
Ask HN: My startup got an an acquisition offer. Please share your advice! - throwaway_123
I'm located in the EU and have built a server software project which is currently in private beta. This week, out of the blue, I've been contacted by an US company expressing interest in an acquisition. They talked about some cash up-front (6 digits) and hiring me. This is all new to me.<p>The company and I communicate via email and telephone conferences. I guess such a deal won't be closed only remotely and they will probably invite me over before reaching an agreement.<p>* Which steps would be involved in selling my project and getting hired by them?<p>* What guarantees can/should either party ask for?<p>* Should they be able to see the full source code in advance?<p>I would greatly appreciate your advice and experiences!
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ryanjmo
1) The very first thing you need to do is keep working like the aquisition is
not going to happen because these things more often fall apart than go through
and it can really screw up your start-up if you start planning for it going
through.

2) Next, you need to decide if you want to stop working on your own thing and
start working for someone else and figure out the minimum price you would do
that for. If you would accept one dollar less that is not a minimum price.

3) Next, you need to find out if this company will meet that price.

4) If they will meet that price, only then should you get a lawyer.

Getting a lawyer as a first step is terrible advice that will cost you a lot
of money and a lot of time on something that 1) you many not be interested in
2) may not actually happen.

We were in a similar situation a month ago and this was basically the advice
we compiled from angels, people at YC and pervious YC companies that were
bought.

We ended up mostly ignoring the acquisition talks because we weren't that
interested in being acquired and (as people told us would likely be the case)
they did not go through. It would have been a huge waste of time and money if
we got a lawyer like some people on HN suggested, before actually figuring out
steps 1-3.

~~~
jon_dahl
_Getting a lawyer as a first step is terrible advice_

With respect, I think it's great advice. He's far enough along that he's
interested in the price and already talking logistics. "Should they be able to
see the full source code in advance?" "Which steps would be involved..."

And even before that point, experienced advice is important. A good lawyer can
provide that, just as YC and good angels provided it in your case.

 _that will cost you a lot of money and a lot of time on something that 1) you
many not be interested in 2) may not actually happen. ... It would have been a
huge waste of time and money if we got a lawyer like some people on HN
suggested, before actually figuring out steps 1-3._

But if you find an attorney who will defer legal fees until an acquisition is
finalized, you wouldn't have that problem.

------
michael_dorfman
Lawyer up.

Acquisitions can be hairy. My first startup was acquired in a semi-hostile
takeover; I'm not able to discuss the details, but I can say that a lawyer
(and a trusted advisor-- not necessarily the same person) would be a good
thing for you right about now.

Beyond that, I'd think about the bullet points of what it is you are after. 6
digits cash up front is nice, but what else are you looking for?

In the absence of better legal advice, I'd suggest that you definitely want a
job contract with a guaranteed sum-- say, 1 year's salary. (If things don't
work out, they'll fire you, and you'll be without pay, otherwise.)

If it were me, I'd let them see the full source code as part of a "due
diligence", after an initial contract is signed; make sure the "due diligence"
has a fixed timeframe, and that there is a penalty for them breaking the deal
between the signing and the completion.

------
oroup
I was the acquirer in a similar situation. (See
[http://blog.viglink.com/2010/08/02/viglink-acquires-
driving-...](http://blog.viglink.com/2010/08/02/viglink-acquires-driving-
revenue/) )

A few thoughts:

* Meeting them in person is 100% imperative. Go to dinner, spend time together, share a bottle of wine. It is important that you like them and vice-versa. If you don't, don't do the deal!

* Inevitably as the deal progresses, something will come up, something with the potential to kill the deal. The personal relationship you built (or didn't) in the point above is what will pull you through (assuming that's what you want.)

* Hire an attorney who gets the culture - someone who operates out of Silicon Valley and knows how these kinds of deals get done. Using an attorney with mismatched cultural expectations will not only put the deal at risk but drive costs way up.

* Beware deal fatigue! Deals that drag on too long have a way of not happening. Get together in person, hammer out key details, turn documents quickly and get it done. It is not done until the wire transfer clears!

* As far as compensation to you, there are three key levers they can pull: Cash now, cash later and equity. How they offer to distribute those tells you a lot about how they see what they're buying. If any of those three buckets is zero, be wary.

Good luck!

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petervandijck
If you're somewhat interested, first, negotiate. Make them understand that
this won't be cheap. They have likely decided that this way (acquiring +
salary) is cheaper than building it themselves, and they're likely offering
you a lot less than they are willing to pay.

1\. double the price (from, say, 150,000 US to 300,000 US, or from 500 to
1,000). Just double it. Really. You can always go down.

2\. Ask for a guaranteed yearly salary of 150,000 to 200,000 US$, with
benefits. This is not too much.

Then see how they respond.

As for the hiring: make sure they are responsible for getting the visas. I
don't think they should be able to see the full source code in advance, it is
quite possible that they are just trying to steal your ideas.

