Raising Money
Running the exit process
On this page
- Overview
- The three ways out
- Two readiness questions, not one
- The LOI is your ceiling
- Sell to the product owner, not corp dev
- Run a process; don’t answer the phone
- What transaction counsel does
- Picking the banker
- Structure beats price
- The EBITDA bands and the stair-step
- Strategic investors before the exit
- Numbers from the room
- Sources
This page covers a planned exit from a position of readiness. If cash is already the constraint, start with When the search runs out of runway instead — that is a different process, with a different buyer, and waiting does not preserve optionality.
The three ways out
Section titled “The three ways out”| Path | Who’s buying and why | How you’re priced |
|---|---|---|
| Strategic | A big company buying speed to market, TAM, and your team | A heuristic, not metrics: how long would it take them to build this, and can their distribution sell more of it? |
| Private equity | Cash-on-cash return buyers | Transaction data sets keyed to your industry (NAICS) code — e.g., “112 transactions in your category in 12 months, trading 5.2–6x” |
| Hybrid (platform & plug-in) | A PE firm with a thesis in your market | They buy you as the platform, bolt on other companies, and want you to keep running it |
Strategic math explains the deals that look irrational from the outside: a $10–20M acquisition with no revenue happens because “we could build it in 18 months” caps what they’ll pay, and a competitor sniffing around raises it. Want $100M? “Maybe we can ask.”
Every founder thinks we’re exceptional. Every buyer thinks we’re not.
Two readiness questions, not one
Section titled “Two readiness questions, not one”Are you ready? Know your number (the net number, after the waterfall, that takes care of what you need it to), and know whether you’re moving away from something or toward something. Get a founder-literate wealth advisor early — the tax work takes 18–24 months to set up, and most founders have essentially all of their net worth in this one asset. Check your QSBS status with a tax advisor now; it can change your exit timing.
Is the company ready? Three pillars from the session:
- Financial readiness (quality of earnings). Correct revenue recognition, cash-vs-accrual cleaned up, gross margins right. Most companies at this stage have never had audited or reviewed financials; a fractional-CFO pass finds what a buyer’s diligence team would.
- Quality of the enterprise. The data room (you have one, right?), the right entity, and IP assignment agreements for every person who ever touched your code. Plus the two structural flags: customer concentration (buyers flag it above 15%; above 25% it may not change the price, but it changes the structure from all-cash to an earn-out) and founder dependency — can the company run without you?
- Growth and AI readiness. Buyers are underwriting risk, and what they underwrite is predictability: a product roadmap, a hiring plan mapped to it, and a financial model tracked forecast-vs-actual every month. They also now ask directly whether AI disrupts you and what your plan is.
Grade yourself red/amber/green on the fix list and clear it before the LOI, because:
The October 13 attorney session added two readiness checks: distinguish technology you own from technology you license, including joint-development rights, and understand how dependable the customer base is. Gather the assignment and license records before diligence. Customer count alone does not establish revenue quality; renewal behavior, dependence on particular accounts, and founder involvement also matter. See strategic partnerships and IP and customer concentration.
The LOI is your ceiling
Section titled “The LOI is your ceiling”Deals don’t move up in price. Deals move down in price. In general they move down five to thirty-five percent of the LOI.
After the LOI, the buyer’s diligence team — who have sat through fifty of these to your one — mines every gap: revenue recognition that’s slightly off, a roadmap that doesn’t tie to the hiring plan. Every finding is a price reduction. The advisor’s own first exit: diligence went so badly he pushed back from the table and drove to the airport. (They fixed the books and sold to a different buyer.)
The mirror image also holds: bring your own price-up evidence to the table. In one of his deals, a junior person on the buyer’s side let slip at dinner that every customer using the product cut the sales cycle of the buyer’s flagship product in half — which became the seller’s counter in the LOI negotiation. Corollary: there is no such thing as a casual conversation during a deal, in either direction.
Sell to the product owner, not corp dev
Section titled “Sell to the product owner, not corp dev”For strategic buyers, corp dev runs a mandate handed down for the year; if you’re outside it, they don’t care. The person who can champion a build-vs-buy decision is the product owner whose roadmap you’d accelerate. The playbook is relationship-building years before the deal — one firm calls it “business development as a service”: be on stage at their big events, know the GMs who allocate capital adjacent to you, and don’t fear telling them everything on your website. Big companies buy innovation because their innovators already left.
Run a process; don’t answer the phone
Section titled “Run a process; don’t answer the phone”Responding to inbound inquiries one at a time is a gargantuan waste of time — often a junior associate cold-calling to discover you’re two years too early for them. Qualify hard (who is this fund, what have they invested in, how much dry powder), and treat a credible inbound as the starter pistol for a competitive process: stand up an advisor, get diligence-ready, slow-roll the first buyer, and go tell the strategic community “we think we’re a couple of weeks from an LOI — now is the time to look.” You’re landing multiple planes at once, on purpose.
The payoff cited in the room: a technology company with one inbound offer ran the competitive process and sold to a major enterprise-software acquirer at 2.2x the initial LOI.
And if you’re not ready to sell? The strongest position of all: “At the right price we’re for sale every day of the week” — keep cash-flowing, get EBITDA above the next threshold, and your buyer universe expands on its own.
The other fork: you are not running a process from strength. Cash is short, profits are not there, and the buyer — if there is one — is buying the team. That is When the search runs out of runway, not this page.
What transaction counsel does
Section titled “What transaction counsel does”In the October 13 session, the M&A attorney described work that starts before the purchase agreement: negotiating the LOI, identifying seller exposure after closing, organizing diligence responses and disclosure, and documenting the transaction through the purchase and related agreements. Ask counsel which commitments or risk allocations need attention before you sign, and what remains open for later negotiation.
