Ask HN: Big company approached our stealth startup – what to do?

We are a 3-person startup a few months away from a public launch. We got under the radar of a very big company in the same industry we are operating in. They have been looking at offering a service/product similar to ours and are now wanting to talk to us. We have an NDA in place and have already started preliminary discussions which are now intensifying. I’m not sure what their end game is. It’s not that they are being coy about it, it’s just that they first want to see if there’s room for doing something together in some capacity.

They seem to be interested in launching it under their own brand, so I think a simple investment is out of the picture. I think it’s going to go down as an acquihire of some sort. We are moving into the more detailed stage of a technical due diligence type discussion, and we're not sure to what extent we should allow that exploratory effort go. We don't really mind talking about our infrastructure and business aspects, but is it considered acceptable to let them explore the code in great detail? Again, it's a very big and reputable company, so I don't know if we should be so paranoid as to make them walk away.

Should we have in place a more specific NDA or a letter of intent of some kind? We are open to doing a joint venture or even an outright acquisition as they have the right resources to take our product very big very fast.

Any tips or suggestions?

Here is a suggestion, tell them to state their intentions or go away. Once they state their intentions tell them they have to sign a Memorandum of Understanding about what you're going to talk about and if they walk away it will cost them $X million (pick a number that would be able to resolve your debts and pay off any investors with a slight return).

What ever you do, do NOT be lured into thinking they are thinking about maybe a big exit for you, your interests are not aligned yet and you need to realize that. If there is any IP possible make sure you have provisional patents filed before you talk to them about anything. Even if you don't think it is patentable, force them to either buy you or risk infringing you if they go into competition with you.

Seriously, you have nothing to gain from this distraction if they aren't serious, and if they are serious they will put it in writing for you.

Get a good lawyer. It will cost you, but it will be worth more than all the advice you will get by technical people here.

It sounds to me like you are getting worked. The way you have been approached is not how someone with good intentions does it.

Reject the "joint launch" proposal. Put together a Memorandum of Understanding with a break up fee that will cover you.

If they are serious, they'll take you up on this and if nothing red flags they'll buy you.

If they aren't serious, you'll see them show their teeth pretty quickly as you are now denying them what they sought for free.

I suspect you'll see their teeth. In that case, launch your thing, get traction and force them back to the table.

This was my exact reaction. NDAs are effectively pointless unless you have the financial resources to go to war with it when it is breached.