
Ask HN: YC rejected. Now an acquisition scenario came up. Help? - man_bear_pig
Anyone out there that can help me?<p>So I found out the unfortunate news that I didn&#x27;t get the interview for YC W&#x27;14. However, yesterday, I received an inbound inquiry on my startup from a global player asking if we want to sit down for a potential acquisition discussion.<p>Quick Background: - my company is in public beta and haven&#x27;t even launched yet! No crazy traction, proprietary technologies, some revenue (nothing meaningful). - we&#x27;re going to start our angel fundraising efforts soon - player is the largest in the space (I&#x27;m not even sure if I can disclose details&#x2F;name that&#x27;s why I&#x27;m not disclosing specifics). - they specifically said that their senior M&amp;A team and C-level execs have been thinking about building a product similar to ours and would want to discuss potential for team&#x2F;product acquisition.<p>There&#x27;s a million scenarios&#x2F;questions going through my head from fundraising to why I didn&#x27;t even get a YC interview.<p>Anyone who can opine on the best way to approach this would be greatly appreciated.
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OmarIsmail
YC's advice around these kind of talks is that they're a colossal waste of
time. If you're interested in an acquihire situation then there may be some
value in meeting, but otherwise the chances of something meaningful coming
from this is very low.

Remember, for these M&A guys, meeting people like you is there job. For them
having these meetings is a productive use of their time. It costs them
nothing, and they only gain more insight into the marketplace.

What do you get out of these meetings? They're not going to tell you anything
special/secret about their product/market.

What I've seen some people do is have an initial call/meeting (don't travel
for it) for about an hour to feel things out. If it seems like there's genuine
interest then have there be a "break up" penalty. i.e. if things don't work
out they pay you $5-10K.

That way you get something for your time if it doesn't work out, and if
they're not serious they won't agree to it.

~~~
man_bear_pig
Hmmm. That's interesting (breakup-fee). Is that market or would you say it's
an exception for startups in acqui-hire situations?

My only reason why I would take this a bit more seriously is that I know the
following: a) a friend of mine who plays in the similar space - she has had
talks with them for couple of months earlier this year about starting
something similar for them before her business got got acquired by someone
else. She told me that they seemed to be pretty serious and have been
contemplating for a while how to get it started. b) there's also not many
players who really understand that market and/or are in the market. c) they
have precedence of similar behavior in different part of their business within
the past 6 months (early stage acquisitions - one was series a then 6 months
acquired but they're definitely on a talent or talent/hire acquisition spree).

Thank you so much for your advice!

~~~
mst
Rather than a break up fee, perhaps it's worth charging them consultancy rates
for explaining what you're doing to them - after all, they can't unhear that
information so why not charge it at rates matching the value to them in their
conversations with the next company if you end up not coming tot terms?

~~~
caw
I would think the standard would be a breakup fee. The fee can be orders of
magnitudes larger than any time involved (see AT&T & TMobile acquisition)

------
gizmo
It doesn't hurt to be a cynical in this situation. They will want to do "due
diligence" which means they discover many valuable things about your product
before they have really committed to anything. This is certainly to their
advantage. They are also likely to make you a low-ball offer if you come
across as inexperienced or gullible.

When you engage in any sort of negotiation with M&A guys (who are bound to be
much better at negotiating than you are) you really need some sort of leverage
or you'll get a raw deal. So unless there are multiple suitors that you can
play off against each other this is likely to turn out to be an expensive
distraction for you.

~~~
man_bear_pig
Thanks for the insight. I'm pretty sure I can negotiate better than them as my
partners and I have done a ton of complex M&A deals in the past so no one is
going to fk me over in any way, but I do agree with you that this can be an
expensive distraction. I was thinking whether to invite other suitors to play
it off each other to make it worth my while and this in turn, can help with
the fundraising side with the whole intention of just maximizing the deal
structure and terms and amount raised w/r/t fundraising. Thanks so much for
your input!

------
christopherslee
From my experience, I would open the discussion with them and be honest about
where you are trying to go with the product. Offer up potential partnership
arrangements/rev share (whatever makes plausible sense.)

In my opinion, if they could (and it's rare that they would) knock you off
overnight, then maybe you don't have a business to begin with. YMMV with that
one, but thats what I generally think about it.

