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Don't Talk to Corp Dev

paulgraham.com

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Re: Don't Talk to Corp Dev

#191

Post by saturdayplace »

aragot wrote: post #183
marcamillion wrote: post #172

I think one of the more interesting aspects to this is how much PG has followed his own advice with YC. i.e. he made something people (founders) wanted with YC. That allowed him to craft the entire experience around what is good for founders which worked out to be great for others (including investors and acquirers). So much so that this advice he is giving, I am sure many other investors have wanted to give publicly…

Yes, thank you PG, it lands on the very day I'm supposed to have one of those meetings. But PG sold ViaWeb to Yahoo, didn't he? So if we shouldn't talk to CorpDev, how should those deals happen?

That's addressed in the essay:

> It's usually a mistake to talk to corp dev unless (a) you want to sell your company right now and (b) you're sufficiently likely to get an offer at an acceptable price. In practice that means startups should only talk to corp dev when they're either doing really well or really badly

If you're sure you want to sell, and are convinced you'll get the price you want, talk to them. Actually, that second qualifier seems REALLY useful here. I imagine that its easy for founders to get stars in their eyes about a potential acquisition. Forcing yourself to think rationally about what price you might realistically be offered might help you evaluate wether a meeting would be worth the time or just a distraction you can't afford.

Re: Don't Talk to Corp Dev

#192

Post by binarycheese »

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…

" I would also consider the effects that knowledge of an explored-but-abandoned acquisition would have on your employees' motivation if they found out"

excellent point.

Re: Don't Talk to Corp Dev

#193

Post by tarikjn »

LargeCompanies wrote: post #156
yourapostasy wrote: post #154

Earlier quoted context omitted.

The key is not the reporting chain as much as who has operational control of budgetary decision making. It far easier to find out who reports to whom than who really wields the check writing power, and how big a check they can write before they have to get someone else's approval. Right now, you have yet to open source and still have the potential to out-compete the Big Name. That is worth potential income in the fut…

Thanks, but lawyers cost money and that resource is lacking for us. We tried and tried and tried to get out to the valley and via an incubator(YC or TechStars), but all we could get to help us are local incubators. We greatly appreciate their backing, but they do not have the backgrounds/experience/networks a YC or TechStars has to thoroughly help us. THough there are some people in this east coast town who could hel…

I am not a lawyer, but sounds like you don't have much to loose. It's your calculation to make, but you are probably in a position where calling them out publicly could bring you more benefits than harm (when that NDA expires, obviously), in term of visibility and respect.

The net for society of doing that is most likely positive as you are forcing them and others to reconsider their behaviors and warning other entrepreneurs of this behavior.

There is a risk they would try to sue your startup out of existence (ie. even if they don't have cause they can attempt to drown you in legal costs), but this would bring even greater attention to the matter.

Re: Don't Talk to Corp Dev

#194

Post by npizzolato »

cubano wrote: post #164
crdoconnor wrote: post #140

Earlier quoted context omitted.

>In the business domain, is there really anything else to care about? Unless you are a sociopath, the wellbeing of your employees and customers.

Unless your business is making money, you won't have any employees or customers. I can agree with your sentiment, but that's all it is I'm afraid, at least according to my experience.

There's a big difference between caring only about money and making any money at all. To equate the two is ridiculous.

Re: Don't Talk to Corp Dev

#195

Post by hedgehog »

jtreminio wrote: post #184
haney wrote: post #179

Earlier quoted context omitted.

I totally agree that the free market should set salaries for talented people, but consider the case when a startup is winding down and looking for a soft landing, if the acquirer picks up the top employees and ruins the last bit of hope the company has then the non "rockstar" employees would all be out of jobs and have nothing but a failed company on their resume to show for it. Also, and I may be biased but it feels…

> if the acquirer picks up the top employees and ruins the last bit of hope the company has then the non "rockstar" employees would all be out of jobs Sounds like a merit-based scenario to me. Simply reading through HN for several years, it seems pretty obvious to me that many startups view employees and "theirs". There is no scenario where I would hurt my future opportunities simply so I don't hurt my (sinking) comp…

It's not merit-based. If I'm an acquirer playing hardball the value of hiring those people is the damage to the acquired's valuation with other suitors and not anything to do with the peoples' abilities.

