Entering the acquisition process is one of the most dangerous things an early stage startup can do, because the process is distracting, demoralizing, and usually involves giving your competition most of your proprietary business data. Founders who have been through the process have said it is ten times as distracting as fundraising. It often cripples your ability to oversee the business operations. Do not enter into an acquisition process lightly.
As the startup, you have all the leverage before you sign a term sheet. Once you sign, you have almost no leverage at all. This is mental: before you sign a term sheet, you haven’t yet decided to sell. Once you do, you have committed to selling the deal to yourself, your employees and investors. Once you get negotiation fatigue — and maybe even before — you will start to agree quickly to things you wouldn’t have considered at the term sheet stage. Also, once you’ve signed a term sheet you can no longer shop your company to other acquirers. If your deal falls apart, other acquirers may have cooled off or think that the deal fell through because your company is damaged goods. It may be impossible to resuscitate your other options.
Once you have collected all your term sheets, you can sign one. Before you do, you should try to negotiate the business and legal points in as much detail as possible. Feel free to push back on exploding offer deadlines and other pressure to sign immediately. After you sign, you can expect any points that weren’t previously negotiated will end up with language in favor of the acquirer.