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Tell HN: Our VC turned the process of getting acquired into a nightmare

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Re: Tell HN: Our VC turned the process of getting acquired into a nightmare

#41

Post by bugsy »

From what you say your VC is a vindicative and manipulative SOB who is wielding his veto power as blackmail to nix a deal unless you agree to give him more than his agreed upon terms.

It's a nightmare scenario. If it was me I would play hardball back. Walk away from the whole thing and let the company melt down, better that all should lose than he should win and all you should lose. Alternatively maybe he comes to his senses, but you have to be willing to carry through with it. I hate playing hard ball, but once you find yourself with someone who is going to do that, you have to play hard ball back or you'll lose for sure.

If you do decide it is all for naught and you are probably going to bail, I recommend you open source your code base for some plausible business reason, and then wait a few months before leaving. This way you'll be able to recover your own work for use in future ventures should it come to that.

Obviously you picked the wrong VC but why on earth would you give him such veto power. That was your mistake and now you are paying the price. Oh well.

Re: Tell HN: Our VC turned the process of getting acquired into a nightmare

#42

Post by [deleted] »

throwaway5317 wrote: post #23
tptacek wrote: post #5

Earlier quoted context omitted.

How hard will it be to take another round with the original VC refusing to participate? Supposedly, it's pretty hard.

Yes, I believe it will be very hard for us to raise another round. The VC's story is that they changed their strategy since investing in us. True or not, it is a high liability since it is easy for prospective financers to read something else into the fact.

[deleted]

Re: Tell HN: Our VC turned the process of getting acquired into a nightmare

#43

Post by BRoskopp »

Here is what you should have done: Told them that you will sign the documents to close the acquisition. If he wants, he can sue later. In truth, he won't sue for a few reasons: a) it is the right thing to allow the acquisition to happen, and b) he doesn't want the truth to come out that he blocked the sale solely because he un-rightfully wanted a bigger chunk of the company.

It is my strong opinion that him going dark with communication was a negotiating tactic. He was stretching you over a barrel and then fucking you. You telling him you will (and then doing it) to sign the legal documents is the way to unblock that situation. That is what happened to the other person who had a VC do this.

You need to absolutely document that this VC did this in TheFunded.com. There needs to be consequences to VCs. You would want your VCs in the future to be self-policed by TheFunded against doing something like this.

Re: Tell HN: Our VC turned the process of getting acquired into a nightmare

#44

Post by gojomo »

bugsy wrote: post #41

From what you say your VC is a vindicative and manipulative SOB who is wielding his veto power as blackmail to nix a deal unless you agree to give him more than his agreed upon terms. It's a nightmare scenario. If it was me I would play hardball back. Walk away from the whole thing and let the company melt down, better that all should lose than he should win and all you should lose. Alternatively maybe he comes to hi…

why on earth would you give him such veto power

Even the YC 'Series AA' model document terms include protective provisions where a majority of the preferred shareholders have veto power over any merger/acquisition.

It's a customary provision, and this previously-supportive investor may have had the majority of an early round. So even if his shares, if converted, would only be a small percentage of the company, he may have effective veto power.

In the end you're counting on the decency and reputation of your investor(s) that they don't turn out to be the kind of people who think, "can I squeeze a few more bucks out of this deal if I'm willing to blow it up, and don't care what people think of me?" (Or even if, in the investor's real peer group, he can tell it as an impressive war story of his negotiating prowess.)

It'll be dressed up as something else – "I'm not receiving a proper premium for my preferred privileges!" – but is really just a bet that their toughness/ambivalence can force other shareholders to cave.

I suspect it's a more likely tactic with investors whose background is in other older, and more zero-sum industries. (The similar experience I mentioned in my other comment was with someone from the government-granted telecom franchise field.)

Re: Tell HN: Our VC turned the process of getting acquired into a nightmare

#45

Post by davidu »

davros wrote: post #32
davidu wrote: post #15

You failed to negotiate effectively with your VC. At this point, you should explain to your VC (hopefully he is your only one) that you intend to: (1) wind down the business, layoff all staff, pay off all debtors and cease all company operations. And (2), without soliciting any employees or infringing on any IP, you intend to reconstitute a new company in the X space where X is your current business. Explain how it w…

It all depends on the exact details of any contracts with the VC such as your shareholder agreement. Is there a drag-along right? What board representation does the VC have? Do you have the ability to call a shareholder meeting and get them voted off the board? You need to work through with your lawyer and ask him or her in great detail what options you have in terms of forcing the VC to cooperate. Can you wind up th…

Okay... but why is this a comment to my comment? I don't see any connection to my post.

Re: Tell HN: Our VC turned the process of getting acquired into a nightmare

#46

Post by fedd »

mattm wrote: post #33

From what you mention, it sounds like his behaviour has drastically changed. Have you considered the possibility that he is having serious trouble in his personal life - perhaps financial or relationship trouble? His recent behaviour does sound dodgy but in common with how people react when they are facing serious personal issues. It could also be that someone else is putting pressure on him in regards to this deal.…

like kidnapping?

Re: Tell HN: Our VC turned the process of getting acquired into a nightmare

#48

Post by chipmunkninja »

gojomo wrote: post #25
throwaway5317 wrote: post #22

Earlier quoted context omitted.

It was very valuable to hear of a similar situation. I'm happy to hear that you were able to rescue the deal, albeit paying a heavy price.

I believe the net price wasn't that heavy, but it stung, because it broke the all-in-it-together logic that otherwise had ruled. It was already a good result for the investor – the last-minute extras demanded weren't a part of any prior negotiated preference, they were just new things extracted in return for not vetoing a deal everyone else wanted.

The biggest lesson I've learned from various startups is that "all-in-it-together" is an awful lot like asking "How are you?" (The correct answer is "Fine!", even if your arm just got torn off, your cat died, and your spouse left you for a monkey): It's conversation, and nothing more.

In the end, everybody is unpredictable. If you don't protect your rights from the start, you'll have problems. Even (especially?) if you're BFFs, everything should be spelled out in advance, including metrics for conceptual terms such as "success", etc.

Re: Tell HN: Our VC turned the process of getting acquired into a nightmare

#49

Post by mmk »

you can shop the deal. if you were close to closing on one, just as well go shop the deal with the competitor. or get a banker to shop the deal for you. one is ridgecrestcap in marin, ca. the managing directors have connections all over silicon valley.

you're so close to exit it would be a shame to leave, its like stopping at mile 20 of a marathon, just stick it out and finish. gl.

Re: Tell HN: Our VC turned the process of getting acquired into a nightmare

#50

Post by petervandijck »

cheez wrote: post #36

Ouch. I can provide no advice based on experience but since the acquisition offer has been revoked, I would suggest for next time to do the following calculus: In one year, if I agree to his terms, will I /really/ be that much worse off? Will I be so poor? If not, agree with a stipulation that it is to be completed within X timeframe otherwise they get the old share. If so, be prepared to lose it all. 9/10 times, you…

I think it's better to think "when I'm 95", instead of "in 1 year".
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