A startup acquisition is a structured sale of a private company to a buyer, run in stages: first contact, negotiation, due diligence, signing, closing, and integration. The word "actually" earns its place in the title. Merriam-Webster defines "actually" as "in act or in fact: really," which is the right lens here, because what happens in a deal often differs from what founders expect. (Merriam-Webster documents the word's meaning as "in point of fact," used to signal something unexpected.)
The short version: an acquisition is mostly paperwork, verification, and waiting. The headline price is agreed early. The hard part comes later, when the buyer's lawyers and accountants check every claim the company has made, and when the money sits in escrow while both sides fight over the last details. Founders who know the sequence negotiate better at each step. Readers following this should also see Second-Time Founders and Equity: Five Documented Mistakes.
How does a deal actually start?
Most acquisitions begin with an unsolicited approach, not a sale process. A buyer's corporate development team, an investment banker, or an executive who knows the company reaches out informally. Sometimes it is a partnership conversation that turns into something else. The first contact is deliberately vague: interest, not terms.
If the founder wants to explore it, the next move is usually a non-disclosure agreement, often called an NDA. It lets the company share sensitive data without the buyer walking off with it. After that comes a first serious meeting, and then, if interest holds, an indication of interest or a term sheet: a short document that sketches price, structure, and key conditions. A term sheet is mostly non-binding. It sets expectations, not obligations.
Founders sometimes assume a term sheet means the deal is done. It is not. It is an agreement to negotiate in good faith toward a definitive agreement, and the price on it can still move, usually down, once diligence finds problems.
What happens during due diligence?
Due diligence is the buyer checking that everything the company said is true. It is the longest and most draining phase. The buyer's team reviews the cap table, contracts, financials, customer agreements, employment records, intellectual property filings, and any litigation or regulatory issues. In practice this means a data room: a secure online folder where the company uploads documents and the buyer's advisers work through them.
Diligence typically covers several tracks at once. Financial diligence checks revenue quality and margins. Legal diligence checks ownership of assets and clean cap tables. Technical diligence, common in software deals, reviews the codebase, architecture, and security practices. Commercial diligence tests whether the market story holds up.
This phase is where deals get repriced or killed. If diligence uncovers an unvested founder, an unassigned patent, a customer contract that dies on change of control, or revenue concentrated in one account, the buyer either lowers the price, adds protections, or walks. Founders who keep clean records from day one move through this phase in weeks. Founders who do not can spend months reconstructing their own history.
How is the price actually structured?
The headline number is rarely the whole number. Buyers use several structures, and each shifts risk from buyer to seller or the other way.
- Cash at close. The simplest form. The full price is paid when the deal closes, minus whatever the parties negotiate into escrow.
- Escrow holdback. A slice of the price sits with a third party for a defined period after closing. It covers the buyer if the seller's promises turn out to be false. Founders should expect some escrow; the size and duration are negotiable.
- Earnout. Part of the price depends on the business hitting targets after the deal closes, such as revenue or retention goals. Earnouts transfer risk to the seller and are a frequent source of post-deal disputes, because the buyer now controls the resources that determine whether the targets are met.
- Stock consideration. In larger companies' deals, sellers receive buyer shares. That ties the sellers' outcome to the buyer's share price after closing.
Our analysis: the structure matters more than the headline. A smaller number paid in cash at close is often worth more than a bigger number wrapped in a long earnout. Founders should model what they receive under pessimistic assumptions, not just the optimistic ones.
What is in the definitive agreement?
After diligence, lawyers draft the definitive agreement, usually a merger agreement or share purchase agreement. This is the binding contract. It contains the price and structure, but the founder-relevant content lives in the representations and warranties and the indemnities.
Representations and warranties are the seller's formal statements of fact: the financials are accurate, the company owns its IP, there is no pending litigation, the cap table is complete. Indemnities are the compensation mechanism if those statements prove false. This is why escrow exists: it is the pool the buyer can draw from when an indemnity claim lands.
Two other provisions deserve founder attention. First, the closing conditions: what has to be true for the deal to complete, including regulatory approvals where relevant. Second, the treatment of employees and unvested equity. Buyers often convert unvested shares or options into new grants that continue vesting, which keeps key people locked in through the transition. Founders should read exactly what happens to their own vesting, not assume it carries over untouched. We covered a connected angle in Negotiating Founder Equity: What to Ask Before Signing.
What happens between signing and closing?
Signing and closing are usually different days. Between them, the parties satisfy the closing conditions: shareholder approvals, regulatory clearances, third-party consents, and final confirmations. The company also has to keep operating normally under interim covenants, rules that limit what it can do without buyer consent, such as issuing equity, hiring executives, or signing unusual contracts.
This gap is where deals sometimes fall apart. A buyer can renegotiate or walk if conditions fail. The practical guidance for founders is general rather than prescriptive: keep the business running as if no deal were happening, because a company that stalls while waiting to close becomes a weaker asset and a weaker negotiating position.
At closing, the consideration moves. Cash goes through the escrow agent, shares transfer, and the company legally changes hands. Founders receive a funds flow statement showing exactly who gets paid what. This is the moment to check that every number matches the agreement, because after closing, correcting errors means negotiating with a counterparty who no longer needs you.
What does integration actually look like for founders?
Integration is the phase founders prepare for least. The company is now a business unit. Reporting lines change, tools get migrated, and the founder's title usually shrinks in scope even when it grows in seniority. Earnout targets, if any, now sit inside someone else's budget and priorities.
What this means in practice: founders should negotiate their own post-close role, vesting treatment, and any earnout metrics with as much care as the price. Those terms are set in the definitive agreement, when the buyer still wants the deal, not after closing, when leverage has flipped.
The evidence a founder can rely on is the deal documents themselves. What the record shows at signing is what the founder can enforce later. Everything promised in hallway conversations is not enforceable, and the acquisition process is, above all, a machine for converting promises into documents.
Practical steps for founders considering a sale
A short checklist, drawn from how the process actually runs:
- Get your own advisers. A lawyer and an accountant who work for you, not the buyer, from the first term sheet onward.
- Run a mock diligence on yourself before the buyer does. Clean the cap table, assign all IP, and fix contract gaps early.
- Negotiate escrow size, earnout metrics, and your post-close role as a package, not one at a time.
- Read the representations and warranties. You are signing that they are true.
- Plan the integration conversation before closing, while you still have leverage.
None of this guarantees a better outcome. It does mean entering each stage knowing what the other side is doing and why. For more on how the money side of startup life works, see our coverage of funding and how founder vesting interacts with exit terms, or browse the wider founders section.
