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The Unspoken Rules of M&A for VC-backed Companies

A decade and three years later, the movie Inception still made me think about how an idea can completely mold someone's identity and purpose.

Credits to Inception

Ask me to define myself with a single ideal, and I'll tell you:

Everything is Game.

Life, business, M&A — it's all a game.

In fact, there are a lot of different games at play, each with its own unique set of rules.

These rules are either spoken and unspoken.

The spoken rules are like the instruction manual you get when you start a new game. They're the guidelines your parents, teachers, or boss lay out for you.

Then, there are the unspoken rules — the unwritten code you pick up along the way. Unspoken rules are learned through trial and error, figuring out the social scene, and understanding the culture around you.

Knowing the spoken and unspoken rules is like having the cheat codes.

It's not just about playing by the book; it's about mastering the moves that make each game unique.

That's why we've got a mastermind crew — to help each other crack the codeon the various games and their spoken and unspoken rules in the world of building and investing in Tech companies.

I ran the last mastermind session, and we deep-dived into the spoken and unspoken rules in M&A, especially with VC-backed companies.

A well-established rule in VC-backed companies M&A is to make the company look super attractive regarding business model sustainability.

An unspoken rule is having multiple potential buyers, validating a strategic fit with VC—backed companies' most valuable assets—their unique capabilities or intangible assets.

I’ve come to realize that luck plays a significant role in successfully navigating an M&A process with VC-backed companies.

It largely depends on several active M&A buyers being aware of a VC-backed company's intangible assets.

Buyers typically dive into M&A because they have a gap in their business that needs filling — a talent shortage, missing product features, a slowdown in organic growth, rising customer acquisition costs, or a fear of disruption.

The game-changer here is that buyers must be aware of the gap and feel the urgency to fill it.

This aligns with the customer level of awareness framework principles commonly used in marketing.

It essentially describes how well your target audience comprehends their challenges and understands how your product can alleviate those issues.

Consider this scenario: Imagine you're the French category leader, and your potential buyer is a competitor from Benelux. However, this buyer might only consider acquiring your company if he realizes he has a pressing issue.

Let's break down the stages of awareness for this buyer:

  1. Unaware: Initially, the buyer must be aware of a specific problem that could make acquiring your company attractive.

  2. Problem-Aware: The buyer starts to recognize that organic growth is slowing down, possibly due to market saturation or increased competition resulting from a growing number of new entrants in the Benelux market.

  3. Solution-Aware: Actively seeking solutions, the buyer identifies the French market as attractive and recognizes you as the category leader.

  4. Product-Aware: The buyer evaluates options, whether to enter the market organically or inorganically. They may have attempted the organic approach but faced unexpected entry barriers, realizing you've successfully overcome these challenges.

  5. Most Aware: Now, the buyer fully comprehends that acquiring your company is the least risky path to enter the French market successfully. They acknowledge that trying to overcome barriers to entry alone would take at least 10 years to reach your company's level, and the risk of failure is high.

In M&A, your odds of turning a potential buyer into a bidder grow as their awareness of your company increases.

No amount of desire from you can make a buyer go from unaware to most aware.

Success often boils down to finding yourself in the right place at the right time, connecting with the right individuals, and capitalizing on external circumstances — essentially, it's about being lucky.

The luckiest I've been has been initiating an M&A process with three companies already in the Product-Aware stage. They were aware of my client's unique set of capabilities: a well-recognized brand and an effective Go-To-Market engine.

This allowed us to orchestrate a highly competitive bidding war, resulting in a:

  • 130% increase in valuation and no earn-outs

  • No post-audit price adjustment clause

  • No obligatory seller commitment

  • Standard warranties (up to 15% of the price)

  • No amount retained as warranties

Louis Pasteur once said:

Luck favors the prepared mind.

Following this philosophy, I've shared a 3-step proven process to implement with VC-backed companies during the mastermind.

It's my cheat code to become the architect of my own luck!

See you !

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