When General Mills announced plans to buy Annie’s, the maker of rabbit-shaped mac and cheese, howls of protest were felt quicker than a toddler without his favorite carbs. How could Annie’s, a company known for its opposition to genetically modified foods, sell to a giant food conglomerate that says GMO foods are not just harmless, but smart?  True, “The General” agreed to let Annie’s maintain its non-GMO stance. And the selling price of $820m didn’t hurt.  But Annie’s is the just latest example of a beloved startup that chooses to sell itself to a big company. You can say it began when Ben and Jerry’s was bought by Unilever. Like General Mills, Unilever is on record as opposing letting consumers know when it’s using GMO foods. Ben & Jerry’s, in contrast, is on the opposite side: it in the process of transforming its flavors to non-genetically modified ingredients and created a new flavor, Food Fight, to raise money to support a Vermont law on GMO labelling.  Cult brands get sold. But what happens in the process is instructive for every small business owner and entrepreneur who has considered giving up control to ensure his or her company grows.  Iams pet food was bought by Procter and Gamble. Tom’s toothpaste is now part of Colgate-Palmolive. Honest Tea became a wholly owned subsidiary of The Coca-Cola Company. Most recently, Tom’s, the company that donates a pair of shoes to a needy child for every pair it sells, agreed to sell half of itself to private-equity firm Bain Capital (of Mitt Romney fame) to fund an expansion of its operations in the US and overseas. And both parents are wise enough to leave the kids alone.  Some entrepreneurs believe a company is forever. Others see it this way: selling your company one day is the whole point.  “When you start a company, you’re building it for success and for acquisition partners to come to you,” says Nadeem Kassam, who sold his start-up Basis Science to tech giant Intel.  Kassam, a former entertainment industry executive, started his company in 2004, but didn’t come to Silicon Valley until 2010. As he was raising money from venture capitalists for Basis, he realized he would have to prove his credibility. His co-founder was a techie, so that went some way to allaying the fears of the VCs.  “I had a record of success in the entertainment industry but not in Silicon Valley, so it was an uphill battle to sell myself and the product,” Kassam says.  He persevered in that early experience not just to get the funding, because he wanted the company to attract the attention of influential potential buyers early. “Ideally, by building a company that captures market share, you will turn the eyes and ears of some of the big boys,” Kassam says.  “The investors you have in your company are critical for your future success,” Kassam says.  The plan worked. “Intel came to the company in the B round and that is when firms like Google, Samsung and Apple began to take notice. And that is when Intel began to consider taking us in-house.”  The course of mergers and acquisitions never did run smooth, however. Food brands, unlike tech ones, establish close relationships with consumers, and a merger can feel like a betrayal to loyalists.  Honest Tea, a beloved maker of iced tea drinks, felt the wrath of customers when the company sold itself to Coca-Cola. In 2008, Goldman and Nalebuff sold 40% of the company to Coca-Cola for $43m. In 2011, they sold the remainder of the company to Coca-Cola for an undisclosed amount. The Organic Consumers Association called for a boycott of Honest Tea and all Coca-Cola products, “because Honest Tea’s parent company, Coca-Cola, spent $3.2m to defeat GMO labeling initiatives in California and Washington state.”  “People put our product in their bodies. So the consumer does connect on an emotional level to food brands. Any time an entrepreneurial brand becomes part of a large company, you will have points where they two parties are not going to see eye to eye,” says Seth Goldman, the “TeaEO” of Honest Tea.  “I have a response I give to people that explains our position on issues and more often than not, the customer who thinks for himself or herself will listen to your side,” said Goldman. “They might still boycott your product but at least they listened.”  Authenticity and bootstrapping is a creation story that’s important to many customers. Honest Tea had that. Goldman co-founded in 1998 with Barry Nalebuff, his professor at the Yale School of Management. Goldman quit his job at Calvert Investments, and started brewing batches of tea in his kitchen. Neither he nor Nalebuff had experience in running a business, but raised $500,000 from their families.  “We put our own money in and both of our parents did as well; and received money from people who would invite back for Thanksgiving; even if we lost their money,” said Goldman.  He then brought thermoses of tea and a recycled bottle with a mock-up label to Fresh Fields, which is owned by Whole Foods. Fresh Fields ordered 15,000 bottles. By 2007, Honest Tea had become the best-selling “natural foods” tea and it was approached by large, multi-national food and beverage companies who were interested in buying the firm or making strategic investments. By then, Honest Tea had become the best-selling tea in the natural foods channel. Grocery chains and other distribution channels were interested in the product and the company needed a distribution solution.  Goldman felt Coca-Cola, a minority investor for three years, was the way to get there. The investment gave the two companies time to get acquainted. He believes the sales numbers vindicate him.  “Coke invested in us due to the equity we had in the natural foods market place. In our first 10 years, we sold 112 million bottles. In the subsequent six years since the Coca-Cola investment, we have sold 888 million bottles.”  Earlier this year, Chicago entrepreneur Brad Flora sold his latest venture, Perfect Audience, to Marin Software for $23m. “We weren’t looking to sell the company. Companies are bought, not sold,” he says.  Marin approached him about an acquisition in November 2013. Flora said he was open to it “but not seeking it out expressly.” By February 2014, the company was evaluating several offers.  Even with the early approach from Marin, talks were complicated.  “Marin made several offers before there was one that made sense given our growth and other options. That process took months of discussions and was very difficult,” Flora says.  What settled it: the acquirer promised to be a good steward of the company Flora built. “In the end, Marin made us an offer we just couldn’t refuse in terms of bringing our product and business to a much wider audience and making an offer that reflected the work we’d done,” he says.  Kassam says he chose Intel in part for the same reason: “We were approached by numerous firms but Intel kept the team and offices intact.”  “The entrepreneur has a dilemma when selling to a larger company,“ said Kassam. “If you see you are reaching a certain stage, it would be responsible to sell.”
When a big firm comes knocking, should entrepreneurs sell? A few life lessons in how to react when Intel, Coca-Cola or other giants take an interest