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Ask HN: Early startup valuation for acquihire?

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Ask HN: Early startup valuation for acquihire?

#1

Post by etsll »

I've been bootstrapping a company by myself and have gotten some traction but it is still very early. Now another early stage company in the same space is interested in purchasing my company. Their primary interest is in getting me on the team, (and I suspect eliminating future competition) not the product or technology per se.

They're better funded and I'm getting tired of working by myself, so joining up with them sounds appealing. However, I don't know how to come up with or evaluate fair terms.

I'm mostly trying to determine a dollar amount assuming I also get 10-20% of their company and a small salary. They have asked me to suggest a number but I don't know how to come up with one that's fair.

Any advice?

Re: Ask HN: Early startup valuation for acquihire?

#2

Post by late2part »

Here's some advice: The word "fair" stopped making sense in kindergarten. You don't get what's fair or what you deserve, you get what you negotiate.

Now, having said that, you have to determine your goals and how to synthesize an ideal set of negotiating levels.

Typically these levels are:

  1.  Possible Best Case
  2.  Likely negotiated agreement
  3.  Worse you'll take (walk away below)
  4.  BATNA - Your "Best Alternative to Negotiated Agreement."
There are several methods used for calculating acqui-hire or acquisition:

  1.  Comparables on metrics such as revenue, profit, market share, impressions, downloads, average daily/monthly users
  2.  The company's (buyer)'s budget - "Well all we have is this"
  3.  The sellers demands (I won't sell for less than this)
If I were looking at buying you, I'd consider it fair if I Can "buy" you for less than you'll make me, including opportunity costs.

You're going to have give out more (anonymous) details before most people can help you too much:

  1.  Are you a 1-man shop?  Including contractors?
  2.  How many people at acquirer?
  3.  How long have to both been in business?
  4.  How much revenue do you both have?  How much profit?
  5.  What guarantees do you want if you're hired?  What agreements are you willing to make (i.e. non-compete)
If you're a one man shop with an app that's generated $30k this year, I'd buy you for $60k and pay you $140k with a non-compete for 2 years. I don't know if you thin that's fair, but it would be to me.

Remember, a negotiation is a game in which both people agree things are fair, or both people agree that they get screwed equally.

After the negotiation, if you have to work with the person, then try to focus on the former case.

Re: Ask HN: Early startup valuation for acquihire?

#4

Post by anatari »

As a 3rd party without detailed knowledge of the space and each company's position it's hard to say. Here is a possible framework for you tho.

Since you are basically asking for co-founder level equity in the merged company, pretend that you were working there the whole time when you were working on your own startup. The acquisition cost is the amount of salary you would have drawn.

Re: Ask HN: Early startup valuation for acquihire?

#5

Post by sjbase »

First off, congrats on generating that level of interest!

The valuation of your company is going to take into account how much has been invested so far and potential for future growth (among other things). Since it sounds like you haven't had any investors, you'll want to figure out ways to quantify investment so far. Put together a spreadsheet. Don't necessarily show it, but use the sums you come up with as rationale during negotiation.

Some ideas along that line: -Quantify your personal time investment: add up the value of the time you've put in, including opportunity cost. If you didn't build this company, what could you have earned doing consulting? -Quantify your traction: if this includes revenue from customers, project how much those customers will earn for your company over the next few years and add that to the total value of the company.

Good luck!

Re: Ask HN: Early startup valuation for acquihire?

#7

Post by codingdave »

I would turn it right back around and tell them to make you the offer. You (probably) have no idea what is going on internally with them, so you don't know the full value you bring.

It doesn't even have to be a negotiation tactic - just tell them the same thing you posted here. You aren't sure what would be fair, and are not sure what number to respond.

Really, they are coming to you - let them do this part of the work, so you don't waste your time until you even know if you are talking in the same ballpark.

Re: Ask HN: Early startup valuation for acquihire?

#8

Post by pbiggar »

It all depends on the circumstances. Is "early-stage" mean they have $1m in the bank, or $10m, or $100m? Do they _need_ you, or are interested in a hire?

I think if they're early stage enough that you might get 10-20% (btw, 10% is optimistic), then there's no cash available (apart from a small signing bonus like 10-20k).

But really, you need to talk through the actual numbers with someone who has been more of an idea. Do you have advisors? If not, happy to help: my email is in my profile.

Re: Ask HN: Early startup valuation for acquihire?

#9

Post by brudgers »

They're better funded

If their funds are from outside then the founders and employees are also less in control. In addition, it does not mean that they are executing better or have a better product.

not the product or technology per se.

That does not mean that the price should not reflect the value of these things because it is not as if you will retain their value after an acquisition should it occur. This is especially salient if any of your compensation will be in equity in the current competitor because shutting down your product potentially enhances the value of theirs.

eliminating future competition

If this is obviously one of their motives [which is different from an assumption that it is] it is a red flag because it means the founders and controlling interests are focused on the wrong thing: something other than execution.

fair terms

If you think its fair, then its fair. Be willing to stick with that decision and learn from any of the outcomes [money left on the table, no deal, and everything working out so that you feel it's fair 50 years from now]. As you note, not working alone has some value to you but nobody but you can assess it right now or in two years.

Good luck.

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