I am a software developer half-way through the design and prototyping of what I believe will be a very successful new software product.
Soon I will begin development, and am currently planning on being launch-ready by early 2014. My game plan is to deploy to a Platform-as-a-Service (PaaS) provider using a free tier of service, so that the product can sink or swim without costing me a dime in hosting costs. Other than the formation of my 1-man LLC (less than $1,000 USD), and a few other petty expenses, the startup will be very cheap.
My "end game" strategy with this product would be to gain quick success right out of the starting gate, have strong, demonstrable growth, and be acquired early on, hopefully only after a few years.
Not being a "business guy", and not knowing what the right etiquette is here, I need to start planning for the contingency that everything goes according to plan (!), and that several years from now I have a solid product that could be easily acquired for a healthy profit.
How does one kickstart this process? I've heard the term Letter of Interest before, but usually only with regards to when Company ABC wants to buy Company DEF; they send a "Letter of Interest" expressing interest in acquiring DEF for $X amount of money, and under Y terms.
But here, I want to be in a position to reach out to prospective acquisitioners and say "Hi, we are Company DEF, we are worth $X and have Y finances, would you like to buy us? "
How does this scenario usually unfold in the real world? Thanks in advance!
In terms of your planning for getting purchased, my personal opinion is this is absolutely bottom of your list of things to worry about. You haven't started yet, you're getting ahead of yourself.
Just make sure your company is formed correctly, everything you do is legal and that the company clearly owns whatever is created.
My advice would be forget chasing that buyout and concentrate on product, product, product. I understand coding takes time, but I'd suggest taking a knife to non-critical features. Don't assume what you're building is the right thing. Get it out to as many people as possible as early as possible and listen (really listen) to what they say about it.
Don't offer them it for free, tell them "this is the full price, would you buy it? No? Why not?".
When building a company you need a vision of what you want to achieve and a strategy of how you want to get there (and getting purchased isn't a vision).
Your financial plan is completely unrealistic:
Do you see what's common to everything I wrote above? you have to spend money, lots of money, you have to pay lawyer and accountants, you have to spend money getting users, you then have to pay even more money servicing those users and you have to keep spending money until some large company notices you and decide it might be nice to acquire you.
That is why most large acquisitions are of VC-funded companies - to get big enough to be worth acquiring by the Googles of the world you need to spend tons of money.
On the other hand, the "bootstrapped" model is to start small, charge customers early and grow slowly using money from earlier customers, this let you start a business with no (or very little) external funding and get to the point your business can support you and your family relatively quickly - but it will take you a loooooong time to get big enough to be acquire-worthy.
If you try to start a bootstrapped business but try to act like a funded business (that is, get big fast) you will just run out of money and go out of business.
I agree with David, the buyout is a while away yet and you need to prove yourself first.
But to answer your question, IT DEPENDS on a lot of factors like
Which leads them to ask
There are agents that you can hire to discretely investigate and get the attention of your target buyers.
So when your thinking about a buyout the key questions are,
Which you come to by breaking it down into
The hardest bit for a techie like me to understand is that more than 95% of the time the technology really DOES NOT matter.
Unless you have an algorithm for predicting tomorrows stock market trends or finding oil from map data ... anything else a team of dedicated techies can rip off and improve on your idea in the same or less money than it takes to buy you out.
So that is NOT what your selling.
Generally a "technology driven" buyout is because they couldn't be bothered and they want to expand their product offering without the hassle. This is often sales driven companies who have "forgotten" to invest in further R&D and now need something new to sell.
But more likely a buyout is because you have specific profile of customer (age, interest, geoloction) who pay money, swell the ranks, provide data or look at advertising.
Summary Its the profile of customer (existing and potential) that has value ... so now when you build your cool idea, what are you going to build (and charge) in order to get the right profile of customer that makes your idea worth buying?
Now your in a position to be able to work out how you, an agent or other party (like a VC) may kick off the process.