Let's say you're selling, I'm buying, and we reach a tentative agreement for $100M. While you're winding down your other options I talk to five of your key people and hire them each for $2M. The next morning I start in fresh: Without those people our new offer is $50M. By the way that's a generous offer, part of the team works for us so you're worth even less to other acquirers. And hey, what if the press got wind that you were trying to sell and your key people were leaving. Sounds like a company in trouble.

You might say that's an asshole thing that nobody would actually do but there's a reason the poster up top suggested covering it.

Re: Don't Talk to Corp Dev

#196

Post by cpncrunch »

sukilot wrote: post #146
cpncrunch wrote: post #61

Earlier quoted context omitted.

That's even more reason to go directly to the boss (or someone even higher up). Lowballing is one thing, but outright lying should be unacceptable for any kind of business deal. I did catch one of my customers lying to me - he claimed he couldn't afford the normal fee (which was only a few hundred bucks, or $1000 at most), and I later discovered he had millions of dollars in funding for this project. We had a big blo…

In your story, I don't see how lying hurt the person. Seems it helped get a discount for a while.

I just checked my records, and he didn't actually get as far as even paying for the service at the reduced rate. He just got a month or two free trial, which I would give to anyone. He lost out by pissing off his clients because they wanted to use my product.

I just looked him up on linkedin, and I see he's now got a job at the university of San Diego, so I guess his business ventures didn't work out.

Re: Don't Talk to Corp Dev

#197

Post by Blackthorn »

hedgehog wrote: post #195
jtreminio wrote: post #184

Earlier quoted context omitted.

> if the acquirer picks up the top employees and ruins the last bit of hope the company has then the non "rockstar" employees would all be out of jobs Sounds like a merit-based scenario to me. Simply reading through HN for several years, it seems pretty obvious to me that many startups view employees and "theirs". There is no scenario where I would hurt my future opportunities simply so I don't hurt my (sinking) comp…

It's not merit-based. If I'm an acquirer playing hardball the value of hiring those people is the damage to the acquired's valuation with other suitors and not anything to do with the peoples' abilities. Let's say you're selling, I'm buying, and we reach a tentative agreement for $100M. While you're winding down your other options I talk to five of your key people and hire them each for $2M. The next morning I start…

Looks like the equity the startup offered those employees was clearly not enough to keep them around if the big company was so easily able to poach them while their equity was literally in the process of being turned into actual dollars. Being horribly cheap with equity to employees is endemic in startups, maybe that will change it. So, still not seeing the problem here.

Re: Don't Talk to Corp Dev

#198

Post by drzaiusapelord »

nkozyra wrote: post #111

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 th…

>. One of them basically had us reverse engineer our stuff through demos

Why are you protecting them? Name them. It blows my mind that there's so much abuse out there but we're willing to cover for terrible companies.

Re: Don't Talk to Corp Dev

#199

Post by TheOtherHobbes »

aswanson wrote: post #126
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

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.

Indeed.

If founders and VCs could math, and if the probability estimates had real meaning, you would have to integrate over the probability and profit/loss curves to estimate future value.

Using single numbers like this is just story telling.

However - if you can spare the time, you can also play Corp Dev at their own game and see if you can get a firm offer.

As long as you're careful not to share IP or intelligence, a firm offer will tell you that your startup is worth at least 2-4X as much, could easily be worth 10X as much, and may be worth 100X as much (but probably isn't.)

That's useful information, even if you have no intention of selling.

I see no problem with stringing Corp Dev types along on that basis.

Re: Don't Talk to Corp Dev

#200

Post by drzaiusapelord »

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?

Because your relationship with staff should be cordial and professional and mocking them because you managed to get them (this includes their salary/benefits) cheaply is petty.

Companies have an incentive to keep salaries low but also keep employee morale high. These two conflict.

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