Sahil Mehta, the Managing Director & Founder of Emmbros Overseas is a Bachelor of Technology Graduate from Electronics & Communication. He further pursued an MBA in International Marketing & Business from Sydney. Mr Mehta belongs to a family of successful business people, with his father being a successful businessman too. Therefore, he has been born with an entrepreneurial streak and had always been looking for the right opportunity to bring his knowledge into practice before coming up with Emmbros Overseas. While the international skincare brands inspired Mr. Mehta to introduce the Indian market to more scientific skincare solutions, what took him by surprise was the price at which these products were offered. This is when he decided to launch his own skincare line having all the luxuries offered internationally but at much lower prices.
A Founder begins a start-up for multiple reasons. Many among them being the passion for a new idea. Another being the need to create value, and the third being to leave a legacy behind. Many successful start-ups are now getting acquired by larger companies. In the ferment of the entrepreneurial space in India, mergers and acquisitions are now the norm. Yet, for every entrepreneur, building to scale is a very critical part of the business. How do you build a brand that is worth being acquired is also equally important?
Most start-ups require a lot of liquidity, for product and brand development and later to scale up as well. This is where risk capital comes in, where Founders of start-ups can set up equity for companies in return for equity. In some cases, a start-up reaches a scale where it can be acquired 100% by the other company. This is often the metric of huge success as most start-ups begin as bootstrapped companies and go on to have a great value when they are finally sold.
After building a Family of Beauty and Health Brand and successfully selling 2 of the brands, St.Botanica and Oriental Botanics, to The Good Glam Group, I have some tips for entrepreneurs who hope to have their start-ups acquired as well.
1: Plan Your Exit: As a Founder, you need to find a way to make yourself the most redundant part of the company. To put it simply, the company should be able to function without you. The systems and processes you set up should work even if you are not there to push them along.
2: How Does Your start-up Generate Value: How will your start-up be a good deal to anyone planning to acquire it? How will the acquiring company generate funds once they buy your company? What is the value that your company offers to the acquiring company and how much is it? How is this measured? Is it measured in terms of sales? Roi? Aggregation and number of followers? Or is it past a certain inflection point that it will have value? These are questions that merit an answer. If you’re using the business model canvas, you’ve already figured this out when you articulated your revenue streams and noted where they are coming from.
3: Who is the Acquirer?”: It is very important to figure out who will be the person acquiring your start-up. Every start-up should have an understanding of which sector and which companies would benefit from acquiring it. This list will also keep changing and updating as your company grows.
4: Generate the business case for the potential acquirer: Your job as a Founder is to show the success metrics of your company. You need to be able to provide a data to show how the company will grow across in the next five years or so, and why they will do well to acquire you. You could offer reasons for the same in the following ways: you are filling a market void that will only grow/ you are extending an existing line/you are opening a new market segment for them or helping them block out a competitor.
5: Get Noticed: You will not have anyone come to you if you are not out there in the market. Figure out what conferences and shows these acquirers attend. Understand what it is they read. Then show up and be visible — as speakers on panels, accidentally running into them, getting introduced, etc. Get your company talked about in the blogs and newsletters they read.
6: Know the inflection points for an acquisition in your market: It is very important to know when you want to sell your company. Do you wait long enough to build a large value for the company and then sell, or do you sell the moment you start? For example, in med-tech, this acquisition can happen way before the product is even shipped out. Med-tech entrepreneurship has evolved to the point where each VC funding round signals that the company has completed a milestone — and each
of these milestones represents an opportunity for an acquisition. For example, after a VC Series B Round, an opportunity for an acquisition occurs when you’ve created a working product, and you have started clinical trials and are working on getting a European CE Mark to get approval.
Always remember, the time to prepare for an acquisition is Day 1. If you have multiple partners, board members, they also need to have a buy into the sale of the company. You may also have the same for employees who have put in their hard work into building it with you. In such cases, you need to make sure that all the interests are protected for post the sale. Do you have the enrolment of your VC’s, if any? In this case, how will the returns work for them as well? As part of the deal, you signed with your investors was a term specifying the Liquidation Preference. The liquidation preference determines how the pie is split between you and your investors when there is a liquidity event. You may just be along for the ride.
Remember, your goal is to create extraordinary products and services — and in exchange, there’s a pot of gold at the end of the rainbow.