The probability of any kind of deal happening with a big company is very less. Be upfront about how much time you can spend with them. Personally I would not spend more than few hours. Also make sure the person you talk with has the power to make decisions and ask their intentions clearly. Preferably in writing.
Ask HN: Big company approached our stealth startup – what to do?
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Re: Ask HN: Big company approached our stealth startup – what to do?
#12Absolutely resist the urge to dazzle them with your technical prowess. THEY WILL STEAL YOUR SHIT.
I will not point fingers at any specific companies since I have no interest in being sued, but I have had technologies stolen by 5 different public technology companies.
In my case, I even had patents filed. It won't save you because they'll take the customers in the mean time while you're waiting the years for your patent to be granted. If you've raised capital, your company will have long crashed and burned and the investors will have sold the patents for pennies.
Another set of worthless people to avoid are the folks from the "Labs" at any major technology company. They are in no position to make a major purchase and in the best case scenario will waste a ton of your time.
If they say that they're potentially interested in acquiring and want to do due diligence, DO NOT LET THEM SEE UNDER THE KIMONO. They can back out of a deal at any moment, and if nothing else, even if they are interested in acquisition, they'll use their knowledge as leverage to force you into worse price/terms.
Re: Ask HN: Big company approached our stealth startup – what to do?
#13Here 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…
i have never been in this situation but i like this answer.
what you're doing is forcing them to negotiate as soon as possible on something specific and concrete - someone who isn't willing to negotiate isn't willing to give you any money.
Re: Ask HN: Big company approached our stealth startup – what to do?
#14Generally it is a bad idea to let a company probe deeply into your technical specs without having a good indicator in place that they are proposing some sort of deal that would be favorable to you. Usually that means an LOI stating the broad terms of what they intend to do, subject only to a definitive agreement and to satisfactory due diligence.
Don't be lulled that it is a big and reputable company. If they are doing their own independent development, it is relatively easy for them to claim that they developed whatever it is they later develop based solely on independent efforts and it is pretty hard for you to cut past that claim, especially when the only of doing so is to sue and spend many hundreds of thousands of dollars to try to win that suit.
It should be a staged approach. The deeper they want to probe, the more they need to declare themselves.
And, by the way, make sure that the NDA is very tightly drafted to severely limit the impact of potential weasel language, e.g., pertaining to independent development efforts - thus, for instance, make sure it says that such efforts must be capable of being documented by written evidence. On this point, though, it is impossible to advise in the abstract. See a good lawyer on this. Very important.
Re: Ask HN: Big company approached our stealth startup – what to do?
#15They get a demo. They do not get to see the code in detail or know your trade secrets without a tight contractual agreement. You need a lawyer experienced in startup acquisitions. If you're in Silicon Valley, it's not hard to find one.
This is when you need a patent.
Re: Ask HN: Big company approached our stealth startup – what to do?
#16There are some large companies that get deep into technical due diligence, and go as far as signing letters of intent, only to take the ideas and implement the tech themselves. Watch out. Also, NDAs are almost unenforceable. If you don't trust the people across the table, don't share sensitive information.
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.
This is relevant for such a small company in stealth mode.
Worth noting one other point. Investors. They are unlikely to support "go to war" strategies with strategic buyers.
They may need realtionships with that company for other resons (supplier or customer of another investment, potential future exits, recruiting, etc).
So its really best to win by not needing to fight.
Re: Ask HN: Big company approached our stealth startup – what to do?
#17Have been through an acquisition before as a core/senior team employee at a startup.
The big company that acquired us didn't even ask to take a look at your code until after a deal was discussed, and intent signed, but before closing. (i.e., final due diligence... and they wanted it to scan for GPL violations, etc.). They evaluated our software/company by focusing their efforts on extensively using our software in various (stress) test scenarios prior to discussing the deal. They also asked us to add a few features on short notice to test our ability to execute.
In fact, they kept the competing implementers (read: engineers who would actually write code) away from the deep technical decisions (and they had a competing effort which they merged with us later). Most of the technical discussions were limited to the engineering director who ran the group. They took a very caution approach: they have much more to lose then us if the deal didn't went through and they did in fact end up launching the product (i.e., possibility of a failed startup suing them).
I think if it any reputable big company in the valley, they will probably follow the same protocol.
One word of caveat: you may end up working on a deal, but generally it will take a LOT of your time. So you should find out if the discussions are leading to something you want ASAP.
Re: Ask HN: Big company approached our stealth startup – what to do?
#18Here 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…
Yeah, remember how best buy had to pay out $25m for stealing a startups IP -- http://techcrunch.com/2012/12/05/techforward-wins-27m-in-law...
Re: Ask HN: Big company approached our stealth startup – what to do?
#19It really depends on the big company. See what kind of track record they have in dealing with small startups like yours working in a similar space. If it's Yahoo, maybe you'll get acquihired. If it's Amazon, you're probably toast.
Re: Ask HN: Big company approached our stealth startup – what to do?
#20This is a great opportunity....to raise $$ from investors. Every startup knows that they have to convince investors "why to invest" but fewer know that they also have to convince them "why now?" Having a company sniffing around the fringes is a big motivating factor for potential VCs. It also can be a serious motivator for the "big company" if there are VCs interested as well. They willingness to acquire you at a premium can be driven by their assessment of the probability of "taking out a well funded competitor".
So, a long way of saying, if you're going to talk with them in detail, make sure that you also talk to some investors at the same time (Google BATNA).