by Michael Gravel | Apr 16, 2025 | iMerge M&A Dealmaker News
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What Approvals Are Required to Sell Your Startup — And How to Secure Them
For many founders, the decision to sell a startup is both strategic and deeply personal. But even if you’re the visionary behind the company, you may not have the unilateral authority to complete a sale. Depending on your corporate structure, investor agreements, and cap table, you may need formal approval from your board of directors, shareholders, or both.
Understanding these governance requirements early in the M&A process is critical. Missteps here can delay — or even derail — a deal. In this article, we’ll break down the typical consents required to sell a startup, how to prepare for them, and what founders should do to align stakeholders before entering serious negotiations.
Why Approvals Matter in a Startup Sale
At its core, selling a company is a transfer of control — and control is governed by your corporate documents. Whether you’re executing an asset sale or a stock sale, the transaction will likely require formal consent from key decision-makers. These approvals are not just legal formalities; they are enforceable rights that protect investors, co-founders, and other stakeholders.
Failing to obtain the necessary consents can result in breach of fiduciary duty, litigation, or a failed closing. Buyers — especially institutional acquirers or private equity firms — will insist on clear evidence that all required approvals have been obtained before wiring funds.
Key Approvals Typically Required
1. Board of Directors Approval
Most startup sales require approval from the board of directors. This is typically a majority vote, but your company’s bylaws or investor agreements may require a supermajority or unanimous consent for major transactions.
The board’s role is to act in the best interest of the company and its shareholders. That includes evaluating the fairness of the deal, the strategic rationale, and any potential conflicts of interest. In many cases, the board will also authorize the CEO or another officer to negotiate and execute the transaction documents.
2. Shareholder Approval
In addition to board consent, many deals require approval from the company’s shareholders — particularly in a stock sale or merger. The threshold for approval depends on your corporate structure and governing documents:
- Delaware C-Corp: Under Delaware law, a merger or sale of substantially all assets typically requires approval from a majority of outstanding voting shares.
- Preferred Shareholders: If you’ve raised venture capital, your investors likely have protective provisions that give them veto rights over a sale. These may require a separate class vote of preferred shareholders, often with a supermajority threshold (e.g., 66⅔%).
- Drag-Along Rights: Some companies include drag-along provisions in their stockholder agreements, allowing a majority of shareholders to force minority holders to approve a sale. These provisions can streamline the process — but only if properly structured and enforceable.
3. Investor Consents and Protective Provisions
Beyond general shareholder votes, your investors may have specific contractual rights that require their consent. These can include:
- Right to approve any change of control
- Right of first refusal or co-sale rights
- Liquidation preference enforcement
These rights are typically found in your company’s Investor Rights Agreement, Voting Agreement, or Certificate of Incorporation. A careful review of these documents is essential before entering into a Letter of Intent (LOI).
How to Line Up Approvals Strategically
Securing approvals is not just a legal exercise — it’s a political and strategic one. Here’s how to approach it:
1. Start with a Cap Table and Governance Review
Before engaging buyers, conduct a thorough review of your cap table, charter documents, and investor agreements. Identify:
- Who holds voting control?
- What approval thresholds apply?
- Which investors have veto rights?
Firms like iMerge often begin engagements with this type of governance audit to avoid surprises later in the process.
2. Engage Key Stakeholders Early
Once you’re seriously considering a sale, begin informal conversations with your board and major investors. Gauge their appetite for an exit, and understand their expectations around valuation, timing, and deal structure.
In our experience advising software founders, early alignment with your board and lead investors can dramatically reduce friction during diligence and closing. It also helps you shape a deal that meets the needs of all parties — not just the founder.
3. Use the LOI as a Catalyst for Formal Approvals
While you don’t need full board or shareholder approval to sign a non-binding LOI, it’s wise to secure at least board-level support before doing so. Once the LOI is signed, you’ll typically seek formal approvals during the definitive agreement phase.
At this stage, your M&A advisor and legal counsel will help prepare board resolutions, shareholder consents, and any required notices. If drag-along rights are in play, you’ll also need to ensure proper execution of joinder agreements or waivers.
