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Don't Talk to Corp Dev

paulgraham.com

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Re: Don't Talk to Corp Dev

#101

Post by minot »

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.

I'd like to add an example here. Forty five billion dollars may be cool but for me in my current situation, I'd say a million dollars (dare I say even before taxes?) would drastically change my situation. Also, we have to remember that even Google was at some point willing to sell itself for a million dollars...

>> Khosla stated it simply: Google was willing to sell for under a million dollars, but Excite didn’t want to buy them.

http://techcrunch.com/2010/09/29/google-excite/

Re: Don't Talk to Corp Dev

#102

Post by cubano »

mark-r wrote: post #51
kbenson wrote: post #36

Earlier quoted context omitted.

Maybe it's a fine line between praising how useful the new acquire is and how much value they can add. The opposite would be stating that they paid too much, which may imply the company will underperform. Finally, if they paid the exact value of the new company, including it's future uses and newly imparted abilities, that doesn't really imply anything useful was done besides keeping the status quo. Obviously I wasn'…

Unfortunately it was long enough ago that I can't remember the exact speech, but the meaning was very clear at the time. And he never seemed to care much about the company or products, merely about the revenue it was going to add to their bottom line.

.. merely about the revenue it was going to add to their bottom line.

In the business domain, is there really anything else to care about?

If there is, I have yet to see it in my 25+ years in software development.

Re: Don't Talk to Corp Dev

#103

Post by minot »

andylei wrote: post #95
aetherson wrote: post #93

Earlier quoted context omitted.

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?

Ah so here we have a situation where VC and founder are not on the same page. What my grandparent said is valid from the VC's perspective. What you said is valid from the founder's perspective. I think it is important as a founder to have some understanding as to where VC's are coming from. :)

Re: Don't Talk to Corp Dev

#105

Post by adamio »

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…

Would you say this only applies to certain industries? Also what if the startup is only patent rich, is there anything to lose by talking?

Re: Don't Talk to Corp Dev

#106

Post by umeshunni »

cj wrote: post #55
api wrote: post #7

Great essay. I'm at an earlier stage than PG's target audience for this -- still bootstrapping but experiencing 20-30% month/month growth and getting ready to go that next step (probably seed). At this stage I've gotten what after reading this essay sounds like the baby brother of this: the oddly aggressive hire attempt. These companies have been not necessarily direct competitors but people in related spaces who mig…

I experienced the same thing when I was at the pre-seed stage. I got an email from an exec at our competitor trying to hire me. I figured I'd grab dinner with them to see what they had to say, and they ended up being completely transparent with their business and sales strategy, competitive advantage, their opinion on our other competitors, etc. All while I reciprocated very little information about my business. The…

Out of curiosity, how did you use the information?

Re: Don't Talk to Corp Dev

#107

Post by zaroth »

jpmattia wrote: post #91
zaroth wrote: post #84

Earlier quoted context omitted.

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"?

Well, I think what we said was, "The price is just not compelling, perhaps the time just isn't right. We want to keep growing this and lets talk again in a couple years." But hopefully the meaning was not lost in translation.

Perhaps part of the problem is that it was the wrong partner who didn't value the technology nearly enough, and was too focused on discounted cash flows with an absurd discount rate, and too conservative a growth allowance. They passed that off as "their model" which couldn't be touched. Add in the fact they weren't even paying up-front but where much of the value was earn-outs with lofty targets, including a minimum 20% net operating profit... somehow they didn't see we could earn just as much, if not more, by keeping all the equity and just keep working for ourselves. It would have been this weird "half-exit" where all the upside was still in front of us. No thanks!

Re: Don't Talk to Corp Dev

#108

Post by bbcbasic »

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

At the point you are considered being acquired it might be:

100% chance of a million dollars: $1,000,000

10% chance of a billion dollars: $100,000,000

In which case I would go with the 10% chance because if I had run a startup and got it to be worth $1M, and then I fail I can probably make the $1M easy in the next thing I do.

Re: Don't Talk to Corp Dev

#109

Post by hiou »

Todd wrote: post #65
ph0rque wrote: post #10

Imagine what it would do to you if at mile 20 of a marathon, someone ran up beside you and said "You must feel really tired. Would you like to stop and take a rest?" I wonder if PG knows about The Wall that occurs at ~mile 20 in a marathon, or if it was a lucky coincidence? http://adventure.howstuffworks.com/outdoor-activities/runnin...

YC was founded in the Boston area.

For the downvoter(s)

Around mile 20 of the Boston Marathon is "Heartbreak Hill"[0].

Origin of Y Combinator[1].

Care to elaborate on why you decided to anonymously downvote the above comment?

[0] http://www.boston.com/marathon/course/stage4.htm [1] http://old.ycombinator.com/start.html

Re: Don't Talk to Corp Dev

#110

Post by bbcbasic »

mark-r wrote: post #9

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.

This reminds me of a UK Office episode where David Brent announces the bad news 'there will be redundancies' then he announces the good news 'I got promoted!'

Oh here it is: https://www.youtube.com/watch?v=oS8WWjR7O98

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