How to Start an M&A Process

There are different ways to start an M&A process.

The best approach is when the strategic acquirer takes the initiative, turning a warm relationship into a hot one. Once one strategic has leaned in on their own, the competitive tension is already there to use in conversations with others.

Getting to that point requires a careful balancing act. What a buyer wants to see is a founder who is committed to building, full of conviction, full of motivation — the same qualities you would want in a founder going at it stand alone.

The strongest relationships with strategics are built over many years.

When the buyer won't initiate

If you cannot get a strategic to initiate the process, there are other ways to start it.

One is to use a fundraise as a catalyst. Positioned as running a track, it gives acquirers the signal they want to see: you are onto something, you are motivated, you believe in a big opportunity. Alongside the raise, you can open conversations with strategics to see whether an alternative path is more worthwhile to pursue. The fundraise track creates urgency because strategic acquirers know that once the round closes, you are less likely to be an M&A target in the near term. And the signals of the opportunity ahead and founders commitment are positive.

A second benefit of running a fundraise track while talking to strategics is that it can produce small foothold investments from those strategics. These do not lead to an immediate deal, but they set you up well for a deeper relationship and a future acquisition.

The other approach is a milestone-led catalyst: a new product update, a major customer contract, or another event that generates enough excitement to become a reason to engage. A competitor getting acquired is a particularly powerful one. When a strategic buys one of your competitors, the other strategics competing against that acquirer start asking how the market dynamics have changed and what they need to do in response. That creates urgency and an invitation to take the conversation deeper.

The weakest approach

The worst approach is to start a sales process cold. This is what most advisors default to, and it is the weakest position from which to engage acquirers. You are pitching the company for sale without having established a relationship a priori, which means you have the least leverage of any of the options above.

The single-acquirer trap

A common mistake AI founders make is accidentally starting a sale process with one strategic acquirer before they are ready. It is often someone who approached you, built a good relationship, and who you can genuinely see yourself joining forces with.

The problem with having only one serious party in the race is that they have all the leverage. Even if it is the strategic you most want to go with, you are in a weak position to build competitive tension around them.

It is similar to getting pre-empted by a VC when fundraising, but with one important difference. In a fundraise, other VCs catch up quickly, especially if they already know you, and every VC understands that pre-emption is part of the job. Strategics do not work that way.