4. Anticipate and Address Objections
Not all stakeholders will be aligned. Some may want to hold out for a higher valuation, while others may have concerns about tax treatment or post-sale roles. Address these concerns proactively:
In some cases, it may be necessary to renegotiate investor rights or offer side agreements to secure consent. This is where experienced M&A advisors can add significant value.
Case Example: Navigating a Complex Cap Table
Consider a hypothetical SaaS company with $10M ARR, backed by two venture funds and several angel investors. The founder receives a $60M acquisition offer from a strategic buyer. The board is supportive, but one VC — holding 25% of preferred shares — is pushing for a higher price.
Upon review, the company’s charter requires 66⅔% of preferred shares to approve a sale. The founder, working with an M&A advisor like iMerge, negotiates a modest earn-out and retention package that aligns the VC’s interests with the buyer’s growth plan. With that, the VC consents, and the deal proceeds to closing.
This scenario underscores the importance of understanding not just who owns what — but what rights they hold and how to align them.
Final Thoughts
Securing board and shareholder approvals is a critical — and often underestimated — part of the M&A process. Founders who prepare early, understand their governance landscape, and engage stakeholders with transparency are far more likely to close successfully and on favorable terms.
Whether you’re exploring a full exit or a partial recapitalization, aligning your board and investors is not just a checkbox — it’s a strategic imperative.
Use this insight in your next board discussion or strategic planning session. When you’re ready, iMerge is available for private, advisor-level conversations.
by Michael Gravel | Apr 16, 2025 | iMerge M&A Dealmaker News
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How Much Should Founders Disclose to Their Team About a Sale Windfall?
For many founders, the sale of a company is the culmination of years—sometimes decades—of risk, sacrifice, and relentless execution. But when the deal is finally in motion, a new and often unexpected question arises: How much should I tell my team about what I personally stand to gain?
This is not just a matter of etiquette or transparency. It’s a strategic decision that can impact morale, retention, and even the final stages of deal execution. In this article, we’ll explore how to approach this sensitive topic, what to disclose (and when), and how to align your messaging with the broader goals of the transaction.
Why This Question Matters More Than You Think
In the software and technology sectors, where equity compensation is common and teams are often lean but high-performing, the optics of a founder’s exit windfall can be powerful. Handled well, it can reinforce a culture of success and inspire loyalty. Mishandled, it can breed resentment or attrition—especially if employees feel left out of the upside.
At iMerge, we’ve advised founders through hundreds of exits, and we’ve seen firsthand how disclosure decisions can shape the post-deal landscape. The right approach depends on your cap table, your company culture, and the structure of the deal itself.
What to Consider Before Disclosing
1. Understand the Cap Table Dynamics
Before you say anything, make sure you have a clear understanding of who owns what. In many software companies, the cap table includes a mix of founders, early employees, investors, and option holders. If your team has equity or options, they’ll likely be doing their own math once the deal is announced.
In some cases, employees may already have a general sense of your ownership stake. But unless you’ve been unusually transparent, they probably don’t know the full picture—including liquidation preferences, earn-outs, or tax implications. That’s why it’s important to separate perception from reality when planning your communication strategy.
2. Timing Is Everything
Disclosing too early can create unnecessary distraction or anxiety—especially if the deal is still in flux. Disclosing too late can feel evasive or disingenuous. A good rule of thumb is to wait until the deal is signed (or at least the LOI is firm and diligence is underway) before sharing any specifics.
As we noted in Completing Due Diligence Before the LOI, the period between LOI and close is often the most sensitive. During this time, it’s best to keep communications focused on operational continuity and team stability. Save personal financial disclosures for after the deal is closed—or at least irrevocably committed.
3. Consider the Cultural Context
Some startup cultures are built on radical transparency. Others are more hierarchical or compartmentalized. If your team is used to open-book management and regular updates on company performance, a sudden veil of secrecy around the exit may feel jarring. Conversely, if you’ve historically kept financial matters close to the vest, a detailed breakdown of your personal payout may feel out of place.
There’s no one-size-fits-all answer here. But in general, it’s wise to frame your disclosure in terms of the company’s success—not your personal gain. For example:
“This outcome reflects the value we’ve all created together. I’ve been fortunate to have a meaningful stake in the company, and I’m incredibly grateful for the team that made this possible.”
