Hot Take #4: Canvas Ventures Startup M&A Wisdom

Big picture thinking from Mike Ghaffary

If you haven’t already - get the second edition of the MBP here.

As we continue our tour through popular posts on startup M&A, one that performs particularly well in the search rankings is a piece from Canvas Ventures. The first thing I like about this one is the title! It doesn’t zero in on the big three buzzwords that haunt the startup M&A conversation: exit, sell, and process. As we’ve discussed at length, the Magic Box Paradigm is about moving away from the sales process mindset and towards a more holistic view of developing strategic relationships.

Also, no frog DNA

The challenge with a lot of these short startup M&A pieces is that the perspectives are either coming from a vantage point that’s a couple hops removed from the front lines of transactions, or they’re based on a small sample size of deals. The result is that the authors tend to then do what they did in Jurassic Park: insert a bit of frog DNA to fill in the gaps. Out comes a dangerous breed of advice. However, what I also like about Mike Ghaffary’s perspective in this piece is that it’s free of technical frog DNA, and instead focuses on higher-order wisdom.

Think in terms of years, not months

Founders way, way, way underestimate how long it takes to develop relationships with potential strategic partners (“PSPs”). Ghaffary wisely advises that: “developing strategic exit options should begin much earlier in the company’s journey than most founders realize.” In fact, think in terms of “years before a pending acquisition.” But there’s an MBP twist here that we should add. It’s not just that PSPs move slowly - in fact sometimes they can move quite quickly. It’s that you never know when a PSP is going to move in your direction. Startup M&A is a buy-side driven business. PSPs make acquisitions when they have to fill in a need (not when you are ready to sell). By starting early, and creating a web of relationships, you put yourself on the radar of lots of PSPs - so when they are ready to make a move - you’re well positioned in their thinking. Starting early not only anticipates the likely slow moving nature of PSPs, but also anticipates the buy-side-driven nature of the startup M&A business itself.

It’s not M&A or nothing

M&A isn’t the only potential relationship with PSPs. They can represent commercial partners and even investors. Ghaffary is right on when he advises startups to think broadly about the helpful byproducts of strategic partner conversations.

Taking this relationship development framework further, Ghaffary echoes the ground game section of Chapter 5 of the MBP when he advises founders to research PSP priorities and thoughtfully leveraging their networks to create warm introductions to key PSP players. Extending this thinking Ghaffary says to approach these relationships as you would in building life-long friendships - because you are. In fact the people you’ll meet developing relationships at PSPs are a unique set. They share a great many things in common with you - most notably their professional field of interest and their excitement about launching new products.

As I’m writing it’s the week between Christmas and New Years - I’ve received dozens of happy holidays cards, texts, emails and calls from people I’ve met during my startup M&A adventures - come to think of it, more from them than from family! 

Get to the product people

As it says in the MBP: Consider the connection made with a PSP when you’ve engaged the product leads relevant to your startup. Corporate or business development teams are great conduits, but they aren’t the ultimate target. You need to be talking to product people. Ghaffary’s corollary is right in line with this thinking: “One mistake founders make is assuming that a corporate development person...is the person that will champion an acquisition later. That assumption is incorrect.” Ghaffary goes on to advise founders to: “figure out who at the company has a P&L related to your startup. That person is someone who looks after the business or product area and is looking to grow it.” And flipping back to Chapter 7 of the MBP book it’s