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A Classic Startup Horror Story

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Re: A Classic Startup Horror Story

#71

Post by sowbug »

casca wrote: post #7

Something doesn't smell right with this story. If a big company clearly breaks a contract, there's money to be had and the lawyers will work on retainer. NDAs are legal agreements. They can include terms that prohibit the creation of a similar product for a length of time. My favourite snippits are: "We shipped some amazing new products" and "Our systems handle load today that they wouldn’t project to have until 5 ye…

It's possible the CEO didn't mean that his company intended to copy the technology, but rather that it would be easy to copy it, and thus that it wasn't worth anywhere near the figures being tossed around. In that case, this wouldn't have anything to do with enforcing an NDA; it would simply mean the parties disagreed on the value of the technology and couldn't reach a deal for that reason.

The article didn't say whether the other company actually did try to copy it, which is why "It doesn't look so hard, we can build it ourselves" is at least a little ambiguous -- especially because it's unlikely that's a direct quote (might "can" have been "could"?).

Re: A Classic Startup Horror Story

#72

Post by pconf »

All good reasons for NOT sharing your startup's IP with prospective partners, not with their CEO, not with anyone.

This story could have been written about GO's negotiations with Microsoft almost 2 decades ago. When MS shined-on GO their lead in the tablet market, and many, many jobs, were lost.

We must remember that large Corporations are looking out for their own interests in ALL cases, recognize when they would benefit by putting us little guys out of business, and act accordingly. If they won't buy us without a detailed look at our IP so be it.

Re: A Classic Startup Horror Story

#73

Post by commanda »

Luckily, the acquiree knows that "It doesn't look so hard, we can build it ourselves" is almost certainly a mistaken belief on the part of the acquirer. I've found that any system, no matter how complicated, when explained by a competent engineer who knows the system well and is a good communicator, sounds "not so hard, I could build it myself". I have to remind myself that it is probably hard, and I could probably not build it myself for less than the cost of the acquisition.

Re: A Classic Startup Horror Story

#74

Post by j_baker »

mkramlich wrote: post #59
gyardley wrote: post #24

This is also a classic bigger-company horror story -- when the developers who said "this isn't so hard, we can do it ourselves" start working on it and run into all the tiny little gotchas that aren't evident in due diligence. Maybe I've just been exposed to a weird sample, but I've heard 'we can do it ourselves' at least a half-dozen times over my career and not once has anyone actually done it themselves.

That suggests what might be a good rule of thumb for distinguishing a rock star programmer from the other kind. The rock star says they can do it, and mean it. Then they do it. Done.

...or the rockstar says they can't do it, and mean it. Then they don't do it. Not done.

Re: A Classic Startup Horror Story

#75

Post by larrys »

nostrademons wrote: post #44
saturdayplace wrote: post #29

Earlier quoted context omitted.

> M&A guys can smell it when you really want a deal, and that makes them want it less. This seems perverse, but I'm guessing that there's some kind of economic intuition these guys have gained from being around deals all the time? Something like, "Wants a deal == needs it == a bad investment." This just seems to confirm that the best way to get money thrown at you is to not have a need for it.

I was out with an investment banker at a social outing, and I asked him "What's the biggest mistake startups make during the acquisition process?" He said, "Buddying up with their potential acquirer. Once you express strong interest in getting bought, you've just lost all negotiating leverage. You've got to play coy with potential acquirers until the deal is signed."

"Once you express strong interest in getting bought, you've just lost all negotiating leverage. "

Sure if you maintain that strong stance. But you can always change your level of interest and the opposite party will sense that and run to fix the deal. It's a game of chicken at that point but here's the thing. The acquirer is only looking at you and has decided they want what you have. If they didn't they wouldn't be attempting the acquisition.

So look as eager as you want. And then stop being prompt and act as if something else is going on and watch and see what happens. The investment banker doesn't want to loose a deal.

Re: A Classic Startup Horror Story

#76

Post by larrys »

pg wrote: post #51
dshah wrote: post #50

Earlier quoted context omitted.

