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Re: undefined

#101

Post by neworbit »

You need a good M&A attorney. But they aren't cheap. Here's my two cents.

You probably want the ability to collar their stock at very least and depending on what you think of their prospects you may ask them for a ratchet in the case of a stock decline. They probably won't give you the latter.

You want triggered acceleration of that vesting if they terminate you without cause. This is sometimes called double trigger vesting (first trigger is acquisition, second trigger is termination). You also want a decent employment contract in the meantime.

They may in fact be in position to say "this is the offer, we don't go back and forth on that" but what that USUALLY means is "this is the PRICE" and the terms thereof do get negotiated.

You need to make sure that you can actually DO those million ideas you have for the future. If these guys seriously acquire you and kick you out in three months, or acquire you and assign you to do something other than build your existing biz, you are probably going to be super disgruntled. An awful lot of acquisitions turn into "ok, that was nice, now do this instead." And hell, they might be buying you JUST to shut down a competitor. Heaven knows that has happened enough.

If you have good angel/VC contacts, this might be an ideal time to say "hey I have an offer, I'm not ready to give up at this point, give me a terms sheet for growth capital on these terms" and run like hell. Keep in mind that this is ALSO likely to be shark infested waters.

Re: undefined

#102

Post by neworbit »

neworbit wrote: post #101

You need a good M&A attorney. But they aren't cheap. Here's my two cents. You probably want the ability to collar their stock at very least and depending on what you think of their prospects you may ask them for a ratchet in the case of a stock decline. They probably won't give you the latter. You want triggered acceleration of that vesting if they terminate you without cause. This is sometimes called double trigger…

Oh yeah, and: congratulations!

Re: undefined

#103

Post by mrphoebs »

I recommend that any decision you make should be within a regret minimization framework. For each decision you could take think of the worst case scenario and go in with the full acceptance that this scenario can really happen. The things you might regret are.

* Not taking the deal when it was presented * Taking a deal where the valuation was low * Not being able to work on your ideas * Being cheated * Regrets that go with being employed(there are limitations) * Being stuck in a bad situation for 4 years

As far as the specific circumstances you mention, the deal somehow sounds dodgy, what with them controlling the vesting period and having the ability to terminate your employment as well.

One real possibility is not selling, because you already have a pretty good idea of how the future is going to be down this path and from your post, you seem to be happy where you are. Another factor you might consider here is, How long would it take, for you to accumulate personal wealth at a similar level to what you get from being acquired and what is the level of independence you'll have to work on your ideas.

Re: undefined

#104

Post by buckwild »

When you guys started the company, was the plan to sell out? If not, and you guys are making good money, then why sell? If you guys would like to try something new, that is a different story. But given you are happy where you are and you received a low-ball offer, I'd wait it out.

Re: undefined

#105

Post by mtr »

1. It makes more sense to value your company on the profit as opposed to revenue, and throw in some expected growth for good measure. For example, would you rather buy Ford with $132B in revenue, or the Google with $28B in revenue? The market cap of Google is 3 times that of Ford $197B vs $65B. Or Yahoo (revenue $6.5B, market cap $20B) vs Google ($28B, $197B). Google's revenue is <5 times that of Yahoo, but it's market cap is 10x. 2. Why do you judge the offer to be low by 20%. Is it 20% lower than what someone else would likely pay, 20% too low based on your expectations. If you can get a better deal somewhere else, why would you accept this one? 3. They know you are young and are likely leveraging this to their benefit. 4. IANAL show maybe you should choose to disregard all of the above and find one to help you.

Re: undefined

#106

Post by netdog »

Someone here derided the idea of declining to do business with people you don't trust: "...modern financial and legal infra-structure is designed so that we can make business with people we don't trust."

Since the beginning of mankind the world has been full of people who will take advantage of others who are not as smart or experienced or powerful as they are.

It's not always easy to discern these kinds of people. Some are very smooth and skilled manipulators. You describe yourselves as "young founders". I suggest you seek out someone "old" (over 50) who you know well and whose judgement you trust, and ask them for counsel. I'm not necessarily referring to business or legal counsel, I'm talking about someone who's been around the mountain enough times that they can discern when someone is trying to blow smoke up your dress. It should be someone who has your best interest at heart. Maybe your own father or grandfather might be a good choice.

I am not being condescending about you being young and inexperienced. Nobody is born knowing everything. I'm old now, but I was young once, and I remember how it was. Get someone with the long fangs of many years who is on your side. Bring him to meetings with this company's people, introduce him simply as one of your "advisors". He doesn't need to say anything in the meetings, he may just observe and listen, and perhaps ask a few questions which unmask any propaganda.

I've been doing consulting for 30 years. When contemplating a job, if I don't have enough trust in the client's integrity (and he in me) that I feel we could do the deal on nothing more than a handshake, I'll walk away. For most jobs I do have a paper contract, because having things written down is good, but I don't expect any contract to turn a snake into a good guy.

If someone is intent on cheating you, all the contracts in the world aren't going to make much difference.

Over the years I've ignored my snake radar a few times, and in each case I regretted it.

Any contract must be equitable. What you've described so far sounds rather inequitable. Consider what that might indicate about the integrity and good faith of your potential purchasers.

As someone else here said, a bad deal is far worse than no deal. You may think this is the only offer you will ever get, but you don't know that. Many amazing things can happen in life which you would never have imagined.

Re: undefined

#108

Post by will_critchlow »

ryanwaggoner wrote: post #49

How 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?

We're in the same revenue ballpark - though consulting business, so smaller multiples :(

We have used lawyers in the UK and US (for contract advice, that kind of thing) but we don't have one I'd turn to if I were in this position. It's certainly not impossible to reach this point without that kind of advisor around.

[Note: we started in the UK, which could be a factor]

Re: undefined

#110

Post by LogicHoleFlaw »

jacquesm wrote: post #89
gfodor wrote: post #85

Earlier quoted context omitted.

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…

> 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.

Please, please do. I will read it.
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