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Don't Talk to Corp Dev

paulgraham.com

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Re: Don't Talk to Corp Dev

#91

Post by jpmattia »

zaroth wrote: post #84
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 t…

> it was barely a P/E of 5 on current year earnings when YoY we were growing a triple digit percentage.

I'm kinda curious: Did you point that out as clearly as the line above? along with something to the effect of "If you think this number is close to the value we'd take, then we're wasting each other's time"?

Re: Don't Talk to Corp Dev

#92

Post by hollyfeld »

cpncrunch wrote: post #35

I think if anyone pulls the "my boss won't do the deal for the price we've already agreed on" I'd just tell them to politely fuck off. If they really want to buy you, they'll pay the agreed price. Or you might decide you don't want to do business with immoral fuckers :) Although given that this was google, I would probably just contact one of the higher-ups and tell them "I'm still interested in discussion the acquis…

"Why are you making offers you can't follow through on?<

Re: Don't Talk to Corp Dev

#93

Post by aetherson »

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.

Expected value of a company with a 10% chance at a million dollars: $100,000

Expected value of a company with a 1% chance at a billion dollars: $10,000,000

Re: Don't Talk to Corp Dev

#95

Post by andylei »

aetherson wrote: post #93
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.

Expected value of a company with a 10% chance at a million dollars: $100,000 Expected value of a company with a 1% chance at a billion dollars: $10,000,000

you get one shot: would you rather take a 10% chance at a million dollars, or a 1% chance at a billion dollars?

Re: Don't Talk to Corp Dev

#97

Post by r00fus »

mark-r wrote: post #22
api wrote: post #15

Earlier quoted context omitted.

He gloated like this with you in the room? I'm only a little shocked... not that he'd gloat, but that he wouldn't think about the effect this might have on the morale of his new hires.

He was back at HQ, and we were watching remotely. But the effect was the same.

Still - how would you feel as an employee of the acquiring company? Especially knowing that the newly-acquired employees are listening in? At best, awkward.

It's just complete verbal diarrhea and he should retract it (though the damage is mostly already done).

Re: Don't Talk to Corp Dev

#98

Post by emmett »

lifeisstillgood wrote: post #83
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…

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?

Secondary stock sales means the founder sells a portion of their stock in the company in exchange for cash today.

There used to be a widespread belief in the VC world that you wanted to prevent founders from seeing any cash until the ultimate exit. As negotiating leverage has shifted towards founders this has gone away.

It's stupid anyway, since allowing founders to see a little cash up front actually aligns incentives much better once the company is somewhat successful.

Re: Don't Talk to Corp Dev

#99

Post by robot »

I have been in this position once and the biggest lesson I had for myself was to aim for profitability and self-support in the company from the start. When you do that you have a much stronger position. One could replace profitability here with lots of user growth + VC money.

Re: Don't Talk to Corp Dev

#100

Post by AndrewKemendo »

hyperliner wrote: post #82
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.

There are many startups that are worthless...again, if you absolutely are not selling, then say that and move on.

Except the problem is, most founders have a "I wouldn't sell for $X but would for $Y" and the harsh terms for discussion immediately let the founder find out if CorpDev is 1. Serious not just doing business intel and 2. Willing to pay the right amount.

If the firm was totally worthless then generally no one would be calling anyway.

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