Having a strong balance sheet prior to entering the market for an M&A event is important. You want to ensure that your cash position is strong and will remain healthy as you are out in the market selling your company and growing your business.


The need to raise another round of funding prior to entering the market is a common misconception and can jeopardize your position during an M&A event. There is so much more at stake, including the level of control that you have over your business as well as who is sitting on your cap table, which should be carefully considered. As you adjust the levers to have the right amount of cash to continue running your business, it is possible that you will need additional capital to maintain your growth and be ready for any short-term cash needs based on seasonality in your business. If your business is growing, it is likely that you’ll have VCs and PE firms reaching out to explore investments in your company to provide growth capital.

This of course will be enticing as you look to build your war chest for the future. However, there are significant risks that should not be overlooked by raising a round of capital just prior to entering the market to sell your company.


1)      You’ll give up equity: Raising a round will change your cap table, and if you are raising an A or B round expect to give up 25 to 30% of equity. The question you must ask yourself is whether this loss of equity used to raise cash to scale your business will result in the necessary increase in revenue to command a higher valuation that offsets the loss of equity. 

2)      You may lose control: New investors may want to add board members to your current group, shifting the dynamics of the board and impacting voting percentages. This could have a significant impact if the board is not aligned on going to market for an M&A event. With a new investor in the mix, they may have different incentives than you as CEO. For example, they may be interested in the follow-on round in eighteen months versus selling the company at the right point of its lifecycle.  

3)      There might not be alignment on when to exit after the round is complete: Timing is critical in M&A. Deciding when to go to market will be one of the most important decisions that you make. With new investors at the table, they may have differing views on the market than you and this could impact when you go to market.

4)      Time: Going out and raising a round takes a lot of time and energy. In the time that you are raising a round, typically four to six months, you could be out talking to seventy or eighty buyers calibrating your value, getting market feedback and finding an acquirer.

5)      Elephant in the room: Generally, you, as CEO, know when you are personally ready to sell the company and you likely have a pulse on the market monitoring trend lines in order to make a decision on the right time to sell. The elephant in the room: You are afraid to raise your hand to let your investors know that you think it is time to go to market because you fear that that your investors will think that you’ve given up. I see this often. Remember the game that is being played here and put your ego to the side. It is imperative that you are continually considering all options to scale the business and drive value. More often than not, the best option to accomplish the goal of scaling your company rapidly is by selling your company.


Stay tuned for part two of this thread where I’ll talk about your options in the alternative to raising a round.