Don't Talk to Corp Dev • Hacker News Board

Re: Don't Talk to Corp Dev

#111

Post by nkozyra » Tue, Jan 13, 2015, 1:26 AM UTC

As neophyte founders, my partner and I talked to Corp Dev of two top 8 tech companies. In retrospect, I don't think either had any intention of acquisition despite spending months at a time with us.

We shouldn't have talked to them, but as I said, we didn't know what we were doing. One of them basically had us reverse engineer our stuff through demos for six months and then abruptly ended contact. We heard through the grapevine they had decided to develop their own version, which came to fruition. The takeaway is they probably did this with a few of our competitors and simply took the good stuff. A lot of awful, sleepless nights working with their tech team under the misguided impression we'd see a nice exit.

The next one came not six months later, another one of the big (although aging) ones. As part of the dating process they gave us free access to a bunch of their APIs but nothing else happened or happened incredibly slowly. The takeaway there is they weren't serious, they just wanted to keep us on the hook.

When we talked with VCs later (yes, later), they laughed at our naïveté and offered essentially the same advice - don't do it. Don't do it unless someone is talking numbers, very, VERY soon after the MNDA.

Re: Don't Talk to Corp Dev

#112

Post by wodenokoto » Tue, Jan 13, 2015, 1:26 AM UTC

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.

I'd say that Corp Dev, shouldn't be looking at your company in the first place unless they have some confidence in you, and the break up fee you ask for sets the level of confidence you require for any kind of talks.

Re: Don't Talk to Corp Dev

#113

Post by photorized » Tue, Jan 13, 2015, 1:30 AM UTC

api wrote: post #20

programminggeek wrote: post #16

I think this is good advice, especially considered that corp dev could also be seen as a kind of corporate espionage program.

I had the same thought when I started reading, but didn't see any overt references to this. I am quite curious: has anyone around here experienced a case where it seemed like the objective wasn't to acquire/hire at all but to derail, tar-pit, or gather intel? I can imagine this happening if the approaching company is a direct competitor or is thinking of entering the space.

Happened to me once or twice when I was young and naive.

Re: Don't Talk to Corp Dev

#114

Post by btown » Tue, Jan 13, 2015, 1:35 AM UTC

adamio wrote: post #105

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?

No company that is executing on patents is doing so without some amount of trade secrets. If they demand itemized financials, for instance, they have a snapshot of your suppliers and your costs, which makes them a stronger competitor in your industry even if they can't use your patents.

Re: Don't Talk to Corp Dev

#115

Post by karmacondon » Tue, Jan 13, 2015, 1:35 AM UTC

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 attitude is exactly what pg is warning against. Corp Dev wants to wave a million dollars in your face and say "Isn't this a lot of money? It's more than you've ever had and probably more than you ever really thought you'd have. Just sign here and we'll make all of your problems go away." That's how smart people spend one million dollars to buy a company that will soon be worth one billion dollars.

As pg said in the essay, the company making the offer got big enough to be an acquirer by resisting the urge to sell before they could achieve their full potential. They would like nothing more than to profit from others who lack the fortitude to do the same thing. Because the acquiring founders have been in those same shoes themselves, they know how appealing a million dollars can sound to a weary entrepreneur and they know what buttons to push. Do not give them what they want!

The numbers in your example are made up, and they can never really be known with certainty. The trajectory of a startup can change with one phone call. There's no way to know whether it's really a 10% chance at a $1MM or a 3% chance at $2.3B or a 7.8% chance at $10MM at any given point in time. When so much is in doubt, it probably makes sense to err on the side of a belief in yourself and what you honestly feel that you can accomplish. Don't sell yourself short just because there's money on the table. That's what I took away from this well written and insightful essay, at least.

And finally, this whole idea of "paul graham is trying to use his essays to manipulate founders into decisions that will benefit him financially" is silly and needs to stop. It's good to question the source, and to understand the motivations of those who give advice. But if there's anyone who has rightly earned a reputation for genuinely helping startup founders and generally doing the right thing, it's pg. He just doesn't want to see good people make the wrong decisions.

Re: Don't Talk to Corp Dev

#116

Post by ig1 » Tue, Jan 13, 2015, 1:35 AM UTC

api wrote: post #34

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.)

I'd love to hear PG and other knowledgable folks around here talk a bit about partnerships: when, whether, why? My experience too is that most partnerships are only valuable for social proof. Often nothing much else happens, maybe one or two customer connections. At the same time with some partnerships there is a risk of brand dilution. If you are letting someone re-sell or bundle, there's a risk that they might down…

It depends on the type of business.

If you're working with content licensing (i.e Spotify, Netflix), product integration (more common in b2b SaaS), marketplace supplier relationships with major partners (say if Airbnb wanted to offer Mariott rooms on their platform), etc. than partnerships are important.

Re: Don't Talk to Corp Dev

#117

Post by robotresearcher » Tue, Jan 13, 2015, 1:37 AM UTC

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

The utility of a person's first million dollars is much more than the thousandth.

Re: Don't Talk to Corp Dev

#118

Post by bbcbasic » Tue, Jan 13, 2015, 1:37 AM UTC

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.

Clauses could be added for anything that would obviously break due diligence that the sellers may know in advance. I am thinking of IP, Patent, Contract problems etc.

"product is terribly architected, teams don't get along, they cannot track their customers revenue" - none of these things make a startup worthless as they can be fixed.

Re: Don't Talk to Corp Dev

#119

Post by btown » Tue, Jan 13, 2015, 1:38 AM UTC

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?

This assumes, of course, that your utility curve for money is linear. If it's not, it's not a stupid question.

Re: Don't Talk to Corp Dev

#120

Post by eru » Tue, Jan 13, 2015, 1:42 AM UTC

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…

Up front give them a high salary number (plus one off for your project) that you'd be willing to accept, and tell them you talk if they are willing to meet that.

Saves you time in the worst case, but still lets good offers through.