Acquirable Business Strategy
70%+ of startups get acquired rather than go public. If acquisition is your likely exit, build with that in mind. Here's what acquirers value and how to position yourself.
Most founders plan for IPO. Most companies end up acquired. If you're building a sustainable business, understanding what acquirers value helps you build better. It also affects what metrics you optimize for and when you approach potential buyers.
Acquirers look at: revenue quality, customer concentration, churn, defensibility, team. Not the same metrics VCs care about.
The Acquirer Lens
Acquirers are risk-averse. They want: predictable revenue, low churn, strong team, defensible product. They're less excited about explosive growth if it's coming from broken unit economics.
What Acquirers Value
If you're building an acquirable business, optimize for:
1. Revenue Quality
Recurring, contracted revenue is worth 10x more than one-off sales. Multi-year contracts even better. Acquirer wants predictable cash flow.
2. Low Churn
<5% annual churn (for SaaS). If customers are leaving, the product probably isn't good. Acquirer inherits the churn problem and becomes unprofitable.
3. Diversified Customer Base
No single customer is >10% of revenue. If your top customer leaves post-acquisition, the deal falls apart. Acquirers hate this risk.
4. Strong Team
Acquirers are buying the team as much as the product. Can they stay post-close? Will they build on your tech? If your CTO leaves, the deal unravels.
5. Clean Cap Table & Clean Code
Diligence gets expensive if there are disputes over equity, IP ownership, or if your codebase is unmaintainable. Clean affairs sell faster.
6. Defensible Product
Patents, network effects, data moats, switching costs. Something that prevents a competitor from copying you tomorrow. Commodity products don't command high valuations.
Metrics That Signal Acquirable
Focus on these if you're building for acquisition:
Revenue Quality
>90% recurring revenue, >3 year average contract length
Retention
<5% annual churn, >120% NRR (net revenue retention)
Customer Diversity
Top 3 customers <20% of revenue, top 10 <50%
Unit Economics
LTV > 3x CAC, <12 month payback, positive gross margin
Growth
20%+ YoY, sustainable (not just paid ads)
Pro Tip: Track These Now
Even if exit is 5 years away, track customer concentration, cohort churn, revenue mix. These datapoints matter for acquisition conversations.
Team Retention is Critical
Acquirers care about your team. If your top engineers leave post-close, the deal fails. Key to making this work:
Give Retention Equity
Don't give all your equity to founders and investors. Reserve equity for key hires. When you acquire, they stay because they have equity upside.
Negotiate Earn-Out Terms
When you sell, structure the deal so team members get earnout cash if they stay and hit targets. Aligns incentives.
Keep Them Informed
If you're exploring acquisition, tell your team. Surprises lead to departures. Transparency builds trust.
When to Approach Potential Acquirers
Timing matters. Too early and they'll wait for you to fail. Too late and they've built it themselves.
Sweet Spot
$2-5M ARR, 20%+ growth, profitable or near-profitable.You're big enough to be meaningful, small enough to be affordable for acquirer.
Too Early (<$1M ARR)
Acquirer will likely wait. You're not proven. They can hire your team for cheaper.
Too Late ($10M+, growing fast)
You're either going public or a VC-backed unicorn pursuit. Valuations have changed. Acquirer knows your path is IPO.
Positioning for Acquisition
How you position your company affects who might acquire and at what price:
Strategically Important
You solve a problem for your acquirer's core business. They want you to solve this better/faster. You command premium valuations.
Acqui-Hire
You're valuable for your team/talent, not your product. Usually lower valuations, but quicker sale process.
Tuck-In
You plug into acquirer's existing product. You're a feature/module they need. Predictable integration, good for them.
Building for Acquisition?
Eagle Rock CFO helps founders build metrics that attract acquirers, model acquisition scenarios, and position for a strong exit.
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