Although this scenario is very common, it's not common for the story to get shared. Thanks to the entrepreneur that shared it. One of the reasons that folks don't share their horror stories around M&A is that often, in the back of their minds, they're still hoping that it was all just a big misunderstanding (wishful thinking). They're often also worried about creating a negative impression around the company -- there…

They get shared among YC alumni, and acquirers know that, which seems to mitigate the worst abuses.

"which seems to mitigate the worst abuses"

Why is it an abuse? It's business. Somebody can sugar coat and treat someone nicely (not be a dick) but in the end they are going to do what is in their best interest. Everyone does this. (I'm not claiming that some people aren't manipulative or more of an asshole than others.)

Re: A Classic Startup Horror Story

#77

Post by KaeseEs »

larrys wrote: post #76
pg wrote: post #51

Earlier quoted context omitted.

They get shared among YC alumni, and acquirers know that, which seems to mitigate the worst abuses.

"which seems to mitigate the worst abuses" Why is it an abuse? It's business. Somebody can sugar coat and treat someone nicely (not be a dick) but in the end they are going to do what is in their best interest. Everyone does this. (I'm not claiming that some people aren't manipulative or more of an asshole than others.)

If you have to ask why violating an NDA and lying in the context of a financial transaction (aka "fraud") are abuses, no one will ever be able to explain it to you.

Re: A Classic Startup Horror Story

#78

Post by larrys »

KaeseEs wrote: post #77
larrys wrote: post #76

Earlier quoted context omitted.

"which seems to mitigate the worst abuses" Why is it an abuse? It's business. Somebody can sugar coat and treat someone nicely (not be a dick) but in the end they are going to do what is in their best interest. Everyone does this. (I'm not claiming that some people aren't manipulative or more of an asshole than others.)

If you have to ask why violating an NDA and lying in the context of a financial transaction (aka "fraud") are abuses, no one will ever be able to explain it to you.

Sorry I didn't just fall off the turnip truck as you imply.

From the story:

"but given our waning cash reserves we felt like putting our eggs in this basket and creating a trusting relationship would increase the likelihood the deal would happen"

Naive. They took a chance and bet wrong. If you've been doing business long enough you would realize that a trusting relationship will not trump self interest. And any legal document doesn't mean anything if you don't have the resources to enforce it if the other side wants to get out of it.

"We are a company without the cash to try to enforce the NDA, and The Company knows it since they saw our financials during due diligence."

So they knew they didn't have enough money to enforce the agreement and they knew the acquirer knew that but yet they thought that it wouldn't be possible to have that used against them? That's naive as well.

Additionlly, everyone is assuming that they did steal info and that is a proven fact. It is not a fact. As of the writing of the story nothing has been built and there is no violation. We don't know if the company that "screwed them" ever did anything at all or if there was any abuse. Even if this went to trial (assuming funds were available) there isn't enough info in the story to even begin to make a judgment on who is right here and who is wrong. Companies always have disagreements and things get drawn out legally because each side thinks it is right. Nobody is looking to throw money out the window on clear cut legal cases. Two sides always see things differently.

When you say "violating an NDA" the NDA has not been violated. We have one side of a story. Given the facts this could be abuse or maybe not.

Re: A Classic Startup Horror Story

#79

Post by vlisivka »

nknight wrote: post #67
jacques_chester wrote: post #65

Earlier quoted context omitted.

Many lawyers will take cases on contingency. ie, they'll work for a percentage of any payout.

Yes, but that doesn't always help. If your opponent is rich, they can hire an army of lawyers, and you'll generally need a correspondingly huge law firm prepared to invest their own time and money in countering that. The kind of law firms we're talking about are both few in number, and generally fully-engaged by well-paying clients -- clients like your rich opponent. The incentive to take on a case like this is prett…

Army of lawyers may cost much more than NDA. :-)

Re: A Classic Startup Horror Story

#80

Post by tbsdy »

j_baker wrote: post #74
mkramlich wrote: post #59

Earlier quoted context omitted.

That suggests what might be a good rule of thumb for distinguishing a rock star programmer from the other kind. The rock star says they can do it, and mean it. Then they do it. Done.

...or the rockstar says they can't do it, and mean it. Then they don't do it. Not done.

Or the rockstar programmer says it can't be done, then he does it. And the big company looks at it and ignores it.
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