(Young) startups with a lot of potential are often bought by large, well-known companies. However, it goes without saying that it is not always worth selling your startup. There are relevant points that need to be considered. For example, the difference between an asset and a share deal is not unimportant. In addition, attention should be paid to both the timing and the given motivations for a sale.
Reasons to sell your startup
When it comes to selling your startup, there should always be at least one valid reason for doing so. For this purpose, we have dealt with three of the most common reasons and explained them here for you to understand.
A valid purchase offer
As already mentioned, it is not uncommon for (young) startups to be bought up by well-known companies and corporations. This is especially true when a startup has had a remarkable career from the start. Many founders go to the market with the attitude that they will eventually sell their startup. But without an offer, a sale logically makes no sense. Even if the offer is made, it should first be checked thoroughly to see whether it is appropriate and whether the sale is profitable.
An innovative business idea
Another reason for selling a startup can also be a new innovative business idea. Even if the startup is doing well, it is often possible that at a certain point in time the founders decide that the journey with this product/project is over and that they want to develop new business ideas. So there is often a longing for new challenges with which one can grow. So if the startup is doing well, it’s worth considering selling it to ensure that the project and the work invested stays in good hands.
New development steps
At a certain point, new development steps have to be taken in every life process of a startup. In this context, it is not uncommon for founders to decide to sell their startup when new financing or a new growth step is pending. If cooperation partners or investors are involved in processes like these, it is quite possible that founders will step down if the upcoming development step can be carried out by the partners. The decision to sell the startup is often made in favor of the company, as founders want to give the startup the best possible chance to continue to grow and assert itself on the market. Accordingly, the decision to sell the company is often made in favor of the startup.
Asset vs. Share Deal
Basically, there are two options available to founders when selling their startup: the asset deal and the share deal. Since both have advantages and disadvantages, it is worth considering individually which deal is really suitable for the respective sale.
- Asset deal: The word “asset” comes from the English and stands above all for the term “plant” or “commercial good”. If an asset deal is concluded, the corresponding assets of the startup are purchased individually and transferred to the buyer. Accordingly, all individual goods that are considered part of the startup are sold and are listed individually in the contract. This also means that the goods that are not listed in the contract continue to be considered the property of the founder. A disadvantage of an asset deal, however, is the potential confusion given the large number of assets that a startup often owns.
- Share Deal: Unlike an asset deal, the focus of a share deal is on shares in a company to acquire. As a result, the relevant company can do without listing individual items in a share deal, which is definitely an advantage since money and time can be saved. However, there is also a disadvantage here: If a share deal is entered into, both liability risks and liabilities are transferred in their entirety to the buyer. Accordingly, if no specific liability regulations are laid down in the contract, extraordinary difficulties can arise here. In this regard, the provisions in the contract primarily serve to ensure that the seller is liable for both the inventory and the condition of the items purchased by the buyer.
Also Read: Four Basics For Successful Startups