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☕️ When it's Time to Sell Your Startup and Move On (What to Expect)

+ NYC and SF Tech Breakfast Clubs Next Week

Author

Morgan Barrett
April 10, 2025

👋 Hi, Breakfast Club Members!

Thank you Tom @ Citrin Cooperman for sponsoring today’s edition. Tom works with the fastest growing tech companies on tax/advisory

Shoutout to long time Tech Breakfast Club member and former cohost, Will McKelvey, VC @ Lerer Hippeau. LH just announced their 9th fund. $200m for early stage startups. If you’re interested in learning more about Will, I interviewed him a couple months back. Click Here to read about Will and how he backs founders with chips on their shoulders. First one to correctly guess what trauma fuels Will gets a Tech Breakfast Club t-shirt.

Next week is going to be so good. I’m excited for NYC and SF Tech Breakfast Clubs.

And if you’re curious about startup M&A, scroll down to read my interview with elite M&A lawyer, Jeff Sulman. We talk about what happens when a startup never quite reaches escape velocity but it’s time to move on.

Also - if you know anyone who would be a good fit for a VP operations role at a series A fintech, Twill is offering a $10k bounty for a successful referral

Resources:
-Clerky offers a $100 discount for TBC Members on their formation packet. Reply to the newsletter and I’ll send you an invite
-Fixing the YC SAFE: Reply to the newsletter and I’ll send you a redline for the YC Postmoney SAFE that can save founders millions in dilution
-Ramp is offering a $500 bonus to TBC members when they start using Ramp.
- Free Zendesk for 6 months. Time to scale your customer service? Talk to Zendesk

Tech Breakfast Club Events

NYC Tech Breakfast Club April 16th
Cohosting with Ariana Song from Slow VC. For founders/VC’s

SF Tech Breakfast Club April 17th
Cohosting Amber Yang from CRV. For founders/VC’s

El Segundo Tech Breakfast Club May 1st
In celebration of Discipulus Venture’s new cohort of founders

NYC ML Engineering Tech Breakfast Club May 7th
Finally the engineers get some love. With Julien Reiman from Baseten.

NYC Tech Breakfast Club: DTC/CPG Edition May 8th
Teaming up with the legend, Nate Rosen (Express Checkout), to feed the best and brightest DTC/CPG founders

Harbinger x Tech Breakfast Club (Factory Tour & Truck Test Drive)
Come eat breakfast and see elective delivery trucks. So pumped for this. Harbinger has been quietly executing on a grand scale.

Tech Breakfast Club 🤝 Citrin Cooperman

Meet Tom Porricelli, Partner and co-leader of the Technology practice at Citrin Cooperman

#Sponsoredpost

Tom - I’m seeing a lot of startups use Citrin from the start. How does Citrin work with early stage startups?
We offer a fixed-fee program for early-stage companies that includes business tax return preparation, outsourced bookkeeping, and access to advisory services like the R&D credit and QSBS. The goal of the program is to provide guidance on issues that many early-stage companies may not have the answers to or know how to handle. In other words, we’re here to help them get their “house” in order. We've found that there are often key missteps at this stage that can lead to costly and time-consuming clean-up if not addressed properly from the start.

We’ve designed it to be as simple as possible, bring us in at the beginning so you can focus on running your business or - “focus on what makes your beer taste better”

Hah, I like the Jeff Bezos AWS reference and there’s definitely some similarities. Basically, it’s like infrastructure for running your company. 
You’re trying to build an incredible company. Any part of your brain that’s worried about tax compliance or how to maximize tax credits in multiple jurisdictions or company structure, or should we be recording this as a debit or a credit, that’s taking away from your core mission.

If people want to chat with you or learn more about Citrin Cooperman, what should they do?
Feel free to connect on LinkedIn or email me at [email protected]

Cashing out/Moving on
Jeff Sulman on distressed M&A

Jeff has been quarterbacking deals for almost three decades and has seen it all.

Jeff thanks for sitting down with me - you’ve been a busy guy these last couple of months doing a lot of distressed acquisitions. What’s going on in the market?
2020 and 2021 are in the rear view. Money is no longer cheap. I think a lot of companies that started four or five years ago had a lot of runway. Alot of startups that had interesting ideas just failed to execute. They could keep exploring and iterating for a long time but it’s getting to a point where it’s time to move on. 

