पाठशाला Pathshala · मन Man, The founder · Lesson 25 · Scale
The acquisition process from the founder’s chair
A sale is a process with stages. Leverage lives before exclusivity, the price lives in the structure and the founder’s hardest year usually begins the day after closing.
Pathshala, The Founder Library · 11 October 2026 · 7 min read
Once a founder has decided a sale is worth exploring, the decision becomes a process. It has stages and a calendar, and it rewards the founder who knows where the leverage sits at each one. This lesson walks the process from the founder’s chair: how it starts, where the price is really set, what an earn-out is worth and how to survive the year after the wire arrives.
Whether to sell at all is a separate question, and the [lesson on the founder’s decision](/library/selling-the-company-founders-decision) deals with it. The legal machinery of an Indian deal, from the share purchase agreement to the filings, sits in the [lesson on M&A mechanics](/library/selling-the-company-legal-mechanics-indian-m-and-a). This one is about conduct: what the founder does, week by week, and what to protect.
Two ways in: a banker’s process or a buyer’s call
Most sales begin in one of two ways. In the first, a buyer calls. Often it is a company the founder already works with, and the conversation turns from partnership to acquisition. In the second, the board decides to explore a sale and hires an investment banker to run a process: a short teaser, a confidential information memorandum, a list of likely buyers and a timetable that pushes them to bid against each other.
A banker costs money and brings competition. The founder’s guide to selling your company, published on the Y Combinator blog in 2014, put bankers at 1 to 2 per cent of the deal value and argued that most startups do not need one unless the realistic price is in the mid-hundreds of millions of dollars. Advisers also work on far smaller deals and fees vary, so ask several. The real question is not the fee. It is whether the founder can create a second credible bidder alone. If not, an adviser who can is usually worth paying.
The same guide makes three points worth keeping. Do not enter acquisition talks unless you are ready to sell. A buyer’s first offer is rarely its best. And the best way to receive offers is to have ongoing conversations with likely acquirers long before you need one, which is a [relationship](/library/investors-as-relationship-not-transaction) habit more than a sales tactic.
The stages, and where leverage sits
An Indian sale usually runs in six stages. First conversations, under a non-disclosure agreement. Indicative offers, often a range. A term sheet or letter of intent that fixes price, structure and the key terms, and almost always grants the buyer exclusivity for a period. Confirmatory diligence, in which the buyer’s lawyers and accountants go through everything the [data room](/library/due-diligence-data-room-that-closes-round) holds. Definitive agreements: the share purchase agreement, disclosure letter and employment terms for those who stay. Approvals and closing: board and shareholder consents, regulatory approvals where needed and the transfer of money and shares.
Leverage falls at one point more than any other: the signature on an exclusive term sheet. Before it, the founder can walk away and talk to others. After it, the founder cannot shop the company and the buyer can reopen terms on whatever diligence turns up. So the term sheet should settle everything that matters to you: the split between cash and deferred money, the size and length of any escrow, how the earn-out is measured, the founder’s own role and the terms for the team. Keep exclusivity short, ask for thirty to sixty days, and tie it to a timetable. The YC guide suggests pushing for a closing period of about thirty days; Indian deals with regulatory steps often take longer, so agree the dates in writing.
Two Indian approvals can set the calendar. Deals above a deal-value threshold of ₹2,000 crore need the Competition Commission’s approval under the Competition (Amendment) Act, 2023, which also cut the Commission’s time limit to 150 days. And where the buyer is foreign, the RBI’s Master Direction on foreign investment allows up to 25 per cent of the price to be deferred, escrowed or covered by an indemnity, for no more than eighteen months. That cap shapes how a cross-border earn-out can be written. Both were checked in October 2026; your lawyer should confirm them for your deal.
Earn-outs, escrow and the price you will actually be paid
A headline price is a sum of promises with different odds. Cash at close is certain. An escrow, money held back against warranty claims, usually comes back but not always. An earn-out pays only if the business hits targets after the sale, measured on accounts the buyer now controls, by a team the buyer now manages, under a strategy the buyer can change. The figure below puts odds and waiting on each part. The odds are not facts; they are your honest guess, and making the guess explicit is the point.
With the defaults, a ₹150 crore deal is worth about ₹120 crore on signing day, roughly 80 per cent of the headline. Lower the earn-out odds to one in four and it falls to about ₹110 crore. Raise the cash at close to 80 per cent, and even at the same odds the deal is worth about ₹137 crore. That is the trade to look for: a lower headline with more cash is often a better offer than a higher headline built on targets.
