The Sell Side: Preparing for an Exit

By Kevin Vela

For most founders, building their company is one of the most significant endeavors of their lives – years of capital, time, and personal investment poured into a single outcome. But frequently, when it comes time to sell, they aren’t actually ready to sell. Sophisticated buyer inquiries and routine diligence processes put the founder in a position of being reactive, rather than proactive. This can materially harm seller value and delay exits, and can be very expensive to boot.

This is the intro post for a series we’re calling “The Sell Side.” Over the next several posts, we are going to walk through the dynamics that consistently disadvantage sellers in M&A transactions:

• Preparing to sell
• How “market” terms get defined
• Why PE buyers are structurally incentivized to squeeze your earnout
• Why the closer you get to close, the worse your judgment gets

We’ll end with a practical checklist for what you should be negotiating at the LOI stage, which is the primary leverage window you have, instead of leaving terms for later.

But before we get into deal dynamics, we want to talk about what happens before the deal. Specifically: keeping good corporate records and preparing your data room.

Start Earlier Than You Think

The best time to clean up your corporate history is not during a transaction. It’s six to twelve months before you expect to go to market – ideally longer.

I know that sounds like legal advice you don’t have the time or budget for, but here’s the practical argument: corporate clean-up done on your own timeline is dramatically less expensive than corporate clean-up done under a closing deadline.

To wit, when we (the lawyers) have time, I can put one junior associate on it. She works through the backlog independently, flags issues as she finds them, and I weigh in periodically to help prioritize and make judgment calls. It’s methodical and the cost is manageable, even predictable.

But when we’re under the pressure of a closing deadline, that math changes completely. Now I need multiple people working simultaneously, because there’s no time for a sequential process. More people means more coordination overhead, more handoffs, and more opportunities for something to fall through the cracks. There’s also a cost beyond attorney fees – what I’d call deal intelligence loss.

The more people you put on a deal, the more context gets diluted. Every attorney who touches a matter needs to be brought up to speed on the client’s history, the deal structure, what matters, and what doesn’t. Under time pressure, onboarding is rushed, and judgment calls get made without full context. You can try to mitigate it by putting three associates on every call so no one is ever out of the loop – but no one wants to pay for that, and it still doesn’t fully solve the problem. Some things are only understood by working through them yourself.

Corporate clean-up done well in advance avoids all of that. Minimal resources and maximization of deal intelligence.

What “Corporate Clean-Up” Actually Means

When I say “corporate clean-up,” I mean getting your legal house in order before a buyer starts asking questions. That includes:

• Making sure your formation documents are current and accurate
• Ensuring your entities are in good standing with the state
• Tracking down missing or incomplete signature pages on old agreements
• Confirming your equity cap table is reconciled and documented
• Identifying consents or approvals you’ll need to obtain before close
• Identifying risks in customer or vendor agreements
• Cleaning up IP assignments, employment agreements, or contractor agreements that weren’t papered correctly at the time

Most of it is straightforward. But it takes time to do it right, and it gets exponentially more expensive when you’re trying to close.

Your Data Room is a Signal

On top of the cost benefit of cleaning up your corporate docs ahead of time, a tight data room before an LOI is signed does something most sellers don’t think about: it shifts early leverage. Not dramatically, but meaningfully.

When a buyer’s counsel opens a well-organized data room – properly indexed, complete, and easy to navigate – it tells them something about how this deal is going to go. This seller has their act together. Diligence is unlikely to turn into a fishing expedition for the buyer’s lawyers and advisors.

That credibility changes how future issues get handled. And every transaction is going to hit speed bumps. For example – if your data room is clean and one document is missing a signature page, the buyer’s counsel will usually call me and say, “Hey, I think this sig page might be missing – can you track it down?” They assume it’s an oversight and move on.

The same missing signature page in a disorganized data room – or worse, in a stack of documents emailed over as attachments – gets treated very differently. Now it becomes evidence of a pattern and invites a much higher level of investigation. I’m overstating the legal conclusion a bit, but this is a key point for sellers to understand: a messy presentation invites scrutiny, and scrutiny finds problems. You don’t want an administrative gap turned into a negotiating issue because your data room looks like a shoebox full of your high school mementos.

A nice clean data room gives you the benefit of the doubt throughout diligence. When your presentation signals competence, gaps are assumed to be fixable. When it signals chaos, buyers start pricing in risk (which means that your purchase price goes down).

What This Series Is Actually About

Getting your data room right and your corporate history clean is the foundation of an exit transaction. Without it, everything after gets harder. But it’s only the beginning.

The dynamics that actually cost sellers money happen later – in the LOI, in the definitive documents, and in the post-closing period when the buyer has all the leverage and you have none. That’s what the rest of this series covers. Here’s a preview:

Post 2 – “Market” Isn’t Neutral

The terms buyers call “market” were defined by buyers. Sellers don’t have the data, the repeat experience, or the institutional framework to push back. Here’s how to deal with that.

Post 3 – PE Buyers Have One Job (And It Isn’t Yours)

PE firms are return-maximizers by design. Their incentive structure is not aligned with yours, and understanding that before you sign anything changes how you negotiate.

Post 4 – The Earnout Trap

How buyers flip seller-protective operating covenants into absolute discretion after close. The Krafton/Unknown Worlds case is a cautionary example of what that looks like at $250M.

Post 5 – Post-Close, You Have No Leverage

Why sellers capitulate on holdbacks and indemnification claims even when they have a solid argument. The structural imbalance is predictable.

Post 6 – The Psychology of the Close

The smell of money becomes intoxicating as you get closer to close; and that’s exactly when buyers push hardest for concessions.

Post 7 – Tips for Sellers: Negotiate Like Hell at the LOI

The checklist of what you should be locking in before you sign exclusivity, while you still have leverage. The LOI is where most sellers leave the most money on the table. 

M&A has its own vocabulary. If you run into a term you don’t recognize throughout this series, we’ve put together a full glossary at velawood.com/m-a-glossary/ that covers everything from LOI to holdback to earnout and beyond.

Questions about preparing your company for a sale? Reach out to us at Vela Wood – this is what we do every day.

About the Author(s)

Kevin Vela

Kevin is the managing partner at Vela Wood. He focuses his practice in the areas of venture financing, M&A, fund representation, and gaming law.

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