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Ask YC: Aquisition Advice

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Re: Ask YC: Aquisition Advice

#11
post #5
post #4

#1) Get a mergers and acquisitions attorney NOW. It will be expensive, but you don't want to not get something you don't have coming. There are many ways to structure these deals, and if you throw employment into the equation, you are looking at even more ways to come out ahead or get screwed. Talk to a speclialized attorney NOW. Why so urgent? You do not want to appear dumb to your potential purchaser. To appear pre…

The flip side, which anybody who works with lawyers on a weekly basis knows, is that lawyers can complicate stuff enough that people will walk away from the deal. This isn't advice, just an observation.

I agree with this sentiment. Lawyers have a much lower risk tolerance than entrepreneurs for obvious reasons. Yes there are horror stories of underrepresented entrepreneurs getting screwed, but what gets mentioned less is the opposite situation that tptacek alludes to, where deals are killed because too much control is given over to the lawyers, and the forest is lost to obsessive focus on the trees. As nice as it would be to turn over control and wash your hands of all legal decision-making, lawyers must be managed, just like any other employee or contractor. It can be intimidating for young entrepreneurs to override the recommendations of older, more experienced attorneys, but that is exactly what is sometime required to make deals like this go through.

As has been mentioned on this forum many times, there are plenty of law firms (in the Bay Area at least) who have emerging business practices that will defer your fees until an acquisition or an investment event occurs.

Re: Ask YC: Aquisition Advice

#12
Your deal doesn't have to be exclusive. Indeed, it may be in your interest to supply content or functionality in a non-exclusive deal. (A good example of this would be Microsoft licensing MSDOS to IBM on a non-exclusive basis.)

If you've got good content and functionality which is wanted by one website then there exists the possibility of others wanting it too. Getting the first sale is the hardest and one customer has already "beaten a path to your door".

A licensing deal would allow you to remain independent and it would reduce the legal complexity of an acquisition to that of a simple business deal.

Tags: [business] [licensing] [acquisition] [Microsoft] [IBM] [MSDOS] [content] [website] [sales] [legal]

Re: Ask YC: Aquisition Advice

#14
All I can suggest is, do everything you can to get them to give you a number first. Otherwise, you're just bidding against yourself. It can only hurt you to give a number first.

Re: Ask YC: Aquisition Advice

#15
I love this question and hope somebody has some useful information or at least that you post your experience once the issue has played out. This is a very common scenario, rookie founders of small companies getting approached for acquisition, but there simply is not enough info on the sell side. The buyers know a ton and you have no info.

We were approached early on and I asked everyone I knew for advice (founders, corp dev friends, former EIRs) and nobody had anything concrete, especially about the part which was most important to me: how do I value and sell the company.

Another hard part for me was determining if I wanted to sell. What I really needed was for them to give me a price so I could think about it. What I ended up doing was having the meeting and telling them both that I wasn't sure and that all my friends in the company had told me not to work there. What I figured was best case they'd give me a hard sell and worst case the conversation would end. I ended up with the worst case.

What people have told me afterward was that taking $1M at this age is a golden opportunity since you'll have a lifetime of ideas so you should go into this meeting selling. Tell them how big of an opportunity you open up for their business.

As for value, this is what I've heard. As a baseline start with $1M per employee (so for you $2M) and then let that number vary wildly. If you are essentially broke and they're bailing you out you might expect as little as $200k. If you're a high flyer you might expect as much as $10M.

Re: Ask YC: Aquisition Advice

#16
In my opinion (I'm in the process of selling my startup) before spending money on lawyers there are a few things you can do, some already mentioned:

- Do your homework on M&A.

- Study the guys who have approached you. Based on your knowledge of the market try have an understanding of your value to them.

- Important: This is a SALES job. It does not matter how much your cost has been or even how much money you are making (well, it matters, but it's secondary). The key valuation factor is how much you are worth to them, i.e., what would cost them (resources and time) to build what you have built and take to the levels (revenue, pageviews, registered users) you have taken it.

- Which also means it's important to understand why they want to buy you: Your technology? User base? User engagement?

- If you have done sales before, or you're good at negotiating, meet with them and listen to them. You don't have to commit to anything, but it'll be good to hear where they are comfortable and where they are not. It's ok to initially give them ranges rather than concrete numbers to get the ball rolling - again it's sales and don't look at it from a hacker's perspective! While to an engineer a price range of, say, "10 to 20 Million" sounds too vague, in negotiation it's a good starting point. Do not limit yourself, just give them enough so that they start talking and giving you ideas.

- Whether to do it or not is a question that goes back to your goals and dreams. If you're looking for a job that pays the bills, you can gradually grow it, and you can be your own boss and work on your own schedule then why sell (I'm assuming you are making money). If you want to make a bigger chunk of money, say to buy a house, and at the same time have a good salary, then sell and become their employee.

- The employment agreement itself is also subject to negotiation. You can promise that you'll stay at least a year, so that you have the flexibility of getting out later. Or you can ask for special arrangement such as moving or not moving, keeping your site independently managed, etc. Again, think of what you would like to happen and talk to them. If they have approached you they will be willing to listen, and good negotiation will get you where you want to be.

- When you're ready to make promises hire a lawyer :-)

Good luck, and congratulations.

Re: Ask YC: Aquisition Advice

#17
post #8

Earlier quoted context omitted.

Yeah, cammon, give us a link... It will not hurt anything to do so.

If anything it will only add uniques thus valuation thus offers on the table thus better deal

On the other hand, it will cause this thread to come up in a Google search for " acquisition", which could have a negative impact on the deal. (Although putting a link in a user profile might not have the same consequences...)

Re: Ask YC: Aquisition Advice

#18
post #12

Your deal doesn't have to be exclusive. Indeed, it may be in your interest to supply content or functionality in a non-exclusive deal. (A good example of this would be Microsoft licensing MSDOS to IBM on a non-exclusive basis.) If you've got good content and functionality which is wanted by one website then there exists the possibility of others wanting it too. Getting the first sale is the hardest and one customer h…

what's with the tag spam? Do we need those?

Re: Ask YC: Aquisition Advice

#19
post #18
post #12

Your deal doesn't have to be exclusive. Indeed, it may be in your interest to supply content or functionality in a non-exclusive deal. (A good example of this would be Microsoft licensing MSDOS to IBM on a non-exclusive basis.) If you've got good content and functionality which is wanted by one website then there exists the possibility of others wanting it too. Getting the first sale is the hardest and one customer h…

what's with the tag spam? Do we need those?

I'm working on tag search. See http://news.ycombinator.com/item?id=227184 and http://news.ycombinator.com/item?id=227932

Tags: [search] [tagging] [meta]

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