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Navigating M&A and Fundraising with Less Than Nine Months of Runway

For startups with less than nine months of runway and less-than-clear product market fit, pursuing a parallel path of mergers and acquisitions (M&A) alongside fundraising allows founders to feel like they can travel towards two paths with both as viable options. This dual approach provides flexibility and increases the chances of securing the necessary resources or strategic partnerships to ensure survival and growth. Here’s how to effectively navigate this challenging but potentially rewarding terrain:

1. Understanding the Parallel Path Strategy

  • Balancing Act: Running an M&A process while simultaneously seeking fundraising is complex. It involves exploring potential acquisition opportunities while engaging with investors for capital infusion.
  • Strategic Positioning: Both paths require a clear understanding of your startup’s value proposition, market potential, and a solid business plan that appeals to investors and potential acquirers.

2. Preparing for M&A

  • Valuation and Due Diligence: Get your financials in order and be prepared for due diligence. Understand your company’s valuation and be ready to present it convincingly.
  • Identify Potential Acquirers: Look for companies that could benefit strategically from acquiring your startup. This could include large enterprises,  competitors, companies in adjacent markets, or even contract manufacturers.
  • Engage an Advisor: Consider hiring an M&A advisor who can guide you through the process, make introductions, and help negotiate terms.

3. Simultaneous Fundraising Efforts

  • Investor Outreach: While exploring M&A, continue to engage with potential investors. Tailor your pitch to highlight how you’ve slimmed down operations and are still hitting milestones. Reach out to previous investors who may have passed due to not hitting certain milestones with good news or progress.
  • Transparency: Be transparent with potential investors about the parallel M&A process. Some investors may view the potential for acquisition as a positive sign of your company’s value. Use their internal resources and networks to help find acquirers. Some platform teams are tasked with contacting corporate development teams.
  • Maintain Momentum: Keep the business running and aim for growth. Positive business momentum can increase your attractiveness to both investors and acquirers.

4. Managing Internal and External Stakeholders

  • Communication with the Team: Keep key team members informed about the parallel paths and remain focused on the business’s day-to-day operations.
  • Stakeholder Alignment: Ensure that your shareholders, including early investors and founders, are aligned with the dual approach and understand the potential outcomes.

5. Evaluating Offers and Making Decisions

  • Balancing Offers: If you receive both investment offers and acquisition interest, evaluate each based on the potential for long-term growth, financial health, and alignment with your startup’s goals.
  • Negotiation Tactics: Use the interest from one path to leverage better terms in the other. For instance, a strong fundraising round can make your company more attractive to acquirers and vice versa.

6. Hire a fractional CFO

  • Outsource: Utilizing a fractional CFO can help with scenario planning, building revenue models, finding additional revenue, meeting investors, building pitch decks, and looking for acquirers. A fractional CFO lifts a considerable burden from the CEO, allowing them to focus on raising the company’s value.

7. The Stress Factor

  • Leadership and Resilience: As a founder, the parallel path approach will test your leadership and resilience. Stay focused on your vision for the company and maintain open communication with your team.
  • Professional Support: Don’t hesitate to seek professional advice or mentorship. Managing stress and decision-making in high-stakes situations is challenging, and external perspectives can be invaluable.

Looking for help guiding your startup through the parallel path of fundraising and an M&A? Ravix Group’s Chief Financial Officers and turnaround experts have helped hundreds of companies fundraise and exit throughout our experience in Silicon Valley and can help in both efforts.