Although everyone will say, don't let it be a distraction. It's a HUGE
distraction. Your motivation to continuing building the product may wane, you
may start to devote a lot of time to the negotiation strategy. It's a
distraction.

Now should you get to the point where you think the acquisition is a good
route for you, really the only way to improve the offer is to have other
offers (whether that's raising money, or a different acquisition offer.) If
you have little revenue to speak of, I'm not sure how you argue you should get
a 5000x multiple instead of a 300x multiple.

~~~
man_bear_pig
I play in a multi-winner space if you play it one way; a winner-takes most
space if you play it another way so I'm not too worried about competition.
They're actually worried about another competitor who just got in so they want
to build out something similar (is my guess).

Do you think that this in any way helps me to be able to raise money or would
real investors just brush it aside (i.e. does it provide any real validation
of concept)? Thanks!

~~~
christopherslee
I can't say whether or not an acquisition offer is validation of an idea from
an investor's perspective.

To play devils advocate, I could also argue that if you are considering it,
then you weren't hockey sticking, and thus i shouldn't invest in you.

Also, one thing to consider is, and this is my opinion, that taking early
investors could potentially be an impediment to an acquisition. The reason
being is that your investors are interested in getting some kind of multiplier
on their return. If you were considering a talent acquisition, not having
investors means that almost any sum of money could be worth it to you.

When my-cofounder and I were shopping around for investment before, we were at
a point where we weren't sure if we needed to hire a sales force to help us
grow our customer base. So we put together a plan for what kind of money we
needed.

One kind VC gave us the advice to try doing the sales ourselves for the
summer. If it worked out, then we wouldn't need to raise any money. If it
didn't work out, then at least we would know it was really hard, and then we
could go try to take outside money. Either way we would know something.

Fortunately for us, we ended up trying to do sales that summer (it was hard.)
And because we had been so open with potential partners (and acquirers), we
ended up with a deal that worked out well for us. I'm not sure it would have
made sense had we raised any money.

------
alexjarvis
Had a friend who was recently in a similar situation minus the YC part and
basically it turned out to be a massive waste of time (and legal fees) when
they decided he wasn't the 'right fit' for their culture. It was more of an
acqui-hire, but the lessons learned are still relevant here. Start discussions
but don't let it take over everything as they might just be testing the water.

So in summary, continue business as usual while you negotiate and be skeptical
of their motivations.

~~~
man_bear_pig
Thanks for the insight! Please let me know if there is any way for me to be
able to reach out to your buddy.

------
quizotic
1\. Why are you still mourning YC'14? 2\. Why are you asking for uninformed
advice on a public forum?

In situations like these, I like the Mathew Looks rule.

Mathew was a USCF expert on my high school chess team, trying to teach me to
be a better player. He set up a chess position with chances for both sides,
and asked which side I liked better. "I have no idea," I replied. "That's why
you lose. It doesn't matter whether you're right or wrong. It matters that you
have an opinion."

Form your own opinion about this situation. Like it. Feel confident about it.
Then follow through, as well you can.

It doesn't matter what anyone else thinks. It matters what you think.

~~~
man_bear_pig
1\. not mourning but stating a fact and also successfully got people to
comment and provide feedback.

2\. as an uninformed participant, even if 9/10 are deemed irrelevant
information any incremental and relevant information will be beneficial in my
decision-making. I have my own opinion but opinions are usually just that.
Opinions formed through ignorance when there are market participants willing
to provide insight in order to help me better prepare for what's to come is a
naive way to attack this problem.

I simply asked for advice. Insight. I know when to pull the trigger and know
how to pull it. I just want to know before I pull the trigger, do I have as
much information to form my own opinion. When you don't know enough to even
form you own opinion, then what good does going with instinct do?

------
colbyh
Are you properly incorporated yet? If so, ask for their specific legal advice
and take the meeting. Don't disclose anything that the potential acquirers
could use to build their own product and see if their interest is sincere. If
so, then make a decision. Until then chances are they are really just trying
to pick your brain for insights before they build their own competitor.

The way I see it is that if the fit is good and the money is solid then maybe
it's worth it. If not you have at least one fantastic example of validation
when it comes time to raise funds...

