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Ask HN: Acquihire early stage bootstrapped SaaS advice

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Ask HN: Acquihire early stage bootstrapped SaaS advice

#1
Hi,

I'm running a bootstrapped SaaS service in the software engineering space. It's really early and slowly getting some traction. A pretty big player in this market has approached me about a possible acquisition / acquihire. My service would become part of their portfolio of services. I've had talks with C-level and we're moving to a technical due diligence. I'm open to an offer, depending on the terms of course. Any tips from people who went through the same process? Should I have an NDA in place for the DD? Thanks!

Re: Ask HN: Acquihire early stage bootstrapped SaaS advice

#2
Haven’t been through an acquihire process myself, but I am familiar with this sort of thing.

Yes, you should have an NDA and other agreements (e.g. an MoU) before you divulge serious details. Think of it like this: there are two possiblities, and you can’t know in advance which is true: 1)BigCo is acting in good faith, 2) BigCo is acting in bad faith. In the first you have nothing to worry about. But if it is the second, after they’ve figured out exactly how you’ve implemented things, what exactly stops them from having their own techs build in a few weeks/months? An NDA/MoU or any other agreement doesn’t mean you’ll definitely sue them if they screw you over (mainly because you’re not that rich), but it will give them just cause to think long and hard before doing so. If you have signed paperwork validating your stand, you can (theoretically, but also practically) raise a stink about the whole business, if they turn out to be “dishonest”.

The more potential leverage (i.e. legal documents) you have, the greater the opportunity cost for them to screw you over - much easier to simply buy you out instead of copying your tech, and risking a furore in the media, and possibly with customers.

Understand that this is just business - just cost and benefit. They obviously have much to benefit from your tech, else they wouldn’t be pursuing you. Make sure the potential cost of possibly screwing you over is high enough. If it is cheaper for me to simply copy you and profit, and know that you can’t do a damn thing about it, I’d be damn stupid not to.

That being said, don’t be a dick to an acquirer if you want to get acquired. Be upfront and ask for the paperwork. Call it a proof of good intentions. If they are genuine, they’ll appreciate your situation and arrange it quickly. If they don’t that’s your first sign of trouble.

Good luck.

Re: Ask HN: Acquihire early stage bootstrapped SaaS advice

#4

Haven’t been through an acquihire process myself, but I am familiar with this sort of thing. Yes, you should have an NDA and other agreements (e.g. an MoU) before you divulge serious details. Think of it like this: there are two possiblities, and you can’t know in advance which is true: 1)BigCo is acting in good faith, 2) BigCo is acting in bad faith. In the first you have nothing to worry about. But if it is the sec…

A corollary to this great answer, which I hope is apparent, is to get a lawyer who has experience with this sort of deal. A good one will be able to advise you through the whole process and tell you when they see red flags. Worst case you burn a few thousand dollars to prevent being taken for more. Think of it like insurance in that case.

To put it another way, it's usually cheaper to hire a lawyer to avoid a dispute than to resolve one.

Re: Ask HN: Acquihire early stage bootstrapped SaaS advice

#5
You should already have an NDA in place preferably including a non-solicitation clause, usually that comes first. After that you should have an LOI in place. After the LOI and before signing a purchase agreement, you'll go through DD. Even at that, you should hold back your IP until the Nth hour and you have a final version of the purchase agreement if you think that there's IP that they could steal and recreate to put you out of business.

Obviously, you should speak to a transaction lawyer too.

Re: Ask HN: Acquihire early stage bootstrapped SaaS advice

#8
post #4

Haven’t been through an acquihire process myself, but I am familiar with this sort of thing. Yes, you should have an NDA and other agreements (e.g. an MoU) before you divulge serious details. Think of it like this: there are two possiblities, and you can’t know in advance which is true: 1)BigCo is acting in good faith, 2) BigCo is acting in bad faith. In the first you have nothing to worry about. But if it is the sec…

A corollary to this great answer, which I hope is apparent, is to get a lawyer who has experience with this sort of deal. A good one will be able to advise you through the whole process and tell you when they see red flags. Worst case you burn a few thousand dollars to prevent being taken for more. Think of it like insurance in that case. To put it another way, it's usually cheaper to hire a lawyer to avoid a dispute…

Parent's and your advice make a lot of sense. I have a lawyer that is in this space, luckily. They are in the loop. I was just curious of other experiences from the HN "hive mind".

Re: Ask HN: Acquihire early stage bootstrapped SaaS advice

#9

I would first set a sell price and ask a 15% diposit before due diligence. If due diligence fails, you keep the diposit, if DD succeeds, you get the remaining 85%. This is a good test for good faith and allows you to offset bad faith.

This is good advice. Even if things aren't along far enough to even talk about a sell price, choose some portion of money that you think of as a small slice of that likely sell price, and ask for it as a deposit... before diligence.

There's a chance that this will drive away a potential acquirer, who may indicate that they are horribly offended by such a request.

That is a good thing. A company offended by the request to put down a slice of the money up front (before they get to see all your private details in diligence!), is likely either just shopping for information, o to be a big pain later in the process. A company who haggles about the deposit but agrees to pay something, likely is a serious buyer with whom you can reach a mutually agreeable outcome.

Re: Ask HN: Acquihire early stage bootstrapped SaaS advice

#10
Understand that your compensation can take many possible forms. It's all up for negotiation. Don't hamstring yourself by assuming you must be paid in cash, or that the payment must all be upfront, etc. Consider the myriad other possible options and variables that you can tweak to get the the outcome you desire. If you can, talk to people who can help you ballpark what a reasonable level of compensation is for others at the company in roles similar to yours.

If the process goes far enough (i.e. you like the offer), get a lawyer. I got a lawyer when my company was acquired, and she was great. She'd seen similar deals in the past, and she worked very hard over the course of a month to look out for my interests. There are all sorts of little clauses in this type of paperwork that are negotiable and worth negotiating. In the end, her bill turned out to be something like $2,500, which was more than worth it. I was expecting 4-5x that.

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