Build to Sell vs Build for Value

Why companies are bought, not sold.

In my experience as both an investor and a former operator, I’ve seen countless founders celebrate a “headline exit” only to see the actual cash-at-hand dwindle to a fraction of the original number due to poor preparation and structural pitfalls.

M&A isn’t a victory lap; it is a clinical audit of your life’s work. If you haven’t prepared your business to be a “unit of account” that a buyer can seamlessly integrate, you aren’t selling a company - you are selling a liability.

Here is the blueprint for building to be acquired and maximizing value.

1. The IPEV Reality Check: Bridge the “Valuation Gap”

Venture valuations are often based on “potential” and “momentum.” M&A valuations are based on Fair Value as defined by the 2025 IPEV Guidelines: the price at which a market participant would transact today.

The most common pitfall? Operational Debt. If you are still running on cash-basis accounting or “pro-forma” metrics that don’t align with GAAP, you are handing the buyer a 20% discount on a silver platter. They will call it a “risk premium” or a “diligence adjustment.”

The Actionable Fix:

• Audit 24 Months Early: Don’t wait for the LOI to find your first Big Four auditor. Transition to GAAP-compliant financials now.

• Quality of Earnings (QofE): Commission your own QofE report before you even talk to a banker. It identifies “leakage” in your margins before a buyer uses them against you in negotiations.

2. Kill the “Hero Founder” Myth

A buyer is (usually) looking for a machine that produces predictable output, not a cult of personality. If the CEO is still involved in every $50k sales closing or every product roadmap pivot, the business is unbuyable.

The pitfall here is Key Person Risk. If you are indispensable, in the best case the buyer will lock you into a 3-to-5-year earn-out. You’ll be an employee in your own house, and your final payout will be tied to targets you may no longer control.

The Actionable Fix:

• The “Vacation Test”: Can the business grow for 30 days while you are offline? If not, your next hire isn’t a VP of Sales; it’s a COO.

• Institutionalize Knowledge: Move proprietary “founder-held” relationships into a structured CRM and a robust leadership layer. Your goal is to be the least important person in the room during a technical diligence call.

3. Clean the “Operational Fabric” (IP & Legal Moat)

In the age of AI and collapsing product-service barriers, your proprietary data and IP are your only true moats. Yet, many deals stall because of “Legal Poison Pills.”

The Actionable Fix:

• The IP Mini-Audit: Ensure every contractor and employee agreement since Day 1 explicitly assigns IP to the entity.

• Open Source Hygiene: In AI-driven SaaS, “copy-left” licenses can be a deal-killer. Conduct a Black Duck audit (or similar) to ensure your code isn’t tethered to restrictive licensing that would prevent a buyer from integrating it.

• Customer Concentration: If one customer represents >15% of your revenue, you don’t have a business; you have a contract. Diversify early or prepare for a massive “escrow” holdback.

4. Negotiate Structure, Not Just Price

Founders obsess over the “Enterprise Value” (EV) on the front page of the LOI. Professional buyers obsess over the Net Working Capital (NWC) peg and Indemnification Caps.

The Pitfall: You sign for $100M, but the buyer sets an unrealistic NWC target, effectively clawing back $20M at close. Or, they insist on a “Survival Period” for Representations and Warranties that lasts three years.

The Actionable Fix:

• Focus on Certainty of Close: A $80M all-cash deal with a 10% escrow is objectively superior to a $100M deal with 40% tied to “future milestones.”

• R&W Insurance: Use Representation & Warranty insurance to shift the risk to a third party. This allows you to walk away from the closing table with “clean” cash, rather than leaving a massive chunk of your net worth sitting in a buyer’s bank account for years.

The Final Take:

The market has shifted from “growth at all costs” to “verified value.” To maximize your exit, you must treat your company as a product itself. The “UI” of your company is your leadership team; the “Backend” is your audited financials; and the “Security Layer” is your IP hygiene.

“The best companies are bought, not sold—but only the cleanest companies are paid for in full.”

If you want the premium, stop building for the next round of funding and start building for the final audit.