Data and Dating: Charm More Buyers as Part of Your Exit Strategy
Data and Dating: Charm More Buyers as Part of Your Exit Strategy

February 7, 2024

Accounting & Finance, For Startups

Data and Dating: Charm More Buyers as Part of Your Exit Strategy

Chris Mossa

Chris Mossa, Chief Strategy Officer at Graphite

When you’re courting potential buyers for your startup as part of your exit strategy, from initial conversations to sealing the deal with a term sheet, it can feel a lot like dating. You (or in this case, your startup) need to put your best foot forward. But you don’t want to reveal too much too early. 

Much like the early stages of a blossoming relationship, this process requires a blend of intention, data, and tact to end in commitment. 

From my experience on the asking end of many of these conversations, I’ve honed a strategy that combines storytelling and data to propel you through these sometimes awkward first and second “dates” to get to a closed deal. 

Showing Your Cards Tactfully

When a potential buyer takes the first step in this process, they need data to give them confidence that signing on with you is the right decision. But you’ll need to be strategic about which data you reveal, and at what point. 

As I said, you can’t put all of your cards on the table too soon. And for me, taking a step back to decide which hands to show was the most interesting part of my exit strategy. From firsthand experience, I know that the way you structure and unveil this data makes an enormous difference in the likelihood of your potential buyer taking the next step with you. 

Ultimately, serious buyers will have access to all of the data. But the way that you position it and the order in which you lead people through the story of your company through data will give you real control over how the dating process goes. 

Data Room Phases 

One highly beneficial strategy is to consider the “data rooms,” or the specified sets of data that you’ll unveil at separate points in the buying process. 

Of course, you may be asked to provide very specific information depending on who you’re talking to, and you want to have that flexibility to adapt to the priorities of your potential buyer. However, having a general structure in place is helpful to approach this process strategically from the outset so that you have a reliable structure to work with as a foundation. 

We’ll consider these data rooms as different “dates” where you’re courting your prospective buyer.  

Data Room One: The Coffee Date

Consider a very first date where you’re just getting to know someone. You’re still figuring out who the other person is, and both sides need to decide whether they realistically see this going anywhere. You want to lead by expressing the parts of yourself you’re most proud of. 

It’s the same in this process. Think of any conversation before they send indicative terms—i.e. nonbinding terms given by the prospective buyer’s team—as a coffee date. 

Lead with what you want your buyer to think of first when your company comes to mind. Consider what your most impressive metrics are. For example, these metrics could be:

  • High net retention
  • Low churn rate
  • The percentage of your revenue that comes from expansion
  • The fact that you are bootstrapped and have a high APR per headcount. 

You want to give them the big-picture data that “teases” just enough to get them to want more. Any data revealed here should be a vehicle to keep discussions moving forward. You want the buyer to be itching to take the next step with you because they want to unlock the next data room. 

This data should also make it easy for the team member you’re in talks with to boost their ego. 

In dating, this would mean that your date is able to brag to their friends and family with a quick rundown of who you are. In the startup scenario, this means that your champion can be the one to brag about this new opportunity that they’re bringing to the table. 

Since getting indicative terms laid out requires buy-in from a larger group of people, you need to give this person the data to easily pitch you.

Need better projections to fuel your startup’s story?

Data Room Two: The First Real Date

Imagine that you had a first coffee date that went really well, and now you’re ready to take it to the next level. Maybe you’re ready to go out to a nice dinner and some dancing. There’s a bit more openness to commitment from both sides, so you’re ready to reveal a little more about yourself. 

This is similar to the next conversations after you get indicative terms from the prospective buyers. While these terms are non-binding, meaning there’s no guarantee you’re moving forward, it signals a clear interest in both sides to continue on in this process and see if it’s a good fit. 

You’ve got their attention, but they’re not head over heels yet, so it’s time to dig a bit deeper and unveil some of the grittier details about your startup. You may consider revealing data like balance sheets, P&L, tax information, and org charts, for example. 

At this stage, you’re still not showing all of your cards, but you’re continuing to strategically tell a story with your data. The information you hand over will continue to solidify the story you began on that first coffee date, adding more color as needed. 

Data Room Three: Several Dates In

After date four or five, most people have an idea of whether they can see a future with someone or not. The couple has gotten to know each other quite well, and they’re not beginning to uncover some of the more mundane details about each other. 

They know the best versions of the other person and just need to dig a little deeper to confidently decide they’re ready to make this official. This is the time for real vulnerability.

In the buying process, this is the point where you’re inching towards a term sheet that solidifies the deal. A bit of vulnerability is needed here, too.

Up until this point, you’ve shown the best that you have to offer. You’ve told a story with your data that got the buyer’s attention seriously enough to get to this point. But now, you need to reveal some of the very specific information that your buyer needs to know to check the boxes. 

Since you’re near the finish line, it’s time to reveal details like:

  • Cap tables
  • Entity maps
  • Suited financials
  • Vendor contracts
  • Customer contracts
  • Payroll contracts 

If you had revealed this data too soon, it could have watered down the story you needed to tell. But now that you’re inching towards a term sheet, you’ve primed your prospective buyer to still keep the story you created at the forefront of their mind that may wash over some of these dicier details. 

Once they have all of this data, they’re hopefully getting the seal of approval to get this deal signed and solidify the commitment.

What to Do If Your Data Isn’t Telling the Story You Want? 

One thing that some startups may struggle with as they’re “dating” their prospective buyers is that they’re not quite at the point to show the big, flashy metrics. That’s where a data model comes in.

This helps to tell a three-to-five-year story. If for the past year or two, you’ve been ramping up and your metrics are trending in the right direction but not quite there yet, modeling can project the next three or four years.

So if you’re only at $190,000 in revenue per head but you’ve got a line of sight to $250,000 in six, nine, or even 18 months, that’s the story you can tell. This is an opportunity to build your own story in real-time and show your commitment to growth as a founder. 

Who can say that they reached their full potential when they started dating their partner, anyway?

If you’re in the midst of your exit strategy and want to build out the story, showing where you’re at and where you’re going, give our free financial modeling template a try.

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