(1) Like Fundraising, your acquisition price is a function of the number of suitors you have, typically. There are actually studies on this, but the basic takeaway is that a second suitor will double your valuation, a third will add a marginal 50% uptick, and it diminishes after that. So if you want to seriously think of being acquired, you should drive a process -- more on that below.
By the way, the question “Are you open to being acquired?” requires a finessed response. Saying “Yes” can signal desperation. Saying “No” can close an exploration you want to have. We find a meta-answer is best -- e.g. “I’m open to doing what will best fulfill the mission of my business.” If an acquisition will do that, I am open to it. That answers signals access but also strength.
(2) For the actual meeting -- as with all negotiations -- I am a strong proponent of good cop / bad cop. The broader idea is to create a dynamic where you can signal strength AND keep flexibility to always keep the conversation alive. The advantage of good cop is that you can always be the cheerleader -- but always have an out b/c you need to get approval from your co-founders, your board, etc. Because of this, I strongly prefer individual CEO's to enter into these meetings, and keep co-founders / board members at bay to be the "bad cop".
(3) If you are not driving a process for an acquisition, then really it's just exploration and fun, in my mind.
Some tips on preparing / conducting yourself during the first meeting :
* Figure out your preferences. What's important to you? What are your alternatives?
* During the first meeting, I typically want to explore in this order:
- Make sure you first share the same vision. Try to ease into an understanding of how the other views the value you bring.
- If there is alignment of vision, see if there is a Zone of Possible Agreement for an acquisition price. The point here is not to figure out what the acquisition price would be but just how they are thinking about it. Ask for comparables w/ past acquisitions the company has done. For many of the darling tech companies in the valley (e.g. Facebook, Google), they will acquire for talent or traction. Google, for ex, has historically acquired companies at low acquisition points, except for a small number of exceptions where they paid up due to traction. Facebook has historically been famous for having an acquisition valuation = # Engineers * $1m, for companies w/o traction. If you don't have traction, this is a realistic default if you have very high caliber engineers.
If it's a merger, come up with what % of the overall pie you each think you should have
- If you get green lights on both above, understand what you would each want to see from the other to move forward / further cement a valuation. You should have a list of diligence points to ask them for. You should also find out what they would want to see. You want to see the metrics you each want to share to come up with a valuation, or required diligence. This is a delicate art -- and your valuation here will really be helped if you have alternatives in play. The appearance of frenzy can be as helpful as real other suitors.
--- The above points are all I seek to do for a first meeting. I don't think you need to show tech, long term plans in the first meeting -- just focus it on understanding their interests, with a follow up meeting if it makes sense. You just want to scope if this is of interest, w/in a Zone of Agreement that would make you interested, and understand what additional things you'd want from them, and them for you. Don't make any commits (this is where the bad cop comes in -- I need to check w/ my co-founders, board, etc.)