starts to fall, you literally can’t do anything about it; even if it’s caused by external factors (e.g. recession, bad market conditions, etc). M&A may include other clauses that restrict payout terms, but those may be negotiable.
Another common goal is to maximize impact. An acquisition may make more sense since it may be faster (in years) for a bigger company to deploy your technology to their customers than it is for you to sell to their customers directly. They may also have complimentary products and services where bundling makes sense, or they may have patents that you don’t want to risk infringing upon.
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