
Ask HN: Acquihire early stage bootstrapped SaaS advice - throw_advice
Hi,<p>I&#x27;m running a bootstrapped SaaS service in the software engineering space. It&#x27;s really early and slowly getting some traction. A pretty big player in this market has approached me about a possible acquisition &#x2F; acquihire. My service would become part of their portfolio of services. I&#x27;ve had talks with C-level and we&#x27;re moving to a technical due diligence. I&#x27;m open to an offer, depending on the terms of course. Any tips from people who went through the same process? Should I have an NDA in place for the DD?
Thanks!
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alfredallan1
Haven’t been through an acquihire process myself, but I am familiar with this
sort of thing.

Yes, you should have an NDA and other agreements (e.g. an MoU) before you
divulge serious details. Think of it like this: there are two possiblities,
and you can’t know in advance which is true: 1)BigCo is acting in good faith,
2) BigCo is acting in bad faith. In the first you have nothing to worry about.
But if it is the second, after they’ve figured out exactly how you’ve
implemented things, what exactly stops them from having their own techs build
in a few weeks/months? An NDA/MoU or any other agreement doesn’t mean you’ll
definitely sue them if they screw you over (mainly because you’re not that
rich), but it will give them just cause to think long and hard before doing
so. If you have signed paperwork validating your stand, you can
(theoretically, but also practically) raise a stink about the whole business,
if they turn out to be “dishonest”.

The more potential leverage (i.e. legal documents) you have, the greater the
opportunity cost for them to screw you over - much easier to simply buy you
out instead of copying your tech, and risking a furore in the media, and
possibly with customers.

Understand that this is just business - just cost and benefit. They obviously
have much to benefit from your tech, else they wouldn’t be pursuing you. Make
sure the potential cost of possibly screwing you over is high enough. If it is
cheaper for me to simply copy you and profit, and know that you can’t do a
damn thing about it, I’d be damn stupid not to.

That being said, don’t be a dick to an acquirer if you want to get acquired.
Be upfront and ask for the paperwork. Call it a proof of good intentions. If
they are genuine, they’ll appreciate your situation and arrange it quickly. If
they don’t that’s your first sign of trouble.

Good luck.

~~~
pkilgore
A corollary to this great answer, which I hope is apparent, is to get a lawyer
who has experience with this sort of deal. A good one will be able to advise
you through the whole process and tell you when they see red flags. Worst case
you burn a few thousand dollars to prevent being taken for more. Think of it
like insurance in that case.

To put it another way, it's usually cheaper to hire a lawyer to avoid a
dispute than to resolve one.

~~~
throw_advice
Parent's and your advice make a lot of sense. I have a lawyer that is in this
space, luckily. They are in the loop. I was just curious of other experiences
from the HN "hive mind".

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dsugarman
The real danger of going through this process is that you will get so enamored
with this acquisition that the normal drudge of plugging away becomes
uninteresting in comparison. They drag you along, you stop shipping, you stop
growing and then they can offer you whatever they want or nothing at all. In
the end, I don't think many people are very happy post acquisition, so if you
feel good about your product and team, you might want to just stop talking to
them and go back to work.

~~~
golergka
Or, worse yet, you spend a lot of time and effort on this acquisition, time
passes, due diligence goes through, all of your team already expects it to
happen, growth stalls, everybody slacks off - and then they cancel it
completely at the last moment.

~~~
wolco
What I see happening at a larger scale company merger is the walkaway price
clause. I wonder if it could be used here as a poison pill.

------
webwright
One thing I've said to acquirers in the past is: "You're a big company that
can afford to dedicate a person full-time to this deal for months with no
impact to your company's focus and bottom line. We're not. I'm excited about
this opportunity, can we brainstorm how to limit the cost of exploring this?
And perhaps how we could share the cost a bit more equally?"

When we get into brainstorming mode, two things I navigate towards are: time-
boxing the exercise (setting and sticking to an condensed schedule) and
earnest money from them after some amount of diligence or discussion.

If a suitor can't commit to getting to a handshake/LOI after X weeks, I
wouldn't pursue it.

Unrelated advice: try to hack your own brain and your team into believing that
the default result of this is "no deal, time wasted". Many/most deals fall
through, which can feel pretty brutal if you get optimistic about it.

