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Re: undefined

#31

Post by jacquesm »

founder001 wrote: post #27
petervandijck wrote: post #7

Shop around now. You have 1 offer. You're quite likely to get a much better offer (by either the current oferee (?) or another one), with just a few weeks of work. Shop around, for real. "Has (without saying so) implied that they make an offer and that is it" -> standard negotiation practice. Shop around, even if "selling" isn't your strong point. Practically, tell them you need some time to think this through. Then,…

Just to address this, we will not receive another offer. Period. It's annoying that I can't fully explain that without blowing our cover, but you'll just have to take my word on it :)

> Just to address this, we will not receive another offer. Period.

>> If you're really doing well and in a growing market, I'll offer you 3x revenue in cash myself, that'd be a steal.

You just did.

Re: undefined

#32

Post by car »

It's typical for the other side to open negotiations with crummy conditions, not different from what happens millions of times a day in bazars all over the world.

I would venture a guess, that the potential buyer is aware of your inexperience, and trying to pull one on you.

Don't let them FUD you with comments like 'changing the tone' once legal representation gets involved. They clearly seem to have invested time and effort to vet the deal, so you very likely have a strong position.

I'd take my time, as excited as you might be, don't get desperate, and try to find a good M&A lawyer to provide you with guidance. Ask for referrals from people you trust.

Re: undefined

#34

Post by cperciva »

jacquesm wrote: post #22
cperciva wrote: post #14

In the worst case, they could fire us on day #2 and we'd have only the token money we got up front to show for it. To me, this would be enough to immediately reject the offer. I don't believe in doing deals which make my worst case worse unless I will be in a position where I can prevent the worst case from happening -- and it doesn't sound like you'd have any way to avoid getting screwed here. they've expressed to u…

> To me, this would be enough to immediately reject the offer. To me that would be reason enough to make sure I negotiated the deal in such a way that if the company fires us that our stock will vest instantly. > Any time someone tries to convince you to not consult your advisors, run away immediately. No, get advisors anyway. If the deal is good they might be lowballing them anyway and they're scared the other party…

To me that would be reason enough to make sure I negotiated the deal...

Sure. By "reject the offer" I mean to reject that offer, not that the offer couldn't be revised to become acceptable.

If the deal is good they might be lowballing them anyway and they're scared the other party finds out by how much.

It might be a good deal, but trying to convince someone to not consult advisors indicates to me a certain lack of ethics. As a general rule I don't think it's good to make deals with people you don't trust.

Re: undefined

#35

Post by founder001 »

Getting a lot of the same questions so I just want to address them.

1) We will not receive another offer, there are no other offers possible. I can't fully explain this without blowing my cover, but suffice it to say we're very confident in this. It revolves around our extremely niche market.

2) A huge part of the reason we're afraid of blowing this deal is what I just stated in #1, since there are really no other exits for us.

What makes us different than another tech startup is that we really are only interesting to a very very few, and this company is the only one who can afford us :)

Re: undefined

#36

Post by jaxn »

Congrats!

I think that you can be upfront with them.

"Look, there are a couple of things that make us uneasy about this deal. Mainly, we feel the offer is a little low and that the vesting schedule is a little long. The combination of the two makes this a very difficult deal to consider. I am not saying we don't want to consider it, but just that since we assume you are wanting to work with us for at least the next 4 years, we might want to spend some time to make sure we get started with the best chance of long term success."

I think that is both honest and strong negotiation.

Re: undefined

#37

Post by anon88787 »

My own experience: I sold my company few years ago and I was talking to two companies at that time. One made a verbal offer of 1 mil, all in stock, vested over 4 years (similar to yours) subject to employment. Another company had a 5 mil offer, which was OK'd by their board. Cash deal, but they wanted to stagger payments to something like 10 years. To that I said "no, not interested" (which was true) and basically went on with my life. They came back in a bit and offered a 3 year period in equal parts plus generous stock supplement vested over the same 3 year period. And after the deal was done I was chatting to their finance guy and he said that it did not matter to the company if to pay in cash or in stock, because they simply sold stock to their current investors to raise needed cash.

