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YC should have someone in staff to handle these requests. For others there should be a company that exists for the sole purpose of handling these types of conversations, letting you focus on your product while they do the do. If a buying founder has their biz dev, corp dev, contact a founder then it is safe for the receiving founder to forward that request to his corp dev, inside or outside their company.
Some companies also call this role "Business Development" or "Biz Dev"
I can't tell you how many times in these cases founders have caved to lowball offers with horrid terms once they have gone multiple cycles with the prospective acquiring company. How does this happen? They ask for what they think they deserve and they get an offer far below that. Having concentrated their efforts on a possible exit, they sound out other channels and find there is no immediate interest. They are then high-pressured by the prospective acquirer to do the deal on a short fuse or the offer will go away. They then begin to contemplate the risks of continuing down the path of uncertainty and begin to contrast this with how nice it will be to continue the effort under the rubric of BigCo, where they will draw a steady salary and no longer have to deal with entrepreneurial risks.
By this time, they are hooked. Then the details come in. It turns out that, low as that $10M (or whatever amount) was, they as founders will have to earn all or a significant part of it all over again by having to vest their interest over xx years once they begin working with BigCo. Do they have protection from termination and the possible forfeiture of their interest? Well, no, not really - company policy forbids this. So, if they want the deal, they will just have to take their chances and, if BigCo terminates them early, that is just the risk they take.
What about elimination of risks? Well, here they must represent and warrant that certain things are true as of the date of closing on the acquisition. For example, they must warrant that their IP doesn't infringe. OK, fine. But what does this mean? In a typical blanket warranty, it means that, if you sell your company and you know you haven't done anything whatever to steal code or otherwise compromise its integrity, you still bear all the risk of financial liability if someone later comes along and asserts, say, a patent infringement claim against your IP. With a multitude of trolls infesting the world these days, this is of course possible. What does BigCo say about this? It puts on its official corporate suit and weightily intones that it expects founders to stand behind their IP and will not allow them to hedge responsibility for it. Therefore, it doesn't matter that you didn't know about the potential infringement claim - if it hits, you pay the price for any liabilities and for any attorneys' fees in defending against it. Is there a cap on this? Well, maybe, but at a high level (e.g., 50% of proceeds received on the deal). As a founder, you wind up agreeing to this once you are committed to the deal because, after all, it is not likely to happen. But as to uncertainty and risk? Well, that still belongs to you on some pretty important issues.
And this is just one issue.
The point is this: once you as a founder start to rationalize, there is no bottom. You have rationalized that you can live with the low price. You have accepted the liability risk. You have accepted the renewed vesting terms without protections. Maybe you also agree to an outsized holdback on the purchase price. And who knows what else. The point is, by this time you are fried. You have no will to fight back. You have no leverage. You are stuck with the wishful thought that it will nonetheless be great to be working for BigCo and to have a chance to continue to realize your dream, even if it does involve some serious compromises.
I have witnessed this sort of thing for years and it always comes about when founders deal with professional acquisition teams from a perspective of relative weakness. They suck you in and then you need to fight like hell to get back into a mindset where you can tell them to take a hike. Most founders in this position just can't do it. That is certainly my experience.
This essay by PG captures the perils of this process in a way that is spot on and extremely valuable as a warning to founders who might succumb to temptation. Be warned. It is exactly as PG says. A truly important essay for all founders.
Earlier quoted context omitted.
Yes, easier said than done. Suppose I am a cofounder of WhatsApp. We just booked 10M[0] in revenue and are seeing a lot of success. I'm pretty proud of myself and see big things for WhatsApp. Though really, my ultimate goal is to compete with Elon Musk putting humans on Mars. I figure I need a few Billion to do that. But that's just a dream. Facebook "corp dev" comes knocking. I read the news and see they bought Inst…
You don't need to take the meeting. If they're serious, you will get another phone call with "How does $1 billion sound?" If a company really wants to buy you, saying no will not make them go away. It will make them up their price.
The same happened in Google's case when they asked Ron Conway to come a few months later to invest. And so he did. For sure Google had a good team, product, etc., but this sure enticed Ron to invest in one way or another.
I once worked for a company that was acquired - the founder wanted to cash in on his success and retire early. In the first all-company meeting after the closing, the CEO gloated over how cheaply he was able to get us. That was really grating. The advice about watching for unsavory tactics is spot on.
Sounds like the CEO mixed up his shareholder speech and his all-company meeting speech.
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Out of a link from the essay[0]: >Do not enter acquisition talks unless you are ready to sell your company. Negotiating an acquisition is the most distracting thing you can do in a startup: going through M&A is an order of magnitude more distracting than raising money. All of your ability to run the day-to-day operations of your company will grind to a halt. You should only enter an acquisition process if 1) you are…
Yes, easier said than done. Suppose I am a cofounder of WhatsApp. We just booked 10M[0] in revenue and are seeing a lot of success. I'm pretty proud of myself and see big things for WhatsApp. Though really, my ultimate goal is to compete with Elon Musk putting humans on Mars. I figure I need a few Billion to do that. But that's just a dream. Facebook "corp dev" comes knocking. I read the news and see they bought Inst…
You can make a reasonable estimate of the current value of your company, and a reasonable estimate of how likely you are to be offered that value.
You can also make a reasonable estimate of the future value of your company at time X, and a reasonable estimate of how likely you are to be offered that amount at time X.
There are large margins for error in these calculations. You can determine, though, the net present value * probability of the current and future options. The goal of this exercise should be to determine not the exact values (because your error margins are too big to have large confidence in the resulting numbers), but to determine which option you like more.
It's ultimately a subjective decision, but if you are not confident that you will get enough money to definitely want to sell now, then wait.
The original article and the one I linked both put the advice in more absolute terms, but it is obvious that the decision to sell or wait is a difficult one. The goal of both articles is not to answer the question, but to help you understand first that it is not a casual decision, and provide details which may help you decide whether you want that process now.
Earlier quoted context omitted.
Maybe in their head they thought of it like "oh you all are great I can't believe I just had to paid X for this/you, it was totally a steal!"
Even when you rephrase it charitably, it still sounds like the acquirer's CEO is talking trash about someone these employees have followed for years. At best, it's a "you guys are great, but your ex-boss is a terrible negotiator and didn't know what you were worth." There's no reason to say that aloud.
Earlier quoted context omitted.
Even when you rephrase it charitably, it still sounds like the acquirer's CEO is talking trash about someone these employees have followed for years. At best, it's a "you guys are great, but your ex-boss is a terrible negotiator and didn't know what you were worth." There's no reason to say that aloud.
It wasn't that the founder was a bad negotiator, he was just outsmarted. The agreed share price was tied to a metric that the acquirer understood much better than the founder.
Founders build value and then want to realize upon that value. But the typical road to success in the startup world is far from easy. Therefore, founders are vulnerable to manipulation and one of their softest spots is precisely the time when they think BigCo wants to acquire them. I can't tell you how many times in these cases founders have caved to lowball offers with horrid terms once they have gone multiple cycle…
Earlier quoted context omitted.
Sounds like the CEO mixed up his shareholder speech and his all-company meeting speech.
I'm very interested in how precisely these two speeches ought to differ, in your opinion. If you are running a company in an internally transparent way, what specific differences do you suggest are appropriate?
It would only be marginally better if you complained about how expensive they were (especially if many of them benefited from the sale minimally as common stock employees).
I think it would be better to, you know, welcome them to the team and treat them like people.