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csallen
Understand that your compensation can take many possible forms. It's _all_ up
for negotiation. Don't hamstring yourself by assuming you must be paid in
cash, or that the payment must all be upfront, etc. Consider the myriad other
possible options and variables that you can tweak to get the the outcome you
desire. If you can, talk to people who can help you ballpark what a reasonable
level of compensation is for others at the company in roles similar to yours.

If the process goes far enough (i.e. you like the offer), get a lawyer. I got
a lawyer when my company was acquired, and she was great. She'd seen similar
deals in the past, and she worked very hard over the course of a month to look
out for my interests. There are all sorts of little clauses in this type of
paperwork that are negotiable and worth negotiating. In the end, her bill
turned out to be something like $2,500, which was more than worth it. I was
expecting 4-5x that.

~~~
highace
Wow, $2,500 is great. Can you share who that was? I had a small acquisition a
few years ago and my bill WAS 4-5x that.

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saalweachter
Don't forget to do _your_ due diligence.

Don't treat the acquisition as something that is purely about them making an
offer you like. Dig into the nitty-gritty of how they run their company and
its financials and whether you want to be working there. You're going to be an
employee of them if an acquisition happens; what does that mean for you and
your team?

------
ryanackley
I've been through a small acquisition/acquihire twice. The first time, it was
part of a small team. The second time it was my own bootstrapped one-person
startup.

My biggest piece of advice is if you believe in your product and that it's a
good fit for the acquiring company, you should ask for an earn out as a
sliding percentage of sales over 3 or 4 years. For example, you get 75% of
sales the first year, 50% the second year, etc. In my experience, the earn out
is a common part of product acquisitions. It aligns everyone on the goal of
promoting and building on the technology being acquired.

~~~
benjaminwootton
Agree with this. You would usually discuss valuation etc and complete
financial and technical due dilligence once you have broad agreement.

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antaviana
I would first set a sell price and ask a 15% diposit before due diligence. If
due diligence fails, you keep the diposit, if DD succeeds, you get the
remaining 85%.

This is a good test for good faith and allows you to offset bad faith.

~~~
koverda
Is this a common practice?

~~~
nopzor
It’s not common but isn’t completely unusual. It can be structured in
different ways but is often referred to as a “breakup fee”. My sense is it’s
much more common on larger deals than smaller ones, though.

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haneefghanim
Great points made here. We went through something similar not too long ago.
From that experience, I recommend you discuss at least the ball park of what
they're willing to offer up front (and what you're willing to accept), before
going through any further diligence. This way you can avoid going through an
extremely distracting process and then only find out at the end that the offer
isn't a compelling one.

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rabidonrails
You should already have an NDA in place preferably including a non-
solicitation clause, usually that comes first. After that you should have an
LOI in place. After the LOI and before signing a purchase agreement, you'll go
through DD. Even at that, you should hold back your IP until the Nth hour and
you have a final version of the purchase agreement if you think that there's
IP that they could steal and recreate to put you out of business.

Obviously, you should speak to a transaction lawyer too.

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petercooper
I was in a similar position several years ago, and it seems like you have
already jumped through the first mental hurdle.. actually being prepared to
give up working on your own business. (Note, I don't mean this in a negative
way, it's a serious consideration and opinions will vary.)

In my case, we met, no NDAs, they outlined initial terms (no actual numbers),
and the idea of them shutting down the thing I'd built and working for them on
their flat salary structure was too unappealing so I withdrew before we got to
numbers.

------
jonstewart
I've been through this process. Everything came out alright, but had some
bruises.

It's easy for the acquirer to take their sweet time. Some here suggest
ignoring them completely. I think it's fine to go down this road if it's what
you want and you like them well enough, but, first, understand that they want
you and your team, so you should treat your interactions like a normal two-way
job interview. Do you like and respect the company? Do you like and respect
the people? Could you work there for five years?

A competitive situation is for the best--that encourages the acquirers to move
swiftly and to ignore immaterial imperfections. If you can't create a
competitive situation, then be sure to do the following: 1) reserve enough
time and/or sandbox the rest of the team so that the business continues to
advance during discussions; 2) if you sign a no-shop provision (it'll be hard
not to), make sure it expires in 30-45 days; 3) do not extend the no-shop
provision. If they can't close in the initial timeframe, it's fine to let them
keep going so long as you still like them, but be very firm about not
extending the no-shop.