In other words and without knowing specifics of your situation, I would probably say "thank you, but no, not good enough" without getting into the negotiations. If they are interested enough, they will be back. And if they are not, then your concerns of being fired on a second day may be not that unfounded.

Re: undefined

#38

Post by car »

petervandijck wrote: post #20
brk wrote: post #8

Don't be afraid to counter, make it what YOU want, plus a bit. You should have some amount of guaranteed cash at closing, plus earn-out, plus stock, plus a clause for at least some kind of acceleration if your employment is terminated for any reason.

Ask for double of what you would accept, not just a bit more.

Agreed, make an outrageous counter offer, you know, cost of living and all that. The reaction will shed some light on where they really stand.

Re: undefined

#39

Post by petervandijck »

founder001 wrote: post #27
petervandijck wrote: post #7

Shop around now. You have 1 offer. You're quite likely to get a much better offer (by either the current oferee (?) or another one), with just a few weeks of work. Shop around, for real. "Has (without saying so) implied that they make an offer and that is it" -> standard negotiation practice. Shop around, even if "selling" isn't your strong point. Practically, tell them you need some time to think this through. Then,…

Just to address this, we will not receive another offer. Period. It's annoying that I can't fully explain that without blowing our cover, but you'll just have to take my word on it :)

OK, fair enough. That diminishes your bargaining position.

So the options are: 1. Take the deal as is. 2. Negotiate the deal. 3. Keep working for 3 more years (3x revenue), and make the same money - salaries you would have made at BigCo, but PLUS you still have the company and money coming in for years after.

My calculation would be around 3: how exciting is that. Also, you have plenty to negotiate around. 3x revenue can be upped. Your employment conditions can be negotiated (ie. I get to spend 2 days a week on open source software, paid). Vesting can be negotiated (4 years is a really long time).

Or calculate it like this: current annual revenue = X. If you stay alone, assuming revenue will grow a little, work for 4 years and you get (5X + the total value of the company at that point, which is likely 4X-ish) = 9X. Work for 4 years in BigCo and you get 3X + salaries. (Adjust formula to take into account multiple founders etc). If your combined salaries would be about the same as your net revenue is now, it's a rather equal deal (except for the freedom). So it depends on how your salaries compare with your income now. A lot also depends on how you estimate the longevity and growth potential of your company. If it's gonna grow and keep going for 5 years, they're cutting you a bad deal. Also consider how much you could be making at some other company, in todays job market.

It's weird that you're sure you won't get another offer.

It also kind of sounds like a talent acquisition. Do they want you, or the company? Has that been discussed?

Re: undefined

#40

Post by jacquesm »

cperciva wrote: post #34
jacquesm wrote: post #22

Earlier quoted context omitted.

> To me, this would be enough to immediately reject the offer. To me that would be reason enough to make sure I negotiated the deal in such a way that if the company fires us that our stock will vest instantly. > Any time someone tries to convince you to not consult your advisors, run away immediately. No, get advisors anyway. If the deal is good they might be lowballing them anyway and they're scared the other party…

To me that would be reason enough to make sure I negotiated the deal... Sure. By "reject the offer" I mean to reject that offer, not that the offer couldn't be revised to become acceptable. If the deal is good they might be lowballing them anyway and they're scared the other party finds out by how much. It might be a good deal, but trying to convince someone to not consult advisors indicates to me a certain lack of e…

> Sure. By "reject the offer" I mean to reject that offer, not that the offer couldn't be revised to become acceptable.

Ok, in that case I would word it as 'we're taking it under consideration' to buy some time to regroup. And then respond after thinking things over with a counter-offer, not with a rejection.

> As a general rule I don't think it's good to make deals with people you don't trust.

As a general rule, I'd agree. But M&A is hardball and typically an acquisition of a 'goldfish' is not going to be done by explain patiently how they're actually worth 4 times as much and by educating them. It may come in very handy that they have not managed to attract advisors savvy enough to guide them through this.

I'm actually a bit confused about how a company could get as far as 7 figure turnover and an 8 figure buy-out offer while still being this green business-wise.

Typically by the time you get that far you've got an excellent relationship with your corporate lawyer and a tax advisor.

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