What You Might Choose to Share
Here are a few disclosure strategies we’ve seen founders use effectively, depending on the situation:
- High-Level Context Only: “The deal represents a strong multiple on our last valuation, and everyone with equity will benefit.”
- Equity Pool Transparency: “The employee option pool will receive $X in aggregate, and we’ll be working with HR to ensure everyone understands their individual outcomes.”
- Personal Gratitude Without Numbers: “This has been a life-changing outcome for me personally, and I want to thank you all for being part of the journey.”
- Full Transparency (Rare): “As the majority shareholder, I’ll be receiving $X from the transaction. I’m sharing this because I believe in transparency and want to celebrate this milestone with you.”
Most founders opt for something between the first and third options. Full transparency is rare and should only be considered if it aligns with your company’s values and you’re confident it won’t create unintended consequences.
What to Avoid
While every situation is unique, there are a few common pitfalls to steer clear of:
- Overpromising: Don’t imply that everyone will be “taken care of” unless you’ve run the numbers and confirmed it.
- Defensiveness: Avoid justifying your payout or comparing it to others. Let the numbers speak for themselves, if you choose to share them at all.
- Premature Disclosure: Until the deal is signed and funded, anything can change. Avoid creating expectations that may not materialize.
Aligning Incentives Before the Exit
If you’re still in the planning stages of a sale, now is the time to think about how your team will participate in the upside. Structuring retention bonuses, option acceleration, or carve-outs for key employees can go a long way in aligning interests and smoothing the path to close.
As we discussed in Exit Business Planning Strategy, proactive planning around team incentives can increase deal certainty and reduce post-close disruption. Firms like iMerge often help founders model these scenarios to ensure the exit is not only financially successful but culturally sustainable.
Final Thoughts
Disclosing your personal gain from a company sale is a deeply personal decision—but it’s also a strategic one. The goal is not to hide or boast, but to communicate in a way that reinforces trust, celebrates shared success, and preserves team cohesion during a time of transition.
Ultimately, your team will remember how you made them feel during the exit more than the exact numbers you shared. Lead with gratitude, clarity, and respect—and you’ll set the tone for a successful next chapter, both for yourself and for those who helped build the company alongside you.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
by Michael Gravel | Apr 16, 2025 | iMerge M&A Dealmaker News
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What’s on the Closing Checklist When Selling a Tech Company — and What You Might Be Forgetting
After months of diligence, negotiation, and late-night data room uploads, you’re finally approaching the finish line: closing day. But before the wire hits and champagne is uncorked, there’s one more critical hurdle — the closing checklist.
For founders selling a software or tech company, the closing checklist is more than a formality. It’s a comprehensive, often legally binding list of deliverables, signatures, and confirmations that must be completed before the transaction can close. Miss a key item, and you risk delaying — or even derailing — the deal.
This article outlines what’s typically included in a closing checklist for a tech M&A transaction, and highlights a few often-overlooked steps that can make or break a smooth exit.
What Is a Closing Checklist?
A closing checklist is a detailed document, usually prepared by legal counsel, that itemizes all the documents, approvals, and actions required to consummate the sale. It’s used by both buyer and seller to track progress and ensure nothing falls through the cracks.
Think of it as the final project plan for your exit — a shared roadmap that coordinates legal, financial, and operational workstreams in the final days or weeks before closing.
Key Components of a Tech M&A Closing Checklist
While every deal is unique, most closing checklists for software and technology companies include the following categories:
1. Final Transaction Documents
- Purchase Agreement: The definitive agreement (asset or stock sale) outlining terms, reps and warranties, indemnities, and covenants.
- Disclosure Schedules: Attachments to the purchase agreement that qualify or expand on representations — often the most time-consuming to finalize.
- Ancillary Agreements: These may include IP assignments, employment or consulting agreements, escrow agreements, and non-compete clauses.
