A successful exit in tech M&A is both art and science. Without the proper finesse and skill, they often end in failure.  In a recent Tech Growth and Exit Strategies Conference in Los Angeles, we brought this topic up for discussion with a group of investors, buyers, and sellers.  And today we’re sharing the top five reasons those experts gave for why deals fail.

Deal Killer #1: Lack of Honesty

First, I’m sure you all learned this early on ‒ honesty is the best policy. Well that holds true in tech deals as in other aspects of life.  Not being truthful about things like pending litigation, regulatory issues, or licensing problems can be a real deal killer.

Josh Klein, General Partner at Covalence says it’s better to be honest upfront about red flags than having them discovered later in the process.  “When major items arise too late in the process, it damages trust, compromises the timeline, and creates additional stress for all involved.”

Not being honest can even force an otherwise willing buyer out the door.

Remember, relationships don’t often end with the signing of a contract. It’s likely you’ll be working with these people again.  They might even be your future bosses!

Deal Killer #2: Misaligned Financial Expectations

Another deal killer is unrealistically optimistic financials and projections by eager CEOs.  It’s natural for a seller to want to present strong financial numbers and excellent growth projections. But you need to be reasonable. The real numbers will eventually come out.

Matt Picciano, a Principal at Alpine Investors, also on the buyers panel, said the biggest problems they run into when doing due diligence relate to a seller’s financials. “Either their numbers are wrong or the company didn't hit the numbers they were forecasting during the initial LOI period.”

Hitting financial targets is crucial to making a deal happen and there's nothing that kills momentum in a sales process faster than missing your numbers and having to explain why.

So, don’t waste time ‒ be realistic when putting financial projections together.

Deal Killer #3: Lack of Preparation

Next, it’s crucial that you do your homework and show your work!

Interested buyers will ask a lot of questions about your idea, product, and company. Not having the right answers and the evidence to back it up can quash the deal. 

You can’t get away with answers like, "We don't have that information," or “We never thought to look for that information." It’ll undermine the entire process and delay the deal.

During a corporate pitch, sometimes the most important person in the room will only be there for a few minutes.  If you are not ready to respond quickly and effectively with the right information… that may be it.

Deal Killer #4: Talking to Only One Buyer

If there’s one mantra that everyone should know in tech M&A, it’s don’t talk to only one buyer.  Talking to one buyer is the biggest mistake company owners make when going to market, according Bruce Milne, Corum’s Founder and CEO. “Even if you have a buyer, how do you get the right price and right structure without the leverage from other bidders? How do you even make it through due diligence, where up to 80 percent of the deals die?"

It can even have legal implications. Milne says, “Your minority investors, with the law on their side, may say, ‘Why did you sell to the first buyer who came along, violating your fiduciary duty?’”

In fact, most seasoned CEOs know having one offer has very little value in the big picture.

Scott Barrows, former CEO and Co-Founder of ZeroHero, said the following about his exit. "The one piece of advice I'd pass on to a friend is that if you don't have two offers, you have zero. We had Ticketmaster interested in us, and they wanted to move forward. But until we had another person that came and showed interest and was willing to put an offer sheet together, we couldn't get their legal team to do anything."

Deal Killer #5: Pitching Concepts and Statistics Instead of Relatable Stories

Lastly, don’t forget: You are selling your story—Why YOUR company?

How you tell that story is key to a successful outcome. Don’t load it down with abstract concepts and a mountain of statistics. Be straightforward and make it relatable. 

Angel investor, Jeff Wallace, says, “I am often pitched on concepts with a lot of conceptual language and statistical support. And I think most people don't have a great recall for concepts and statistics. They have great recall for people and stories. So learn how to communicate your business idea, your investment idea through personas and telling stories that people can relate to. If they can't relate to it, it will be very difficult to get them to invest in it.”

Having an Advisor in the M&A Process is Important

So, how do you avoid these deal killers?  Get on board with an experienced and trusted advisor.

There’s a legal maxim that states, “A defendant who represents himself has a fool for a client.” The same goes for tech M&A. Representing yourself in an M&A deal without the help of a trusted advisor is just as risky as being your own defense attorney.

Reach out to the experts at Corum. They’d gladly speak more on this topic.