Be sure to be professional and courteous throughout, even if things don't go
through. It's good practice and you'll want a good reputation. Always remember
your BATNA.

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ellimilial
A bit orthogonal to the questions (apologies for that), but leaving the link
just in case someone might find it useful:
[http://www.paulgraham.com/corpdev.html](http://www.paulgraham.com/corpdev.html)

~~~
JSeymourATL
_The tactics you encounter in M &A conversations can be like nothing you've
experienced in the otherwise comparatively upstanding world of Silicon Valley.
It's as if a chunk of genetic material from the old-fashioned robber baron
business world got incorporated into the startup world._

Brilliant!

------
saluki
If you are getting traction and enjoy what you are doing focus on that and
keep working at it. You might not be interested in selling in 6 to 12 months
or you might sell for 10x what you would sell for now.

If you haven't check out @DHH's start up school talk. (Link is to a section
for you, but go back and listen to it all)
[https://www.youtube.com/watch?v=0CDXJ6bMkMY&feature=youtu.be...](https://www.youtube.com/watch?v=0CDXJ6bMkMY&feature=youtu.be&t=17m20s)

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johns
I’ve been through M&A twice from the selling side and once from the buying
side. You need an LOI before you turn anything over you wouldn’t tell a
potential investor. NDA should have been the first thing done before talking
in detail. Feel free to reach out if you want to talk confidentially through
the process.

Edit: if they are keeping the product/tech you should have them value it based
on future expectations of value. It’s less of an acquihire in that case. Don’t
take an acquihire price if they’re going to immediately realize more value
than they’re paying you to take a job.

~~~
throw_advice
Thanks John. I looked up your background and will take your advice to heart.
You are correct it is not a strict acquihire. The product will be used
/integrated in some form. There is just no real revenue / customer base as of
yet.

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laurentl
[https://tylertringas.com/selling-my-bootstrapped-saas-
busine...](https://tylertringas.com/selling-my-bootstrapped-saas-business/)

Might contain a few useful tidbits. What most stuck with me from his pieces on
microSaas is that the best time to sell is when you don’t have to - which
implies that you should not put yourself in a situation where starting the
talks leads you to have to sell (because you fall in love with the idea of
selling, of you neglect the business, etc)

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anoncoward111
Only take the deal if it's great money, a quick process, has very little risk
of failing, and you don't believe you could make way more money operating
independently.

I am not a good founder. I have weak risk tolerance, I'm lazy, and I don't
have the mental fortitude needed to see complex problems through to
completion.

So if someone seriously offered me quick money for my lackluster business,
that's the only time I would take it.

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foobaw
Someone like Justin Kan could help you with this process. Look into his
startup Atrium - but looks like you already have an experienced lawyer, so it
might not be as useful.

I'm also going through this process right now, and it's a lot more work than
I've envisioned. Others have said this, but make sure not to burn out - I'm
trying to best.

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3pt14159
Lots of great stuff here, but I'll add this:

Make sure if you absolutely can't stand it and you leave after 7 months you
still are ok. You'd be surprised at how bad things can get.

Also, if you want more specific advice tailored to your situation feel free to
email me. I've been around HN for almost a decade and I know how to keep my
mouth shut.

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crb002
License it to them as a whitelabel reseller (15% commission) with the option
to buy? They can go to market with it immediately giving you immediate
cashflow with less DD and you are protected by the resell agreement that they
can't copy it.

~~~
pc86
If someone comes to you to discussion purchasing it and you come back at them
with a commission reseller deal they're going to think you have no idea what
you're doing.

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rajacombinator
No way I’d go through any DD process without an accepted offer. They’re likely
digging for info and will just clone your product themselves. No offer on the
table? You are naive and will get screwed here, hire a lawyer now.

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endlessvoid94
I'll just leave this here as on point of view:
[http://www.paulgraham.com/corpdev.html](http://www.paulgraham.com/corpdev.html)

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arikr
You might get a lot of value from the following book

"Magic Box Paradigm: A framework for startup acquisitions"

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snissn
lawyer up

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dustingetz
"I'm open to an offer" is fundamentally unserious and everybody knows it

~~~
pc86
It's not and they don't.