If an earn-out is unavoidable, negotiate its definition as hard as its size. Measure it on something the founder can still influence, such as revenue of the acquired product rather than group profit. Write down what the buyer must provide: headcount, budget, access to its sales force. Agree what happens if the buyer changes strategy, merges the unit or sells it: the usual protection is acceleration, the earn-out paid in full. And agree who calculates it and how a dispute is settled before anyone needs to know.
Leverage lives before exclusivity. Settle the structure while you can still walk away, and value every deferred rupee at its honest odds.
Running the company while it is being sold
A sale process is a second full-time job layered on the first. Diligence requests arrive by the hundred, lawyers need answers at night and the founder carries a secret from most of the team. Two failures are common. The business slows because the founder’s attention has gone elsewhere, which hurts the price and, if the deal collapses, the company. And the founder’s health slides under weeks of short sleep and constant uncertainty, which is not a badge of commitment.
Protect against both. Name a deal team of two or three people: usually the founder, the finance lead and one other senior person. Everyone else keeps running the plan. Hold a fixed weekly slot for the deal rather than letting it eat every day. Keep the [weekly metrics review](/library/weekly-metrics-review-one-page-one-hour) going as if no sale existed, because a buyer will notice a quarter that slipped. And keep sleeping and exercising on purpose; the [lesson on health over a long race](/library/health-sleep-exercise-ten-year-race) applies with extra force here. If the strain turns into weeks of poor sleep, dread or low mood, talk to a doctor or counsellor. Tele-MANAS on 14416 is free and answers at any hour.
The YC guide warns that deals often fall apart during diligence and that a founder should be ready to walk away until the money has arrived. Plan for that outcome as a real one. A company that kept growing through a failed process is worth more to the next buyer. A company that stalled is worth less to everyone.
The integration year
For the founder who stays, the hardest part often begins after closing. The company becomes a division. Decisions that took an afternoon now need three approvals. The team watches the founder to learn whether the promises made during the deal were real. Some of the best people leave in the first year, often because nobody told them clearly what their new world looked like.
Prepare the integration before signing. Agree the first hundred days with the buyer in writing: reporting lines, who decides the product roadmap, which systems change and when, what happens to the brand. Tell the team on announcement day, in person, what is changing and what is not, and give every person their new terms in writing within a week. Name an integration lead on each side. Then keep a short list of the promises made to the team, customers and the founder, and check it every month with the buyer. Promises that drift in month three are much easier to fix than promises discovered broken in month twelve.
Be honest with yourself about fit. Some founders flourish with a larger company’s reach. Many find the second year inside someone else’s structure hard, and a lock-in tied to deferred money can make leaving expensive. Know your own exit terms inside the deal: what you forfeit if you leave early, what your non-compete covers and for how long.
The deal calendar
Run the sale on a written calendar the board can see. Before any talks: a clean data room, a cap table and waterfall your lawyer has checked, a list of what you will not trade on the team’s behalf. Before the term sheet: a second bidder or a credible plan B, and the structure modelled at honest odds with the figure above. At signing the term sheet: exclusivity of no more than sixty days, with dates for diligence, documents and closing. Every Friday during the process: one hour on the deal with the deal team, and the business review as usual. Before signing definitive agreements: the integration plan, the team’s terms and the earn-out definition in writing. Monthly for the first year after closing: the promises list, reviewed with the buyer. Then, when the year is done, turn to the [year after the exit](/library/what-to-do-after-the-exit).
Nothing here is legal, tax or investment advice. Regulatory thresholds were checked in October 2026; take any sale to a lawyer, a chartered accountant and the board.
Sources
- Y Combinator blog, The Founder’s Guide to Selling Your Company, 10 November 2014 (as republished by Justin Kan) — Do not enter talks unless ready to sell; first offer rarely best; leverage before the term sheet; bankers 1 to 2 per cent of deal value; target a thirty-day closing.
- PRS Legislative Research, The Competition (Amendment) Bill, 2022: deal value threshold of ₹2,000 crore; Commission’s time limit cut from 210 to 150 days (checked October 2026)
- Reserve Bank of India, Master Direction – Foreign Investment in India, updated to 15 June 2026: paragraph 7.9.1, up to 25 per cent of consideration deferred, escrowed or indemnified for up to eighteen months (checked October 2026)
- Press Information Bureau, Update on National Tele Mental Health Programme (Tele-MANAS), 4 April 2025 — Toll-free 14416, 24x7.