~~~
throwaway_123
Thanks, doubling the price seems logical.

Any more opinions on the yearly salary -- is 150 to 200k an acceptable amount
to ask for?

PS: Collectively thank you all for your great comments! They help me a lot
clearing things up.

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kls
Retain some non-dilutional ownership, if you are pre-revenue beta and they are
throwing 6 figures and a job, then they think you have some gold there. Retain
5% to 10% non voting interest, that way they are not worried about your
politics in executive leadership. Basically you become an employee with a hell
of a bonus plan.

No to the full source code, I would bind then with a non-compete if they are
insistent on seeing all of the source code. If they are concerned about code
quality, a module's code base should serve as evidence of the overall code
quality.

------
jacquesm
This is not something I'm going to be able to even begin to answer in a
comment on a website, that's a couple of hours just to document the whole
process and make it understandable if you have no experience.

First step: get a corporate legal eagle on your side, one that has done this
multiple times and has a good track record. Find someone near you that has
sold a business and ask for a referral, that should help you.

You will be doing technical, legal and financial due diligence (financial only
if they buy your company, not if they only buy the product).

You will need to investigate the difference between an asset sale and selling
your equity, in a deal like this that can make a huge difference tax wise!

You need to find an entrepreneur close to you that has gone through this to be
your 'second opinion' on anything you do.

Try to move from 'telephone conferences' to more email based communications
and keep the emails. Do _not_ negotiate for yourself, place another party in
between during the negotiations (for instance your lawyer).

Set yourself a target price and be prepared to walk away if it looks like
you're not going to make your target.

Set that price _now_ , not when you're negotiating.

------
petercooper
I'm in the UK and went through a similar situation 3 years ago (minus the
being hired part). I wrote about it here:
[http://peterc.org/blog/2010/257-three-years-ago-i-sold-my-
st...](http://peterc.org/blog/2010/257-three-years-ago-i-sold-my-startup.html)

While I think "get a lawyer" is good advice, I managed fine without (I'm no
lawyer but I've studied law and have a good eye for legal jargon and contract
wordplay). I think having financial advice is, perhaps, a better first step.
Depending on how your "startup" is formed will depend on how you can sell it
and how any proceeds would be taxed (or not). You may not even need to pay any
taxes due to entrepreneur's relief (if you're in the UK.)

Ultimately, you'll also do well to use escrow - a third party who gets the
money before you send anything of serious value to the buyer. This is the sort
of stuff your legal advisor will talk to you about, unless you're doing it
solo (I had a good idea about how to progress just from avid self-reading on
the topic of acquisitions).

Legal representation and a visit would be particularly wise if the deal is
contingent on you working for them afterward. After all, they may structure
the deal in a way where you're indentured to them or only get certain shares
of the cash after certain time periods. This could be complex and would
benefit from legal advice on your side. If it were a simple "we'll pay X for
Y" deal, that's a different kettle of fish.

You also need to be aware of visa issues if you need to work on-site. If the
acquisition is sizable enough and you are established enough, they may be able
to get you in an O-1 visa, especially if they'll pay you handsomely. But they
need to be paying for that process and you need that in the contract ;-)

~~~
ximeng
Nice article.

"I had a good idea about how to progress just from avid self-reading on the
topic of acquisitions"

Maybe you can suggest some reading materials?

------
jon_dahl
Not that I'm an expert on this sort of thing, but I'll bite.

* Get a good lawyer if you don't have one already. If they're a Silicon Valley company, consider getting a lawyer at a top SV firm (Orrick, Gunderson, Wilson-Sonsini, etc.) and asking them to defer fees until the acquisition goes through. That way, you're not out anything if things fall through. (Ask for a referral to an attorney on HN and I'm sure you'll get some good connections. I could refer you to a few.)

* If it's primarily a "hiring bonus" acquisition, it might be cheap and easy to do. In other words, if they mostly want you and your expertise, not (just) your product, they're less likely to screw you.

* Even if you really want the deal to go through, don't stop everything and wait for that to happen. Keep moving the business forward as if nothing will happen.

