A corporate acquisition is when an established company buys a startup or peer — usually to add product capability, customers, or talent faster than building in-house.

How it works

Deals take several forms. In a stock purchase, the buyer acquires the target’s equity and inherits its liabilities. In an asset purchase, the buyer picks specific assets and often leaves certain liabilities behind. A merger combines two entities into one surviving company.

Price is negotiated from revenue multiples, strategic value, and competitive tension. Earnouts tie part of the payment to post-close performance. Employee retention packages and founder lock-ups are common when the buyer wants the team to stay.

For venture-backed startups, acquisitions typically require board and preferred-stockholder approval. Liquidation preferences determine how cash splits among investors, founders, and employees.

Why it matters

• Founders: Know your realistic acquirers early. Product fit with a strategic buyer’s roadmap often matters more than headline revenue.
• Investors: M&A is the most common exit for venture-backed companies. Funds model return scenarios assuming a mix of acquisitions and occasional IPOs.

Common mistake

Assuming any large company in your sector will buy you at a premium. Without a clear product or customer overlap — and without a champion inside the buyer — deals stall or price at modest revenue multiples.

Related ideas

See also change of control, bolt-on acquisition, earnout, and letter of intent.