What Happens When a Startup Gets Acquired: The Full Process

Every year, thousands of startups are acquired. For founders, employees, and investors, an acquisition is the event that determines whether years of work translate into meaningful financial outcomes. But most people inside a startup — even senior ones — have little idea what actually happens during the process.

Acquisitions are long, legally complex, emotionally turbulent, and full of moments where a deal can fall apart. Here's a complete walkthrough of what actually occurs.

How Acquisitions Begin

Acquisitions rarely begin with a formal offer. They almost always begin with a relationship.

The typical path: a business development executive at a larger company has been tracking a startup for months. They reach out to the founder through a mutual contact, or they've met at a conference, or they're an existing customer who's been impressed by the product. The initial conversation is almost always framed as a partnership discussion — a way to explore working together — rather than an acquisition conversation.

Sometimes the founder initiates. When a company is struggling to grow, running out of runway, or simply reaches a point where the founder believes the product would be better positioned inside a larger organization, founders sometimes proactively approach potential acquirers.

Bankers also play a role. Investment banks that specialize in M&A (particularly boutiques like Qatalyst, Allen & Co., or Centerview) are sometimes hired by startups to run a formal sale process — reaching out to multiple potential acquirers simultaneously, running a structured competitive process to maximize price.

The Letter of Intent (LOI)

After preliminary conversations establish mutual interest, the acquiring company provides a Letter of Intent (LOI) — also sometimes called a term sheet or indication of interest.

The LOI is non-binding (with a few key exceptions) and covers:

• Purchase price and structure: Total consideration, and whether it's cash, stock in the acquirer, or a combination. Most startup acquisitions involve some cash and some stock.
• Treatment of equity: How existing preferred stock, common stock, and options will be treated in the transaction.