When most founders start a company, we envision that one day we will sell it (or go public). But most founders have no idea how the process actually works or how hard it can be emotionally, strategically and tactically. To get the most for what you have built I am sharing some insight into the process. This is typically the largest transaction a founder will experience in their life – you can’t afford to do it incorrectly. I founded/scaled and sold my SaaS company and I have bought and sold multiple companies prior to this. While this might seem like a lot of info, it is just the tip of the iceberg. (Last month, we posted Part One of this series. You can read it here.)

Step 3: Engage

This is where the adrenaline starts to flow. Once you have created interest you begin the delicate dance towards a permanent relationship – and like dating you want to show interest while not appearing desperate. You should set up a series of conversations that allows them to get to know you better.

Initial call(s) – I think it is wise to start discussions with the CEO only. This process is very taxing on everyone involved so don’t bring people into the process until it makes sense. Along that line don’t let anyone know that there is a process for as long as possible. It creates uncertainty for people and can hurt productivity. The initial call will generally result in a series of follow up action items and questions to be answered. Send select documents from the dataroom to answer initial questions, and don’t give full access until you are further down the path.

Price – Don’t bring it up until they ask. I like to start with a moderate number, e.g., “While the board feels that the company could be worth $20M or more they seriously consider any offer over $10M. The goal is to get 2 or more interested parties. It is a bit of an art but you don’t want to scare away people who would pay $10M but not $20M. However, you don’t want to waste your time with firms that won’t pay more than $2M. I have seen initial bidders who would not budge above $40M get to $110M once they decided they did not want to lose it.

Data Room – Once you have legitimately serious interest you need to invite them to your data room and you want your data room to be complete.

Step 4: Term Sheet, Negotiation, Due Diligence

Negotiation – Price is just one of the many items that you will need to think about. Is it paid at closing or over 3 years? Are the payouts tied to some future performance or retention of key people? Will part of the purchase price be used for retention bonuses of key people? There are tax implications to the investors and founders that should be discussed with a tax expert.

Term Sheet – The first step in papering a deal is essentially an agreed-upon outline of the important structural elements of a sale (price, asset/stock purchase, cash/stock, earn outs, employment etc.) This is a very serious sign that they intend to move forward. A term sheet nearly always includes a no-shop clause prohibiting you from negotiating with other potential buyers for 30 to 60 days. This is a big deal.

Due Diligence – The target company will typically engage third party legal that will do an initial high-level review.

Part 5: Final DD, Negotiate Purchase Agreement and Close

Structure – Will it be an asset purchase or a stock purchase? Will they pay cash or use stock?

Terms – Will it be cash at closing or will some of it be tied to future performance?

Once the term sheet is signed, the acquirer’s attorney will get the green light to go through every document in the Data Room and ask for additional information. What about A/R, A/P and cash?

Key personnel – As they assess risk they will want to negotiate to retain key personnel (key employee agreements).

Holdbacks – They are likely to ask for holdbacks against the purchase price to be paid out in XX months or used to compensate for any issues they determine to be a violation of the agreement.

Indemnification – They may ask the founders to personally indemnify the deal.

Warrants – They will ask for warrants against all documentation and statements that are made about the company.

Non-competes – If none are in place they will certainly ask these to be put in place for key people.

Signatures – Once all of these (and more) details have been agreed upon by both parties (including board/investors) the transaction gets signed by both sides.

Closing – Bank account information is exchanged and the money gets wired into your company’s bank account.

Post-closing – Proceeds are distributed to investors. You may need to create a shell company to hold and distribute.

There’s no denying that going public is complicated, but this five-step process is a great place to start when it comes to maximizing the value of your business.