~~~
_delirium
Are top SV law firms' fees in the price range where they'd make sense for low-
six-figures acquisition? Not a rhetorical question; I have no idea if you can
expect to pay closer to $10k or closer to $100k for their services.

~~~
jon_dahl
I think they usually know how to scale their fees. Equity funding can easily
run $50K+ in legal fees, but we paid $4K (count 'em) for a medium-sized angel
round, using one of the top lawyers in the valley. We were able to do this by
keeping the round structure simple. My guess is they could do the same for a
small acquisition.

------
gfodor
One important lesson I learned in getting acquired is that it will dominate at
least one of the founders' time. This means that simply going through the
negotiation process will put a major dent in your ability to grow your
company. Your potential acquirerers, if they're savvy, realize this, and may
see this as leverage as the deal goes on. (Your time is much more valuable
than theirs, as a small company.)

So, you need to fail fast. If things are looking like they're going to be a
long negotiation process to get to a point of agreement on the major terms,
you need to realize that to move forward at that point you are likely ending
the startup. If you get acquired, you win, if you don't, you'll have a hell of
a hole to dig out of and you'll likely not be able to.

This, like anything else, might be worth the risk. But in an ideal scenario
you will walk sooner rather than later if you have faith in your business.
It's better to walk away quickly, get back to work for 6-9 months, and
hopefully have them coming back to you more engaged and potentially with a
higher offer that you can close in on quickly after you've solidifed your
business and product more.

------
nlavezzo
You didn't really ask this, but here goes... Do you really want to sell your
company before it's out of private beta? If your product (and yourself as an
employee) are worth six figures now, what is the likelihood that will decrease
after general availability? That is an actual question though, not rhetorical.

If you're not confident in continuing to increase the value, you may want to
cash out now... But you're only alive and productive for so many years, and
developing a product people are interested in isn't something you can just
turn around and do again automatically. I think if it were me, I'd probably
hold out and keep rolling the dice if I felt they were loaded in my favor :)

------
sh1mmer
When you get a lawyer make sure you know the jurisdiction you are going to do
the acquisition in and make sure the lawyer not only says they know about that
jurisdiction but has a case history. You may need more than one lawyer, e.g
one in each jurisdiction.

It's incredibly important to not just get any lawyer but one that is familiar
with both what's legal, and enforceable where the sale takes place, as well as
the tax implications of the various payment options you will be negating on in
whatever jurisdiction you want the money to end up in as well as the one it's
leaving.

------
scruffy323
First question in my mind is why would you sell? Are you in it for the money
or to build a great product.

Would you still get to lead the project if they acquire you and the company?

Do you think you can be more successful on your own?

I think those the important questions first. But if you do want to work for
them what ever you reasons. Meet them see if you like the people and the
culture. The rest is negotiations and I wouldn't give them your source code
what ever you do.

Do your self a favor and get your self a lawyer for the contracts and not one
they supply you. A lawyer they supply you really just works for them.

------
hansel
I concur with the rest that say don't get a lawyer too soon, but that you do
need one if things get serious. The key questions to consider are: 1) have
they proven that they are serious? Sometimes they are just fishing for
competitive information or trying to steal code (don't get all paranoid and
defensive, but be smart, don't show code. Show efficacy). Make them prove that
your company and tech is specifically what they need and that they have a cash
ready to pay. If they say ‘well, we can get money to buy you’ then I’d be
suspicious. 2) What is the company worth to YOU? Its not just about cash, but
is the offer of employment something positive or negative to you? Then ask
yourself what the company is worth to THEM. Do they need this badly and can’t
do it themselves? Or is your tech one of several vendors they can buy? There
can be a large difference how you two value your company. 3) Consider your
alternatives such as the following: keep going on your own, ask them to
license the tech from you, ask them to invest in you, charge them for
consulting 4) Consider their options: are there others to acquire and is the
industry in consolidation mode right now where if you don't get acquired you
loose your chance. 5) Overall DO NOT SHOW THEM CODE unless they buy it or
license it or put up cash in escrow with an escrow entity that YOU choose. If
they are buying tech, you can offer to let them test it out for efficacy.
Seeing code does not prove efficacy. In the final due diligence of a deal they
can inspect the code or you can mutually agree to a 3rd party inspecting the
code.

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inquisitor20
I have nothing to add but Congrats!!! Validation of effort is a very read
commodity these days ;)

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gojomo
Did you know of the company before they contacted you? Do you know of their
reputation or have common-contacts with which to check it? Do you know them
well enough to know you'd want to work with them?

Those would be the foremost questions for me.

~~~
throwaway_123
They are quite established and offer an exciting environment.

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hackfest7
I had something similar happen to me about 18 months ago and chose not to take
it. My company ended up not making money and I took another job -- not nearly
the same money as I would of got. Do what you feel is best for your career. It
sounds like a good problem to have, and hope to be in your shoes again!

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zaidf
Getting a middleman advisor who does M&A to represent you for a commission may
not be a bad idea.

------
Elite
How did they find you?

~~~
throwaway_123
I guess by a referral. My software is also easy to find on Google for what
they are looking for. I do have the feeling it's about hiring me with my
software as a bonus, instead of the other way around.

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cmer
Do not just send them the source code. Agree to show it to them for as long as
they want, on your laptop, and in person.

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kno
Please talk to a lawyer.

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fedd
btw, i'd negotiate it to 7 digit, or make it working business and sell for 8-9
digit!

ps/ i have no experience just dreams

