In August 2022, Brazilian startups managed to raise US$ 174.2 million in investments. According to the edition of the Inside Venture Capital study, carried out by the Distrito innovation platform in partnership with Bexs Banco, this volume was achieved in 43 investment rounds, 80.2% lower than in the same period last year.
Therefore, in this post, we are going to explain how the startup sales stage works, in addition to explaining the most typical steps in this process.
How does the startup sales process work?
preparation and research
It starts with understanding the business, the market and, of course, the transaction history, then comes the organization of information for the construction of strategies about the startup and, finally, the identification of the buyer profile, which makes them have more understanding at the time of purchase.
Contact and Negotiation
In this part, interaction with potential buyers takes place, and when the process begins to move forward, negotiations with companies interested in the transaction also become an important topic. After the negotiation, comes the part of the signature of the non-binding contract with the general conditions of the operation.
Due Diligence and Closing
Finally, there is a more thorough assessment (and in the smallest details) of the company to discover open holes and/or unresolved problems (if any), thus defining the final conditions of the operation and, finally, the signing of the SPA and communication to the market.
Typical M&A steps in Startups
As it is a complex and difficult process, many doubts arise because each step requires a lot of energy, both on the buy-side and on the sell-side. Therefore, it is important to remember that in an M&A process, there are two sides with different motivations: the buy-side (buyer) and the sell-side (seller).
To better exemplify, we will show in an overview, how the steps become essential for the transaction to occur in the best way.
- Pre-Due Diligence: Analysis of the team, market, potential legal and accounting contingencies.
- Deal materials setup: Discovery of financial materials, teaser, data room preparation.
- Contact with potential interested parties: The opportunity is presented, the NDAs are signed, the process letter and data room are sent.
- Non-binding offers: Receipts of non-binding offers, containing the price and other aspects relevant to the deal.
- Negotiation: Choice in relation to the offers that have advanced to the next phase and with the negotiation of the proposed terms.
- Due Diligence: Complete legal, accounting and business audit, weekly Q&As also take place.
- Final offers: Receipt and analysis of offers that already include the result of due diligence.
- Negotiation of final terms and signing: Negotiation of the terms of the final offer received and signature.
- Transaction Closing: Conclusion of conditions precedent, money in the account, announcements and integration plan assembled.
- Integration: Period of engagement between the buying and selling company, which may or may not have financial goals linked to it.
What does the survey say?
To give you an idea, in this scenario, in 2021, several rounds were registered with significant values for brands such as PetLove, Quinto Andar, Cora and Omie, raising the comparison base.
The District study pointed out that, for the year, the downward trend will continue. Between the months of January and August of this year, funding was US$ 3.6 billion, 45% lower than the US$ 6.6 billion raised in the first eight months of 2021.
The survey also shows that the average ticket of initial funding rounds, from Anjo to Serie A, grew in 2022. Pre-seed rounds increased from US$ 350.6 thousand to US$ 788.1 thousand, and Seed changed from US$ 1.5 million to US$ 2.4 million, for example.
In rounds that are more advanced, drops were recorded, such as the series D deals, which fell from US$ 132.3 million to US$ 124.1 million.
According to the survey, still in the month of August, 14 mergers and acquisitions were carried out, and this happened with a drop in relation to the same period last year, when there were 21 operations. In terms of accumulation, the numbers remain stable compared to 2021, with 155 transactions last year and 154 this year.
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