Exits & Liquidity
Acquisition
A transaction in which one company purchases another, either for its technology, team, customers, revenue, or strategic position — the most common exit path for venture-backed startups.
An acquisition is when one company (the acquirer) purchases another (the target), gaining control over its assets, team, technology, customers, and intellectual property. Acquisitions are the most common exit for venture-backed startups — far more common than IPOs — and can take many forms depending on the acquirer's motivation.
Strategic acquisitions occur when a larger company buys a startup to gain technology, market position, or customer access. Acqui-hires are acquisitions primarily motivated by talent — the buyer wants the team more than the product. Financial acquisitions are driven by revenue or cash flow multiples, more common in private equity.
The acquisition process typically involves: initial conversations or banker-run process, Letter of Intent (LOI), due diligence (legal, financial, technical), purchase agreement negotiation, and closing. Acquirer due diligence can take months and uncover issues that reduce the final price.
In Practice
Google acquires a 50-person computer vision startup for $120M. The startup had $5M ARR but the acquirer values it at 24x revenue because the technology accelerates Google's autonomous systems roadmap by 2–3 years. Founders and early investors receive cash at closing; employees' unvested equity accelerates per acquisition terms.
Why It Matters
Acquisitions are how most VC outcomes actually happen. Understanding the mechanics — including earnouts, representations and warranties, escrow holdbacks, and employee retention packages — is critical for founders navigating an exit. The headline price and the amount that ultimately goes to founders/employees can differ significantly.