------
gametheoretic
Disclaimer: I don't know anything about anything.

>my company is in public beta and haven't even launched yet!

Buy low, sell high. You don't approach this early for no reason.

>they specifically said that their senior M&A team and C-level execs have been
thinking about building a product similar to ours

That was meant to scare you. Ironically, if you're smart, it achieves the
opposite. "Ok, so why don't you? What does a 6-man startup have that a global
player doesn't?"

My tentative vote, pending further information: Nay. From your thread
comments, you seem psyched about the product - see how far that enthusiasm can
push your product before you risk losing it. When you're enthusiastic, you
want to "control your own destiny," as they say in college football. Also,
beware "best case scenario" bias. If it were me, I would promise you creative
control, teams on top of teams beneath you, fair captain. But where do you see
that. Google acqui-kills 100 companies a year.

------
alexnewman
The "YC advice" is similar to the oversimplifications I have heard, pawned off
as wisdom. Take it as a chance to listen, learn and develope a relationship
with those guys. Just make sure you understand who the decision makers are,
and only deal with them.

~~~
man_bear_pig
cool. Thanks!

------
diorray
If you don't love your product, just sell it.

------
mtabini
What do _you_ want out of this?

Unless you can answer this question, any advice is essentially pointless. In
my experience, you can imagine up all the scenarios in the world (I know I
have many times), but reality depends on so many factors outside your control
that things are likely to go in a direction you do not expect anyway.

Regardless of whether you want be acquired or not, you should take that
meeting. You have nothing to lose, and everything to gain: Even if nothing
comes of it, it will be an opportunity to gather valuable information, create
useful connections that could be useful later on, or lead to other business
opportunities that aren't even on your radar right now.

Most importantly, you need to look at this and every other meeting you take as
the beginning of a negotiation—even if you never discuss an actual business
opportunity. And the trick with being a good negotiator is not necessarily to
win, because nobody wins all the time. Instead, the trick is to stay in
control of the process. Talk to these folks, and see what they want. A company
that is serious about acquiring you will want to get to know you first,
understand your strengths and weaknesses, and so on. Your job is to steer the
discussion in a direction that's worthwhile to you and never, ever, ever, ever
(ever!) let it take more of your time than it deserves.

So many of the other folks who have commented seem to worry about this being a
waste of time, or the other company attempting to steal your ideas and
businesses through the due diligence process. But how else are you ever going
to get a deal done if you don't interact? In my experience, due diligence is
the _last_ step of an M&A exercise: after the parties have agreed on all the
terms, its role is to simply make sure that neither party is trying to pull
one over the other. And it's an expensive process, so no-one really wants to
do it until they're sure they want to go ahead with the deal.

So, nobody is going to start a serious negotiation by asking to look at your
financials or read through your source code (and, if they do, you should
probably walk away) until they are willing to put a commitment of their own on
the table. In the meantime, just let the discussion take its course and push
back, firmly but politely, every time you feel that the process asks more of
your involvement than you feel is warranted at that particular time. Again,
any serious businessperson won't mind—heck, they may even try to measure up
your worth by seeing how far you're willing to be pushed before you start
pushing back.

Oh, and you should run—_run_—and find a good advisor. This is the kind of
discussion you want to sound off with someone who can help you examine your
specific situation… which is hard to do in a public forum like HN :-)

~~~
man_bear_pig
Thanks so much for your insights. This one is my favorite so far! Actual meat
in here for me to chew on.

What I want or what I want for my company? I work with a team, not for myself
and even though my team works for me, I like to think that I want to do what's
best for my team because at the end of the day, without my team, I have no
company. If I had it my way, I wouldn't even consider it as for me, it's all
about going big or going home. However, some of my best friends are part of
this team, those who do not have luxury career hedges that I am fortunate to
have, and for some of them, even an acqui-hire would do wonders for their
careers.

I do agree with you that I should take that meeting. The meeting, I found out,
was referred internally by an insider who knows my team and my qualifications
- so she would not advise us to waste time knowing that we're about to embark
on a fundraising process; and I don't think she would have referred us to talk
to them if she didn't think it was serious (at the minimum a great opportunity
to learn and network).

