When should a start-up/venture capital company engage an investment banker to initiate a company buyout?

Are you buying or selling? They say (and it's quite true) "companies aren't sold, they are bought." So, if you have "inbound" interest - people wanting to buy your company, you should start with your counsel for their insight, and if a banker is needed b/c you want to broaden the field by adding other potential buyers, get that going fast. This is the good condition to have.

The not so good condition is when you have to sell your company and no one is knocking on your door to buy it. Then most bankers will tell you it will take 6 months plus, and they need a retainer plus a piece of the deal. Selling a company from a standstill is a long process. If you are under duress, it's really tough and most potential acquirers will simply wait for you to die and then pick up the assets. If it's a $5M or better yet $10M or above going concern with decent earnings, you'll have a better shot at making a sale actually happen, but it will still take many months to prepare sale presentations, build the target list with your banker and then go out and have the discussions with prospects. Then there is the interminable back-and-forthing if you are able to get someone on the hook. So, the sooner the better in that case. Best of luck!

I assume the start-up would be selling.

I will also agree with John K's input, noting it is both realistic and probably troubling. However, if the seller does have the ability, or rather time, to proceed without undue duress, then I would say they should bring a financial advisor when they want to get going; serious; with a potential sale. It depends on the circumstances and each situation is different, but usually the sooner the better.

This is a complicated decision with so many factors to consider but In general.....the LONGER you can hold on and grow the company, the better for it's price. There is a point in time when your internally generated funds will not be enough to have optimum growth. Your runway and your growth plans have much to do with the decision on when to start the process.

Having said that....(and as John has alluded to) the best time to look for funds investors or look for buyers is WHEN YOUR SURVIVAL DOES NOT DEPEND ON THEM.

A long-term strategy with participation from the beginning can attract investors who are looking for a sale and investors who are looking for dividends on a longer-term basis. So make sure your growth is strategic and that the company has strong fundamentals, strong EBITDA, and strong cash flow.

It makes sense to bring in a strategic investor early on if your company wants to benefit from the advice and counsel of the investor. This can be a mutually beneficial arrangement because risk is higher for an investor coming in at the beginning, but the opportunity to give advice and counsel decreases risk for the investor.