Untitled topic

Reading between the lines, it sounds as if your market might have some overlap with, or technical dependency on, the acquirer's market and ecosystem--perhaps even only allowed to thrive at their pleasure. From the acquirer's motivation, it could be that they're trying to fill a niche they have no desire to invest in organically, especially if there's not a lot of growth in that niche.

If it's as you say, I think the question to answer is "Can we stand to be employees again, in particular, as employees of this company?" If you can, then this starts to look more like a job offer, in which case you need to negotiate more cash up front and more favorable vesting terms. (This may also explain why the future employer says the tone will change if bankers get involved. They probably see this as a talent acquisition with revenue attached. Getting a lawyer involved makes sense no matter what.)

If you can't see yourself as an employee, then my guess is that you're fearful that your market is going to go away (and the acquirer may suspect that you're road kill). In which case the thing to do is start trying to diversify outside the niche as the current niche revenue stream winds down. Is there time to do that?

End of rampant speculation. Good luck.

> It might be a good deal, but trying to convince someone to not consult advisors indicates to me a certain lack of ethics. As a general rule I don't think it's good to make deals with people you don't trust.

That's an, er, interesting rule. A big part of modern financial and legal infra-structure is designed so that we can make business with people we don't trust. If you do business only with you people you can trust then you might as well live like a hermit.

Listen to this guy. I've been lucky enough to go through this process before, and patience and confidence that it will be alright if the deal falls through is your best asset. Keep a cool head, keep running your business well, and remember that their initial offer that you've received is likely nothing like the final offer you will have on the table if you negotiate based upon this confidence.

I definitely would say be careful about "shopping around" as others have said -- this can be effective but often times as long as the other party knows that you're capable of shopping around successfully this can apply just as much pressure without poisioning the well of the negotiations. If you're shopping around, it's hard to tell the person who is looking to buy you that you sincerely think they are the best place for you to continue on your startup's mission.

On the terms themselves: first, make sure you have something in there that will accelerate if you get terminated without cause. This is pretty much standard. Second, having no realized stock or cash at close is absolutely insane, particularly if you have a profitable business that has been around for 5 years and you're expected to stick around for 4 years. Make it clear that if you really are going to give them your business and also 4 more years of your time you expect to be well compensated at close and over those 4 years.

Here are questions I'd think about:

* Why are they interested in your company? If it's technology, would others be interested in the same technology? What are alternatives to your tech? Scarcity and competition will drive up prices. A good investment banker can help you identify these opportunities and get the most out of your situation. If it's for the market opportunity, you want to consider the buy-it versus build-it quandary they are evaluating and keep this in mind as you negotiate.

* Are you through the risky part of you business? When you start a new venture, there is a huge amount of risk you are assuming, particularly on the front that the business will actually work. If you've proven the business will work for your customers and the business model will be profitable, you're in a much higher position of leverage. If your business is not clear of risk yet, you should keep this in mind.

* What is your chance of success at this company and how will it affect how much cash you'll be able to extract from the deal/stocks? Will you be caught up with red tape? Is it going to be like delicious at Yahoo? Will you have control over your future?

* Are you planning for the worst case scenario? If they could fire you on day 2 and leave you with almost nothing, I'd never agree to it. Contracts and agreements should be planned with the mindset that if things can go wrong, they will go wrong.

* How can you get more money sooner? A mostly stock deal that was vested over 4 years the deal seems crazy for me personally unless it'll set you up for life. You've gotten a taste of entrepreneurship. You have been genetically mutated forever and will never be normal again. You'll likely get the bug to start something else in a year or 2... or sooner so keep that into account when thinking through the deal.

Good luck.

> Second, having no realized stock or cash at close is absolutely insane

Yes, especially given the situation as described.

There is an enormous amount of really good stuff in this thread if I get around to it I'll summarize it in to an article, it's quite the goldmine.