Hi,
We have a proposal to acquire a startup that has been funded substantially (Till Series A) but has not been significantly profitable.
The startup is an excellent fit for our long term goals. and would boost its and our capabilities. Hence the owner is willing to sell the company.
Any ideas on how to evaluate and acquire this startup? Cashflow based finance is ruled out.
How to acquire a funded startup

by a searcher from Washington University in St. Louis
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The founder may wish to sell and move on, but depending on how much of the company he or she has given away, in addition to voting and shareholder rights as dictated by the company's COI, may not be able to make this decision. Assuming the founder can make this decision, given shareholder rights, the series A preference stack, hurdle rates, senior debt, how much will the founder net out if you pay $15M or $25M... enough to move the needle? (caution that you will be negotiating against ownership bias here) Even if the founder has sufficient voting rights to exercise a change of control, the founder may seek a strategic option instead of selling altogether, as doing so at such an early stage may strike a black mark on his/her ability to raise venture funding again in the future (depending on the founder's relationship with investors). If it's the board or lead investor that wishes to sell, then critical to understand this same exit waterfall... how much would these shareholders make on their Series A investment? If these are savvy venture investors, even getting back 3x on a series A investment may not be enough to entice them to get out if there is a possibility that they could still make 100x in a few years, unless they are fatigued / lost faith in the founder / long in the tooth between fund cycles. They may be willing to get out for a discount if the rest of their portfolio has performed (i.e. motivated to get their time back), or they may wish to carry their shares into a strategic merger (i.e. motivated to find new leadership).
Net - you really need to understand the cap table and perspective of the key stakeholders.