2. Board and Shareholder Approvals
- Board resolutions authorizing the sale
- Shareholder consents (especially critical in stock sales or when drag-along rights are triggered)
- Waivers of rights of first refusal or co-sale rights, if applicable
3. Regulatory and Compliance Filings
- State-level filings for entity dissolution or name changes
- U.S. antitrust filings (e.g., HSR Act) if thresholds are met
- Foreign investment approvals for cross-border deals
4. Financial and Tax Deliverables
5. IP and Technology Transfers
- Assignment of patents, trademarks, and domain names
- Transfer of source code repositories and documentation
- Third-party software license consents
6. Employee and HR Matters
- Offer letters or transition agreements for key employees
- Termination of stock option plans or conversion to buyer equity
- COBRA notices and benefits plan transitions
7. Customer and Vendor Notifications
- Consent to assign material contracts (especially in SaaS businesses)
- Notices to strategic partners or resellers
- Updated billing and payment instructions
Commonly Overlooked Final Steps
Even experienced founders can miss critical items in the final stretch. Here are a few areas where deals often stumble — and how to stay ahead of them:
1. Working Capital Peg and Adjustments
Many founders underestimate the complexity of the working capital adjustment. Buyers want to ensure the business is delivered with a “normal” level of working capital — not drained of cash or overloaded with payables. Misalignment here can lead to post-closing disputes or escrow claims. A seasoned M&A advisor like iMerge can help model and negotiate a fair peg based on historical trends.
2. Customer Consent Bottlenecks
If your SaaS contracts include anti-assignment clauses, you may need customer consent to transfer them. This can be a sensitive process — especially if the buyer is a competitor or if customers are risk-averse. Start early, and consider how to frame the transition to preserve trust. For more on this, see How Do I Handle Customer Contracts During the Sale of My Software Business?
3. Final Cap Table Reconciliation
Before closing, you’ll need to finalize the cap table — including option exercises, warrant conversions, and any SAFE or convertible note conversions. Errors here can delay payouts or trigger legal exposure. Ensure your legal and finance teams are aligned on the final ownership structure and payout waterfall.
4. Closing Binder Assembly
After the deal closes, you’ll want a complete record of all signed documents, approvals, and correspondence. This is typically compiled into a “closing binder” — a digital or physical archive that can be invaluable for tax, legal, or audit purposes. For a deeper dive, see What Typically Goes Into a Closing Binder for a Startup Acquisition.
Final Thoughts: Don’t Let the Finish Line Trip You Up
Closing a tech M&A deal is a high-stakes, high-detail process. Even after the headline terms are agreed, the final 5% of execution can consume 50% of your time and energy. That’s why experienced founders often lean on M&A advisors not just for valuation and negotiation, but for operational execution in the final mile.
Firms like iMerge specialize in helping software and technology companies navigate these complexities — from working capital modeling to customer consent strategies to post-closing integration planning. A well-managed closing process doesn’t just protect value — it preserves relationships, reputations, and momentum for what comes next.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
by Michael Gravel | Apr 16, 2025 | iMerge M&A Dealmaker News
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How to Protect Your Company’s Secrets During M&A Talks with a Competitor
It’s a scenario that keeps many founders up at night: a larger competitor expresses interest in acquiring your company, but you can’t shake the feeling that their real motive is to peek under the hood. In the software and technology sectors—where proprietary code, customer data, and product roadmaps are often the crown jewels—this concern is not only valid, it’s increasingly common.
So how do you engage in serious M&A discussions without giving away the very assets that make your company valuable?
This article outlines the key precautions founders and CEOs should take before sharing sensitive information with a prospective buyer—especially when that buyer is a direct or adjacent competitor.
1. Understand the Risk: Why Competitors Initiate “Fake” M&A Talks
Not all acquisition interest is genuine. In some cases, a competitor may initiate discussions to:
- Gain insight into your product roadmap or IP strategy
- Understand your customer acquisition channels or pricing model
- Benchmark your performance metrics against their own
- Preemptively neutralize a rising threat in the market
While most acquirers act in good faith, the risk of misaligned intent is higher when the buyer is a strategic competitor. That’s why your information-sharing strategy must be carefully staged and legally protected.
