The Inner Circle
Welcome to the first issue of The Inner Circle. This is where I write about what I'm actually seeing in deals, what's working at the portfolio companies, and what the best founders I know are doing differently. No PR spin. No performance. Just what's real.
This issue: why most founders never exit, and what the ones who do figured out first.
Most acquisitions fail to close. Not because the business isn't good. Because the founder wasn't ready.
I've watched deals die at term sheet stage, at due diligence, at rep-and-warranty review, and at the wire. Each stage has its own failure mode, and most founders enter the process without knowing any of them exist.
"The exit is not a reward. It's a negotiation that started the day you incorporated."
The founders who exit successfully share one trait: they started thinking about the exit at formation. Cap table structure. IP ownership. Employment agreements. Revenue contracts with assignability clauses. These are not M&A considerations. They're Day 1 decisions that become M&A problems three years later.
1. Messy IP. If your codebase was written by contractors who didn't sign proper IP assignment agreements, a sophisticated acquirer will either kill the deal or reprice it to account for the exposure. I've seen $4M valuations drop to $1.2M over this issue alone.
2. Concentrated customer risk. If one customer is more than 40% of revenue, most strategic acquirers will treat that as a liability. Even if the customer relationship is strong. The question is: what happens if it's not?
3. Earn-out dependency. When a deal is structured so that most of the value is in earn-outs, read it carefully. Earn-out triggers are written by the acquirer's lawyers and interpreted by the acquirer after close. I've seen founders walk away from 60% of their deal value because the earn-out conditions were impossible to hit inside a large company structure.
Whether you're planning to exit in 18 months or 5 years, do a data room audit today. Pretend an acquirer sent you a due diligence request list and work through it. You will find things you need to fix. Fix them now, not under time pressure.
That's the edge. Not a better pitch deck. A cleaner company.
More next month. Tell me what you want to hear about.
Saim
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