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Don't Talk to Corp Dev

paulgraham.com

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Re: Don't Talk to Corp Dev

#81

Post by leroy_masochist »

I used to be an investment banker and dealt with corp dev guys (gendered pronoun used intentionally and accurately) all the time. PG's article is spot-on.

One additional thing to note is that the diligence process can be an intelligence-gathering bonanza for a larger acquiror. The information they glean can be either harmless to you (data points on employee shares/salaries allows them to build knowledge of early-stage compensation, which is very useful when poaching engineers from other companies) or harmful to you (they see your private information and act on it in a way that damages your business).

For what it's worth, I would advise people approached by Corp Dev types to not only say no as PG suggested, but do so in 10 words or less. The email response should be "No, not interested. Sorry" -- no greeting, no pleasantries, no signature. You won't hurt their feelings and a longer email is just an invitation to them to start a conversation that is going to suck up your time and energy.

If you are interested I would demand a break-up fee as others here have noted, as well as an aggressively worded NDA and a non-hire agreement that stops them from poaching your employees.

Finally, I would also consider the effects that knowledge of an explored-but-abandoned acquisition would have on your employees' motivation if they found out. Generally not good for culture and/or long-term goal orientation.

Re: Don't Talk to Corp Dev

#82

Post by hyperliner »

peterjancelis wrote: post #69

I think the more important advice is: If you do talk to corp dev, insist on a breakup fee upfront, payable if no minimum price has been offered: "We can talk but I am looking for at least $xxx million and will need $xxxK / $x million if you walk away during or after due diligence, to compensate for my time." It's only without a breakup fee that Corp Dev can smoke you out...

This is unrealistic. There are many startups that are worthless (product is terribly architected, teams don't get along, they cannot track their customers revenue, etc.). A company cannot be expected to offer money for something without some minimum level of due diligence.

again, if you absolutely are not selling, then say that and move on.

Re: Don't Talk to Corp Dev

#83

Post by lifeisstillgood »

emmett wrote: post #56
gaius wrote: post #32

Remember a VC doesn't want a company to have a 10% chance at a million dollars, they want a 1% chance of a billion, because that's how it works. But if you are a founder, a million dollars is probably the best deal for you , and your people, and you should grab it with both hands. Numbers made up but you get the idea.

This is completely, 100%, wrong about how YC thinks about things. If you've not advised a large number of fledgling startups, you wouldn't know, but really truly talking to corpdev is demoralizing and dangerous. If they really want you they'll reach out with an dollar figure (albiet probably a low one). If they haven't done that, they aren't serious. Don't waste your time. If actually you've raised from a VC, a small…

Can I just clarify, the selling of secondary stock and locking in a million, is that actually having cash in the founders personal bank account, or is that some cash on some future funding event?

I seem to remember this as a discussion some years ago - where YC was set against the "keep them hungry" mentality. I am assuming it has not changed?

Re: Don't Talk to Corp Dev

#84

Post by zaroth »

grellas wrote: post #73

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…

Just went through exactly this and managed somehow to muster the courage (or insanity, time will tell) of walking away. The last straw for me was when we flew to their offices to nail down the final deal and the price was still decreasing, decreasing. They couldn't help themselves from trying to squeeze every last dollar out of the deal, and putting more and more of the upside behind earn-outs and future growth. By the time it was 'here's our actual final offer' it was barely a P/E of 5 on current year earnings when YoY we were growing a triple digit percentage.

Sometimes the lack of liquidity can get to you. Funneling every last cent of profit back into growth is a crucible. The offer of taking a rest at 20 miles is the perfect analogy. The level of distraction in trying to close the deal is immense. And how, after so much pain, can you really make an objective decision to walk away at the 11th hour?

This all ties right back into the liquidity discussion a few weeks back. I have no interest in taking payroll and seeing less than half after taxes. So finding a fund interesting in purchasing a fractional interest of Common Shares (no preferences) at FMV (versus investment value the VCs pay) is a really great bridge past the CorpDev route.