2. Use a Two-Stage Diligence Process
One of the most effective ways to protect your company is to structure the diligence process in two stages:
Stage 1: Pre-LOI (Letter of Intent)
At this stage, limit disclosures to high-level, non-sensitive information. This might include:
- Basic financial metrics (e.g., ARR, EBITDA, growth rate)
- Customer concentration (without naming clients)
- General product overview (without source code or architecture)
- Market positioning and competitive differentiation
As we noted in Completing Due Diligence Before the LOI, this phase is about giving just enough information to validate buyer interest—nothing more.
Stage 2: Post-LOI
Only after a signed LOI with exclusivity and deal terms should you consider sharing more sensitive materials. Even then, disclosures should be staged and monitored through a secure data room with access logs and watermarking.
3. Draft a Robust NDA—And Enforce It
Before any information is shared, insist on a well-crafted non-disclosure agreement (NDA). But not all NDAs are created equal. A strong NDA should include:
- Explicit definitions of “Confidential Information”
- Restrictions on use (e.g., for evaluation purposes only)
- Non-solicitation clauses (to protect employees and customers)
- Non-reverse engineering provisions (especially for software/IP)
- Survival clauses that extend beyond the deal timeline
Firms like iMerge often work with legal counsel to ensure NDAs are tailored to the nuances of software and SaaS businesses. If a buyer pushes back on standard protections, that’s a red flag worth noting.
4. Limit Access to Sensitive IP and Code
Even in post-LOI diligence, avoid sharing raw source code or proprietary algorithms unless absolutely necessary—and only under strict controls. Consider these alternatives:
- Provide code walkthroughs via screen share rather than file transfer
- Use third-party code audits or escrow services to validate IP ownership
- Redact or anonymize sensitive customer data in sample datasets
In AI and SaaS deals, buyers may request insight into training data or model architecture. As we explored in What should we disclose about our AI training data and methods to a potential acquirer, disclosures should be carefully scoped to avoid exposing trade secrets or triggering compliance risks.
5. Vet the Buyer’s Intent and Track Record
Before engaging deeply, do your own diligence on the buyer. Ask:
- Have they acquired similar companies before? What happened post-acquisition?
- Do they have a reputation for fair dealing—or for fishing expeditions?
- Are they actively acquiring, or just exploring the market?
Advisors like iMerge often maintain proprietary databases of buyer behavior and can help assess whether a suitor is serious or speculative. This intelligence can be invaluable in deciding how far to proceed.
6. Use an M&A Advisor to Control the Process
One of the most effective ways to protect your company is to run a structured, advisor-led process. A seasoned M&A advisor can:
- Pre-qualify buyers and filter out bad actors
- Stage disclosures to align with deal progress
- Negotiate NDAs and LOIs with protective language
- Maintain competitive tension to discourage gamesmanship
As we discussed in 8 Ways Top M&A Advisors Increase Value During the Transaction, a well-run process not only maximizes valuation—it also minimizes risk.
7. Prepare for the Worst—But Plan for the Best
Even with all precautions, there’s always some risk in opening the kimono. That’s why it’s important to:
- Document what was shared and when
- Watermark sensitive documents to track leaks
- Retain legal counsel in case of NDA breach
But don’t let fear paralyze you. Many successful exits involve strategic buyers, including competitors. The key is to manage the process with discipline, not distrust.
Conclusion
Engaging with a competitor in M&A talks doesn’t have to mean exposing your company to undue risk. With the right legal protections, staged disclosures, and experienced advisors, you can explore strategic opportunities while safeguarding your most valuable assets.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
by Michael Gravel | Apr 16, 2025 | iMerge M&A Dealmaker News
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AI Training Data and M&A Risk: What Founders and Acquirers Need to Know
As artificial intelligence continues to reshape the software landscape, a new class of due diligence questions is emerging—particularly around how AI models are trained. For founders and CEOs of AI-driven companies, one question looms large during M&A discussions: Could training your AI model on copyrighted or web-scraped content create legal or valuation risks during or after an acquisition?
The short answer is yes. And the implications can be material—both in terms of deal structure and post-close liability. In this article, we’ll explore how training data provenance affects M&A due diligence, what buyers are looking for, and how sellers can proactively mitigate risk.