A banker may help find buyers, position the business, and negotiate commercial value. Counsel handles legal transaction work and risk. Confirm each advisor’s scope and the work your own team still owns. The September price-decline warning above is that speaker’s account; the October session adds a legal-risk perspective rather than establishing that every LOI follows the same price path.
Relationship-building also needs a disclosure boundary. Sharing public positioning with a product owner is different from handing a potential competitor detailed technical plans. Stage confidential material with counsel; the data room guide covers the access question.
Picking the banker
Section titled “Picking the banker”| Criterion | What good looks like |
|---|---|
| Category knowledge | They demonstrably know your vertical; some spaces have two or three bankers who own it |
| Who does the work | A principal reaches out to buyers — not an associate |
| The rolodex claim | “We have relationships with all the buyers” is generally oversold; check it |
| Fees | Success fees typically 2.5–3.5%, often stair-stepped so bigger outcomes pay more, plus a retainer |
| Scope | Bankers sell; they don’t do your diligence prep — and don’t pay a lawyer $850/hour to build your data room either |
In the lower mid-market the good banks are mostly regional or vertically focused. Run a bake-off, but if a principal has spent years building a relationship with you, weight that heavily — commitment beats deck quality.
Keep advisor cost estimates tied to their source
Section titled “Keep advisor cost estimates tied to their source”The September advisor’s banker estimate above was about 2.5–3.5% plus a retainer. In the October 13 session, an M&A attorney described success fees around 3–8%, varying with transaction size, and a valuation engagement around $5,000–$8,000. He estimated legal costs around 0.5–1% for transactions around $10 million and above, while noting that smaller or complex deals can differ substantially.
These are separate practitioners’ session estimates with different scopes. They are not quotes for your transaction or a combined market range. Ask for the proposed fee basis, included work, assumptions, and treatment of a transaction that does not close. Benchmarks from the room keeps the dates and context separate.
Structure beats price
Section titled “Structure beats price”How you structure the deal and terms are almost always more important than the price.
- Payout vs. earn-out. An earn-out parks 25–50% of proceeds against milestones. The known failure mode is “starving the earn-out”: the acquirer deprioritizes your product and your milestones become unhittable. Negotiate the funding for your team and roadmap into the deal so they can’t starve it without paying you.
- Negotiate your own package before close. Your leverage on salary, role, and terms is highest before signing — whether or not you plan to stay. In the advisor’s three personal exits, he never stayed (the first acquirer fired him after the deal); other founders happily ride out a comfortable year or two. Both are fine — decide with eyes open, and watch the non-compete: a friend left his earn-out early and spent two years locked out of the work he loved.
- Cash is a hedge. A company he helped govern sold for $157M in cash; when the acquirer resold it three years later, it went for $80M. The vanity number is the headline price; what matters is your net after the liquidation waterfall.
The EBITDA bands and the stair-step
Section titled “The EBITDA bands and the stair-step”PE multiples live in bands keyed to EBITDA ranges (roughly 0–1, 1–3, 3–5, 5–10, 10+), mapped to industry transaction data sets that have barely changed in 30 years — only the multiple within a band moves quarter to quarter. (NYU Stern publishes an annual multiples report; your industry code points at the data set.)
The strategic consequence: crossing a band threshold rerates the whole company. The example from the session: below the line, ~3.5–4.2x; the next band up, 6.2–7.2x. That’s why PE firms roll up small companies — aggregation alone climbs the stair-step without improving any single business — and why a founder near a threshold can rationally acquire their way over it before selling. At ~$4.5M EBITDA, getting past $5M opens a new buyer universe; past $10M, a bigger one.
Related bookkeeping note: maximize add-backs for taxes while you’re operating, but recast the financials for enterprise value before going to market. Tax-optimized books and exit-optimized books tell the same truth two different ways, and buyers price the second.
Strategic investors before the exit
Section titled “Strategic investors before the exit”The September advisor described corporate venture money as one way to build a relationship with a future acquirer (see Exits, M&A, and leverage). His preferred guardrails were that the strategic should not lead the round or receive a board seat or information rights. Those were his recommendations, not universal terms. The October attorneys’ discussion adds a reason to review the particular rights with counsel: ownership, disclosure, and future commercial options can matter long before a sale. See Strategic partnerships and IP.
Numbers from the room
Section titled “Numbers from the room”| Figure | Value |
|---|---|
| Post-LOI price movement | Down 5–35% |
| Customer concentration flags | Flagged above 15%; above 25% expect earn-out structure |
| Earn-out holdback | 25–50% of proceeds against milestones |
| Banker success fees | ~2.5–3.5% plus retainer, often stair-stepped |
| Wealth/tax planning lead time | 18–24 months |
| Competitive process payoff (one deal) | Sold at 2.2x the initial LOI |
| Strategic deals with no revenue | $10–20M happens routinely |
| Example PE band data | 112 transactions in category, trading 5.2–6x |
| Band jump example | ~3.5–4.2x below the threshold → 6.2–7.2x above |
Sources
Section titled “Sources”Earlier source: one working session (Sep 2026) with a three-time exited founder who now runs an exit-readiness advisory practice, joined by two exited founders and members preparing to sell. Public data referenced: NYU Stern’s annual industry-multiples report.
Additional source: startup/venture and M&A attorneys, October 13, 2026, on counsel’s role, diligence, IP ownership, disclosure, and transaction cost estimates. The published session date is used. Cost figures are estimates from that discussion, not current fee quotes.