I can't recommend him personally but I'm always stunned by grellas' comments on HN regarding legal stuff (he's a Sillicon Valley business lawyer)[1]. Maybe you could get in touch... [1] http://news.ycombinator.com/user?id=grellas
He just stepped in:
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#62Shop around now. You have 1 offer. You're quite likely to get a much better offer (by either the current oferee (?) or another one), with just a few weeks of work. Shop around, for real. "Has (without saying so) implied that they make an offer and that is it" -> standard negotiation practice. Shop around, even if "selling" isn't your strong point. Practically, tell them you need some time to think this through. Then,…
Just to address this, we will not receive another offer. Period. It's annoying that I can't fully explain that without blowing our cover, but you'll just have to take my word on it :)
That's fine. This offer is still crap. Throw it in the garbage.
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#63drop me a line. i'm well versed in this process, the current environment, etc.
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#64I agree with the first comment here. You should never be afraid of consulting your lawyer or bankers/financial consultants. It sounds like they want to keep you in the dark if it really is as you describe. Also, if you are already profitable, then your need is probably more growth and market-oriented rather than selling, and you'd be better finding a partner who wants to help you guys grow rather than take away from you what you've built and giving you paper for it in return. In other words, helping you to build the value of your OWN equity/paper than theirs, which essentially you'd be doing if you sold and received more paper than cash. You built this business presumably because you wanted to work for yourselves and not the "man", so consult with lawyers and trusted others on how to get investment to grow and hang on to what's yours, and if they're that surprised you haven't had more offers, there are likely other partners that "feel" right. You don't have to put out for the first date that comes along.
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#65[deleted]
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#66Why would you vest an offer worth 3x revenue over 4 years unless your business was about to collapse? That's an atrocious offer as stated. You should get 3x earnings today (or some multiple depending on prospects and margins) and earn out more over 3-4 years.
Edit: Sorry I must be tired. This is a revenue multiple not income. Revenue multiples are not particularly helpful in valuing a company with a mature business model. Gross profit would be far more useful.
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#67How the hell do you have a 5-year-old, highly profitable company with multiple founders and $3MM - $10MM in annual revenues, and think that HN is a better place to ask this than to your attorneys and bankers?
He explained why-- he got the feeling that the professionals are trying to sell him a bill of goods, perhaps independently of an actual need, so he's coming here for a second opinion.
No, he said that they were being courted by attorneys and bankers who want the business. I understand why you wouldn't want to just take the first person who calls you. But he also asked if they should involve their attorney, which implies to me that they have one (they'd have to, right?). It just blows my mind that they're considering accepting an offer for possibly tens of millions and they haven't asked their attorney about it? That's insane.
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#68Getting a lot of the same questions so I just want to address them. 1) We will not receive another offer, there are no other offers possible. I can't fully explain this without blowing my cover, but suffice it to say we're very confident in this. It revolves around our extremely niche market. 2) A huge part of the reason we're afraid of blowing this deal is what I just stated in #1, since there are really no other ex…
Based on these statements, and the very low offer, I have to conclude your business is about to collapse. You have no leverage if you have no options. If 3x over 4 years sounds good, you are already conceding that the company is doomed. Selling a doomed company for before it's bankrupt is wise. You have no other acquisition prospects and you business is about to start shrinking - I suppose you should take what you can get.
Edit: Sorry I must be tired. This is a revenue multiple not income. Revenue multiples are not particularly helpful in valuing a company with a mature business model. Gross profit would be far more useful.
At 20% margin this is 15x gross profit which is reasonable, particularly if you have no other exits.
I'd take the offer after cleaning up the vesting (at least 50% should be immediate) and consulting a good lawyer who might find some fallback options.
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#69You should also post this on Quora.com under "Startups" to make sure you get all possible answers.
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#70So far you've gotten some great advice in the other comments: Don't agree to sleazy terms, get a lawyer involved, etc.
But in addition to all that, here is another point I didn't see mentioned so far. After working for yourself for 5 years, (or perhaps more) do you really want to take a corporate job?
Speaking for myself, after working for myself for a lengthy period of time, I'm quite sure I don't want to have a "9-5" ever again. I've turned down a number of job offers over the years, and I have no regrets.
If the deal is all cash, paid in full at closing, then it doesn't matter (too much) if you get fired on day 2. You can go right back out there and start another company.