Why Training Data Matters in M&A
In traditional software M&A, diligence focuses on code ownership, customer contracts, and financial performance. But in AI transactions, the model itself—and the data used to train it—becomes a core asset. If that data includes copyrighted material or was scraped from the web without proper authorization, it can raise red flags for acquirers, especially those with public market exposure or institutional LPs.
Buyers are increasingly asking:
- Was the training data obtained legally and ethically?
- Does the company have documentation of data sources and licenses?
- Could the model’s outputs infringe on third-party IP rights?
- Are there any pending or foreseeable legal challenges related to data use?
These questions aren’t theoretical. In recent years, lawsuits have been filed against AI companies for allegedly using copyrighted images, text, and code in training datasets. While the legal landscape is still evolving, the risk is real—and buyers are taking notice.
How This Affects Deal Structuring and Valuation
From an M&A perspective, questionable training data can impact a deal in several ways:
1. Reps and Warranties
Buyers will likely require specific representations and warranties around data ownership and usage rights. If the seller can’t make those reps confidently, it may lead to carve-outs, indemnities, or even escrow holdbacks. For more on this, see our article on Mergers and Acquisitions: Reps and Warranties Negotiations.
2. Valuation Haircuts
Uncertainty around data provenance can lead to discounted valuations. Buyers may apply a risk-adjusted multiple or shift more of the purchase price into contingent earn-outs.
3. Post-Close Liability
If a lawsuit arises after the deal closes, the acquirer could be on the hook—unless protections were built into the agreement. This is especially concerning for strategic buyers with brand exposure or public shareholders.
Case Study: A Hypothetical AI SaaS Exit
Consider a fictional AI SaaS company, “LexIQ,” which built a natural language model trained on millions of web pages, including news articles, blogs, and academic papers. The company scraped this data without explicit permission, assuming it fell under “fair use.”
During diligence, a strategic buyer’s legal team flags the issue. They determine that some of the training data likely includes copyrighted material from major publishers. As a result:
- The buyer reduces the offer by 20% to account for potential legal exposure.
- They require a $2M indemnity cap and a 12-month escrow.
- The deal shifts from a stock purchase to an asset purchase to isolate liability.
LexIQ’s founders, who were expecting a clean exit, now face a more complex and less favorable transaction. This scenario is increasingly common in AI M&A.
What Sellers Can Do to Prepare
Founders and CEOs of AI companies should take proactive steps to de-risk their training data before entering the market:
1. Audit Your Data Sources
Document where your training data came from, how it was collected, and under what terms. If you used third-party datasets, ensure you have the appropriate licenses.
2. Segregate or Retrain Risky Models
If parts of your model were trained on questionable data, consider retraining using licensed or synthetic datasets. This can be a significant investment, but it may preserve deal value.
3. Work with Legal Counsel
Engage IP counsel familiar with AI to assess your exposure and help craft defensible positions. This is especially important if you’re preparing for a sale or capital raise.
4. Prepare for Buyer Diligence
As we noted in Due Diligence Checklist for Software (SaaS) Companies, buyers will scrutinize your IP, data, and compliance practices. Having a clean, well-documented data pipeline can accelerate the process and build buyer confidence.
How iMerge Helps Navigate AI-Specific Risks
At iMerge, we’ve advised on numerous software and AI transactions where data provenance played a pivotal role. Our team helps founders anticipate diligence questions, structure deals to mitigate risk, and position their companies for maximum value. Whether you’re preparing for a strategic exit or evaluating unsolicited offers, we bring deep experience in software M&A and a nuanced understanding of emerging AI issues.
We also help clients assess whether an asset versus stock sale structure is more appropriate given potential liabilities—an increasingly relevant consideration in AI deals.
Conclusion
As AI becomes more central to software M&A, the legal and ethical sourcing of training data is no longer a back-office concern—it’s a boardroom issue. Founders who address it early can preserve deal value, reduce friction, and build trust with acquirers. Those who ignore it may find themselves negotiating from a position of weakness.
Use this insight in your next board discussion or strategic planning session. When you’re ready, iMerge is available for private, advisor-level conversations.
