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Ask HN: Getting acquired by a competitor. Advice on protecting the code?
9 points by throw99887 7 months ago | hide | past | web | favorite | 2 comments
Greetings HN,

A competitor contacted me, and after discussions I agreed to sell a software business for $3m. We signed a non-binding LOI, with them holding 10% of the price for the next 3 months, to make sure I help with transition.

Buyer insists on getting the full source code to review as part of Due Diligence, instead of doing screensharing sessions (as many as they want), having me walk them through. What is best practice?

Buyer proposed to use their local law firm to handle the transfer, to save on Escrow & transfer fees, which they would cover. They are ok with Escrow too, if we split fees. My concern is: even using Escrow.com, after Due Diligence, Buyer will get access to full source code. Quote from Escrow: The seller is not paid until the buyer accepts the merchandise and has the chance to fully inspect it. After the buyer inspects and accepts the merchandise, the funds will be moved from our escrow account to the seller's account.

So they can end up with a full code copy and decline the acceptance, as it's not a physical product which could be returned. So, using Escrow.com would be useless? I would have expected Escrow to get ownership of all code, domains etc, inspect it (have a checklist from Buyer), and then transfers both funds & assets at the same time, or return both without Buyer getting code access. How should I proceed?

Thanks!




escrow.com quotes 26k USD on a $3m transaction, about 1%. I can understand the buyer wants to save 13k cost, but overall it's a small part. Escrow shows the seriousness, you will know $3m has been transferred. If the buyer rejects the product (source code) they don't automatically get their money back. In case of escrow.com they want to see third-party arbitration first (buyer and seller have to come to an agreement). After a month though they'd get their money back.

I'd use escrow. And go further and across the world, sit next to them with a laptop, print out every file or rent an office next to theirs to avoid sending them the full source code. And I'd expect them to pay all the expenses if the deal doesn't happen. If they chicken out of 10k cost (again 1% of the total transaction) I'd say they're not serious.

Third option is to demand due diligence by a third-party.


Thanks!




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