Selling to a VC-Backed Company

About the Episode

VC investor Sandeep Patil discusses the nuances of selling a company to a VC-backed business. VC acquisitions often prioritize growth potential and talent quality over immediate returns. Sandeep emphasizes the importance of understanding the acquirer’s objectives, the integration strategy, and the long-term growth prospects. He notes that VC-backed companies typically prefer equity swaps due to limited cash reserves and advises sellers to perform thorough due diligence on the acquirer’s growth potential and exit strategy.

“If you are selling into a VC-backed company, you want to make sure your employees and management have a decent future in the new organization. It’s important that the cultures are somewhat aligned.”

Sandeep Patil

What You’ll Learn

• Considerations for Sellers: Sellers should thoroughly vet the VC’s long-term prospects, funding runway, and exit strategy when considering a stock swap deal structure.
• Growth Potential: VC-backed companies prioritize growth potential over immediate returns, so sellers should emphasize the combined entity’s growth opportunities.
• Differences in Due Diligence: Due diligence should focus not only on the target company’s technology and talent but also on the acquirer’s ability to integrate and scale the acquired assets.
• Risks to Consider: Sellers need to carefully weigh the higher risk of stock swaps against the potential for outsized returns if the VC-backed acquirer achieves significant growth.

“Selling to VC-backed companies could be very interesting if you’re not looking for an immediate cash payout because it buys you stock into very high-growth companies that can pay many times over in the future.”

Sandeep Patil

Topics Covered

Want More? Related Resources: 

• A Guide to Valuing Tech, Software & Online Businesses
• Business Valuation Methods in a Nutshell

Meet Our Guest

Sandeep C. Patil

Partner, Head of Asia at QED Investors | London, UK

Sandeep Patil’s career spans more than two decades, during which time he has developed and executed major growth strategies and led, operated, advised, and invested in companies of all sizes in the U.S., the U.K., India, and Southeast Asia. Sandeep joined QED in 2020 in London as a partner and heads the fund’s investments into Asia. He has extensive experience in consumer internet and is a global veteran of the banking and financial services industry.

LinkedIn: https://www.linkedin.com/in/sandeeppatil/