

Ask HN: Acquisition interest in my part-time startup - mookie_blaylock

I work as a software engineer at Big Software Company X, and have been hacking away on the side at my own mobile app for the past 2 years, which is publicly available. It does decently well, earning a steady stream of income to the point where I was seriously considering leaving my job and working on it full-time. But out of the blue, Big Software Company Y called me and expressed an interest (face-to-face) in acquiring my company and asking me if I was interested in working with them.<p>I wasn't particularly expecting this, and could use some advice. I don't have any business partners, no outside investment or anything; just me and my "weekend app". They didn't make an explicit offer; they said they wanted to meet me personally, see if it's a good fit, and will talk amongst themselves and get back to me. In fact, they were a little taken aback that this was a part-time thing for me; it seemed that they weren't expecting that. I told them about usage and some details about how it technically works, and some vague discussion about my plans and their plans. They said they are working on something very similar, that's why my app caught their attention and they really liked what I was doing with it. They couched their acquisition interest in terms of me coming and working for them - did not mention just buying me out and walking away.<p>So I have a bunch of questions I am hoping HN could help me with.<p>- Basic question: whatever the sticker price of the 'deal', how much of it is taxed? I have a single-owner LLC, so normally income is taxed at personal rates. Would selling the company (in asset sale) also be taxed like normal income?<p>- What would such a deal look like? How much value should I expect for the company itself, how much of it would be tied to my working for them. Just as an example (don't take it literally), they offer $5 million, but only 1 up-front, and 2 each after 1st and 2nd year that I work there. Is that how it usually works? Would they make an offer more in cash, or in their company stock, or a mixture of the two?<p>- Would they offer market rates for salary if I work for them? Would they take into account my role at my current full-time job and offer something relative to that, or would it be relative to my status as a founder of the company they bought?<p>- In this situation (more a 'acqu-hiring') should I possibly negotiate more on the value of the company, or on the retention terms? Would it signal to them that I might be interested in selling and walking away (rather than joining them), and hence turn them off on the whole sale?<p>- Should I get a good lawyer involved at this point? They're expensive (ballpark legal costs?), and the deal might not even come through.<p>I realize that (since they now know that I'm part-time) the offer might not actually come through. But I'm not desperate to sell, or to work for them. I was looking forward to working independently for a few months, see if I can really take this company to a level where I was earning much more than as a salaried employee, which I think is possible. On the other hand, if the offer is fantastic, I would take it, and I want to be prepared in case an offer does come through. Any advice would be greatly appreciated.
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jasonmcalacanis
if you want to use my attorney Joey from Fortis he's very good about
controlling fees--especially with first time entrepreneurs.

Tell him I sent you. <http://www.fortisgc.com/joey_m_tran.html>

1\. In terms of deal structure you should let them make an offer--always.
There is no reason to "negotiate against yourself."

2\. You would do well to find a second bidder on the project/your services.
Nothing like the marketplace to set the best terms for a deal.

3\. I'd also select three or four angels or VCs you like and "ask them for
advice." You never know, maybe your side project could be something much, much
bigger and you're giving away the farm.

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brudgers
If you were using runway, the situation would be different. As it stands,
there is little reason not to talk with them...consider it as a job interview
with the product acquisition as a windfall. Since it appears that big company
is looking at the deal as talent acquisition at least as much as product
acquisition, the first issue is to determine if the work will be satisfying.
If so, then that would seem to be the time to get an attorney to handle the
product acquisition and employment contract (and IMO, you probably want an
employment contract when you are furnishing existing IP to your employer upon
hire unless the IP is purchased directly for cash).

Good luck.

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MatthewDP
I can answer a bit on the tax situation (IANAA). The whole deal would be
taxable at your marginal tax rate, minus whatever your basis would be. Your
basis would be any money that you put into the business. Since it would be
additional income that would be taxed at a personal rate, you would be well to
sack everything you can away on a tax deferred basis (IRA, 401ks, 529 plans
for kids) to avoid a beating on taxes.

