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Don't Talk to Corp Dev

paulgraham.com

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Re: Don't Talk to Corp Dev

#121

Post by ig1 »

A couple of things this doesn't address:

1) Corp dev can also do strategic investment; you probably don't want this at an early stage but can be worth considering at a later stage.

2) Corp dev teams don't magically know that they want to acquire you, assuming they're not connecting to you via an existing investor (in which case they probably have some inside knowledge on you already), they may well just be at the stage of trying to figure out what you actually do and how you fit into the ecosystem. So it might be worth having a conversation but not necessarily giving away any secrets,

3) Acquisitions are like investments, having a warm relationship helps. But they can be time-sinks and you have to judge how much time you want to invest when you're not actively seeking.

Re: Don't Talk to Corp Dev

#122

Post by noonespecial »

Acquirers can be surprisingly indecisive about acquisitions, and their flakiness is indistinguishable from dishonesty

There's some hidden gold right there. Non-malicious business as usual can be just as damaging to you as if they had actively tried to screw you over. Expect it and don't become angry or take it personally.

Re: Don't Talk to Corp Dev

#123

Post by dalke »

bbcbasic wrote: post #108
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

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.

The expected value estimate isn't sufficient. One should also estimate the risk of ruin more than "probably". If someone got to that point on friends and family money, and/or like Cisco using credit cards for financing, then another way to view this is 0% of bankruptcy vs. non-trivial chance of bankruptcy (including medical bankruptcy) and limited access to new seed money.

Of course, if your 90% case is to have a job paying 125K/year then the risk is very low. My point wasn't about you personally but the analysis that should go into this sort of calculation.

Re: Don't Talk to Corp Dev

#124

Post by jacquesm »

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…

Keep at it and grow that thing you're building, the more serious offers will eventually come. For the time being just ignore the noise any time you spend on will not be made up.

Re: Don't Talk to Corp Dev

#125

Post by bbcbasic »

dalke wrote: post #123
bbcbasic wrote: post #108

Earlier quoted context omitted.

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.

The expected value estimate isn't sufficient. One should also estimate the risk of ruin more than "probably". If someone got to that point on friends and family money, and/or like Cisco using credit cards for financing, then another way to view this is 0% of bankruptcy vs. non-trivial chance of bankruptcy (including medical bankruptcy) and limited access to new seed money. Of course, if your 90% case is to have a job…

Hell yes there are lots of variables. It is a big decision.

This decision in it's purest form can be seen on the game show "Deal or No Deal" where they choose between an unknown value in a box and a $ amount from the 'dealer'. Even this simplified version of the problem gets the contestant on edge and they really have to think hard about it, talk to their spouse etc.

Re: Don't Talk to Corp Dev

#126

Post by aswanson »

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

But, the probability estimates are usually bullshit. How do you know you have a 10 percent chance versus a 1 percent chance of being acquired? You don't, and you're kidding yourself if you think anything with that level of uncertainty is something you have a handle on. It's best to simply acknowledge that the billion dollar exit is far less probable than the million, and do the logic from there.

Re: Don't Talk to Corp Dev

#127

Post by drpgq »

noonespecial wrote: post #122

Acquirers can be surprisingly indecisive about acquisitions, and their flakiness is indistinguishable from dishonesty There's some hidden gold right there. Non-malicious business as usual can be just as damaging to you as if they had actively tried to screw you over. Expect it and don't become angry or take it personally.

On a smaller scale, this can be true for hiring decisions too.

Re: Don't Talk to Corp Dev

#128

Post by mrbigidea »

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.

And that's fair. The employee should be able to seek employment anywhere of their choosing. What is being discussed is not the same situation that went on with the major tech firms. In that situation we found out that the tech firms wouldn't hire each others employees regardless of situation.

In a hypothetical situation where you have two companies, lets call them Company A and Company B, who are in talks for an acquisition. If Company A is huge and is potentially an acquirer then Company B would be it's acquisition target. Company A is going to learn a lot about Company B to consider purchasing them. Company A could walk away at any time with all the salary information of Company B's employees.

Company B should have the right for protection in such a high risk situation. A non-solicit agreement that covers employees would prevent Company A from approaching, with the intention of hiring, Company B employees for a period of time that both firms agree upon.

Employees of Company B are more than welcome to approach Company A about jobs. Company B employees may even get a raise since Company A would know how much they are earning. However, Company A would want documented proof to show that the employee of Company B came to them. As they cannot approach the employees of Company B during the previously agreed upon period.

The system needs to protect employers like it protects employees. Not everyone runs a high margin billion dollar company.

Re: Don't Talk to Corp Dev

#129

Post by mooreds »

minot wrote: post #101
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…

The question is, what would the worth of Google be, if they had taken the money?

It's hard to know, but I have a hard time imagining Google taking over Excite and taking the same trajectory that it did as an independent company.

Re: Don't Talk to Corp Dev

#130

Post by jpmattia »

zaroth wrote: post #107
jpmattia wrote: post #91

Earlier quoted context omitted.

> 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 con…

> 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

Yes, that was exactly the message that I was hoping you delivered with a sledgehammer, because I would have guessed that their reaction would be telling.

Anyway, kudos to you and your team for making (imho) the right call.

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