I've worked on enough deals where a lot looked promising and serious but just
didn't make it to the finish line. I'm fine with that. I just have no idea
what the process is like, what the expected probabilities are on a timeline,
what is appropriate for me to push back on, what are these type of companies
looking for, etc. On top of that, if there is any way if this gets fairly
real, I can maximize the value of this company with respect to fundraising.
But even there I have no idea as to how investors perceive these kind of
things and what impact it may have (i.e. do I go talk to investors and say hey
look X company wants to potentially buy my team out? But I'm just getting
started and so I want your money and really make this thing take off? Or does
that make me look foolish because they simply don't care?

I wish I had an advisor to ask these specific questions! Hence, why
communities like YC would have been great for where I am at this point of my
startup.

Thanks again.

------
wellboy
Will this be able to make $100M/year in revenue within the next 3 years?

If it won't probably be able to make >$10M rev/year, you're not super
passionate about it and they want to buy it for $3M+, I'd go for it.

------
dsugarman
Acquisition talks are usually a huge distraction. They will likely drag you
out and hurt the moral of the team to get a sweetheart deal if they really are
that interested.

------
andrewhillman
If you are looking for a job, take the meeting.

~~~
man_bear_pig
haha. love it. if that job pays 200k a year with 1m+ option vesting over 3
years... i'd have to think about it for a day. otherwise, it'd be npv negative
for the risk i've already undertaken to do a startup in the first place!

~~~
genwin
> if that job pays 200k a year with 1m+ option vesting over 3 years...

Assuming they can't fire you and leave you with nothing, not even the
technology you created.

~~~
man_bear_pig
that's right! gotta make sure if they fire me for no good reason my options
vest pronto : )

------
Sujan
Do you love the idea and product?

~~~
man_bear_pig
I love the idea and product is coming around. People seem to like the initial
product of what we are offering (beta test users avg time spent 9 min on site
which I heard is pretty steller for what I'm doing).

I have 5 guys who all used to make well into six figures who are not taking a
single penny and working 80 hours a week because we are passionate about the
idea. If it was up to me, as long as I got enough funding to eating 3x a day
and sleep 6 hours a day, I would love to work on it for a year to really see
where this thing can go.

~~~
Sujan
Then do that. Getting the funding should be no problem at all with the people
already working on it.

------
ye
Is the offer that good?

If you do sell it now, do you have other startup ideas worth working on? (I
assume this was your best one).

Is there any vesting involved, or is it a cash deal?

~~~
man_bear_pig
I have no idea what the offer would be like but I'm sure if they were to
acquire me then they'll force me to work there for 3-4 years before anything
vests. If it is just team acquisition then maybe it's just pay back seed
investors and give us some bonus / equity options but I find that hard to
believe as the outcome (if it happens) because why the hell would I ever take
that deal considering that I can probably raise some angel funding to see it
through and if it doesn't work out then I'll go to them and plead my case...

I have lots of cool startup ideas but this is my baby and I'm a specialist in
it. Not a super viral idea though like a Snapchat or anything; it would take
time to scale but just a big market if penetrated.

------
accountoftheday
uninformed prediction: "pg called us to correct their mistake, we got an
interview and we're in" by the end of next week, though you might be asked not
to talk about it in public. meanwhile, nothing will come of the "acquisition"
talks.

~~~
lbr
uninformed speculation: this is the hope of the author of this post. and
intention behind this post.

But too hard to say if this is realistic, without nothing about the product or
founders.

~~~
man_bear_pig
very true. i wish i could reveal a lot more. at least my product and what i'm
going for and have the yc community tell me their honest opinion.

founders on the other hand - from the tech end nothing extraordinary but
solid. on the business end, pretty top-notch caliber (i.e. 99 percentile in
their respective fields).

~~~
lbr
Awesome. Wish you the best of luck, regardless of what happens. Wasn't trying
to be cynical - apologies if my comment was interpreted that way.

~~~
man_bear_pig
Thanks lbr. I got a chuckle out of your comment so didn't take any offense to
it whatsoever! I'm pretty sure PG is too busy to care about a potential
oversight of an interview based on some off-chance strategic acquisition
happening, but we can all dream about it : )