That doesn’t mean just winding down the company though - 
In a lot of cases it means selling the company at a steep discount. It’s not the exit the founders dreamt of but at least they’re returning some money back to the investors. 

Who is buying these startups that sputtered out?
There are a lot of buyers. Sometimes it’s strategics looking for a bolt-on to one of their existing businesses. Maybe it’s an acquihire situation. We’re seeing some financial buyers, including family offices, snapping up interesting businesses that they think they can turn around and run more efficiently. 

How are these deals structured and what are some of the challenges?
We often see these structured as asset deals, with the buyer able to cherry-pick the assets it wants and leave undesirable liabilities behind. Since equityholders are likely taking a loss in these deals, buyers will sometimes “sweeten the pot” for the target’s investors by offering some equity in the newco. So you’ll get deals with a de minimis cash purchase price, but a 5 or 10% stake in the new company created by the buyer to purchase the assets.  And then the buyers commit capital to the newco to fund the business going forward. 

There’s some complexity when you introduce newco equity as the consideration for the deal. Not all investors want equity in the newco; other smaller equityholders, like advisors or employees, might not be accredited.  The buyers don’t necessarily want a bunch of new names on the newco’s cap table – so we’ll sometimes help target set up an special purpose entity (typically an LLC) to hold the newco equity, and then target distributes the LLC units to its investors. A prudent buyer will ask for termination and release agreements from the target’s equity holders, particularly SAFE holders, convertible note holders and holders of preferred stock who are getting back less than their investment amount.  Buyers don’t want to have to deal with disgruntled target investors if they can avoid it….More often than not, buyers will end up negotiating not just with the target company and its founders, but with the larger investors as well. Since a sale of substantially all of the assets of a company requires approval from a majority of the target’s stockholders, getting the larger guys on board is important. 

How does timing work out here?
We try to do these deals as simultaneous sign and close deals, but that isn’t always easy to pull off. The stickiest issue here is obtaining third party consents, which are often required by the terms of the target’s contracts in the case of an assignment – which is effectively what is happening in an asset deal.  Getting the key stakeholders on board prior to signing is really important, though. The last thing we want is a holdout target stockholder trying to greenmail the target or the buyer in exchange for its support of the deal after the purchase agreement has been signed. 

What happens if the company is rapidly running out of money during this process?
Buyers may be willing to extend a bridge loan to the target, and depending on the overall deal consideration, this might function as an advance on the purchase price. The use of funds will normally be pretty restricted – salaries, critical vendor payments, etc., with the buyer having a say in how the funds are used.  As a target company, you need to be aware of the leverage these loans can give the buyer as the parties work on finalizing definitive agreements. Targets should definitely involve counsel in reviewing the terms of a bridge loan from a potential acquirer. 

How can a seller prepare to make a sale go more smoothly? 
It sounds obvious but having realistic expectations is important. As soon as you decide to sell, it’s about maximizing value. Sometimes founders are purely focused on what’s in it for them – what is their comp and equity package going to look like in the new company? But target’s officers and directors have a fiduciary duty to the investors, and need to keep an eye on the bigger picture. Communicate early and often with your key investors; make sure you’ve considered all the alternatives

You’ve built a big book of business working with serial acquirers - I mean sometimes you work for the sellers but you’re frequently working for the buyers. What has made you the favored M&A lawyer for a lot of prolific acquirers? 
Hah – you’re too kind, Morgan. Serial acquirers are always looking to make the acquisition process more efficient – from diligence, to pre-baked deal structures and form documents, to leveraging institutional knowledge their counsel develops from doing multiple deals with the same team.  They also appreciate a pragmatic approach to resolving issues – these distressed deals are understandably messy, and it isn’t always easy or even value-add to dot all the I’s and cross all the T’s. You need to be comfortable operating outside of the “black and white” comfort zone a lot of lawyers are afraid to leave.

About Morgan Barrett:
Morgan is the creator of Tech Breakfast Club. He hosts breakfast meetups in NYC, LA, SF, (and occasionally Austin, Miami, Boston) that bring together the best founders and investors.

Morgan is also a Startup Lawyer at Optimal, an elite lean boutique startup law firm repping clients funded by a16z, Sequoia, Kleiner, Accel, and countless other VCs. He works with clients from formation to exit, in collaboration with Optimal’s partners.