Re: Don't Talk to Corp Dev

#85

Post by lifeisstillgood »

droopyEyelids wrote: post #67
emmett wrote: post #56

Earlier quoted context omitted.

This is completely, 100%, wrong about how YC thinks about things. If you've not advised a large number of fledgling startups, you wouldn't know, but really truly talking to corpdev is demoralizing and dangerous. If they really want you they'll reach out with an dollar figure (albiet probably a low one). If they haven't done that, they aren't serious. Don't waste your time. If actually you've raised from a VC, a small…

Do you think YC represents the general VC industry?

It's probably fair to say YC represents best practise in the VC industry and so any startup with options would be able to use them as a marker against which to persuade the general industry to improve.

Re: Don't Talk to Corp Dev

#86

Post by jtreminio »

leroy_masochist wrote: post #81

I used to be an investment banker and dealt with corp dev guys (gendered pronoun used intentionally and accurately) all the time. PG's article is spot-on. One additional thing to note is that the diligence process can be an intelligence-gathering bonanza for a larger acquiror. The information they glean can be either harmless to you (data points on employee shares/salaries allows them to build knowledge of early-stag…

> and a non-hire agreement that stops them from poaching your employees.

Isn't that similar to what Google/Apple/etc were doing recently, and were rightfully lambasted for?

My employer does not own me, they should have absolutely no say over what company can offer me a new position.

Re: Don't Talk to Corp Dev

#87

Post by oxryly1 »

chrisweekly wrote: post #75
oxryly1 wrote: post #54

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?

Surely don't even mention any acquisition price in the all-company speech... just welcome the new people.

Re: Don't Talk to Corp Dev

#88

Post by markdown »

jtreminio wrote: post #86
leroy_masochist wrote: post #81

I used to be an investment banker and dealt with corp dev guys (gendered pronoun used intentionally and accurately) all the time. PG's article is spot-on. One additional thing to note is that the diligence process can be an intelligence-gathering bonanza for a larger acquiror. The information they glean can be either harmless to you (data points on employee shares/salaries allows them to build knowledge of early-stag…

> and a non-hire agreement that stops them from poaching your employees. Isn't that similar to what Google/Apple/etc were doing recently, and were rightfully lambasted for? My employer does not own me, they should have absolutely no say over what company can offer me a new position.

If they sign the agreement, they're saying they don't want you, so you never had a hope anyway.

In any case, non-hire agreements aren't forever.

Re: Don't Talk to Corp Dev

#89

Post by fecak »

jtreminio wrote: post #86
leroy_masochist wrote: post #81

I used to be an investment banker and dealt with corp dev guys (gendered pronoun used intentionally and accurately) all the time. PG's article is spot-on. One additional thing to note is that the diligence process can be an intelligence-gathering bonanza for a larger acquiror. The information they glean can be either harmless to you (data points on employee shares/salaries allows them to build knowledge of early-stag…

> and a non-hire agreement that stops them from poaching your employees. Isn't that similar to what Google/Apple/etc were doing recently, and were rightfully lambasted for? My employer does not own me, they should have absolutely no say over what company can offer me a new position.

I believe non-poaching agreements between companies discussing an acquisition would be less inclined to harm employees than the agreements you mention. A non-solicit in this case would be unilateral, and not the bilateral agreements that Google et al had.

Re: Don't Talk to Corp Dev

#90

Post by csmajorfive »

danielweber wrote: post #14

Earnest: Aren't there other things that corp-dev does, like arrange strategic partnerships and reseller agreements, that can be very valuable for a business? (My personal experience is that these partnerships never live up to their hype, but my feeling is that one time out of a hundred they give the company a huge boost.)

When companies reach a certain size, the real partnerships stuff spins out into dedicated "Business Development" or "Partnerships" teams.

It's really safe to assume that anyone with a "Corporate Development" title at any reasonably sized technology company spends all day evaluating and executing acquisitions. Don't go in thinking that you're about to have a partnership conversation.

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