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I almost sold Baremetrics for $5M (baremetrics.com)
428 points by cj on Jan 10, 2020 | hide | past | favorite | 233 comments

Sounds like there needs to be a way for the buyer to put some skin in the game. Maybe asking for a $50k non-refundable deposit to kick things off.

Sounds harsh? Well non-refundable deposits are a thing in real estate. For example in my country it is common to put 0.25% down to take the property off the market, non refundable, allowing you to do due diligence and then 19.75% deposit within 5 days non-refundable, with a closing period of say 30 days to pony up the other 80%, usually from finance. Probably the 19.75% is lost if finance doesn't come through but IANAL not sure if that holds up court or not or if you can get it back in some circumstances. But people understand it's serious you might lose it.

If you don't really need to sell but wouldn't mind $5m this would be a good way to weed out non-serious people. If everyone says NO then that's OK you keep on running the business as before. If anyone says yes then you know they are serious. They might not buy, but you get $50k compensation, which might be less than your costs, but the point is the $50k is like a way of communicating information 'we are serious' than an actual payment.

Asking for $50k from someone who invests $5m is like asking $50 deposit for someone who wants to book a luxury hotel room for a week. Maybe I should have said $100k (!)


It’s perfectly acceptable for a business to ask for (or even demand) earnest money when signing an LOI. The buyer, via the LOI, is asking for the right to negotiate with you exclusively. That’s worth something and if they refuse, that tells you how serious they really are.

The amount of that earnest money is up to the parties involved - 50k might be high for some situations, low for others, and just right for the rest. But they should pony up something. Otherwise you are just giving away leverage.

As the article mentions, there is an incredible amount of work that goes into due diligence and sometimes an even larger emotional investment. A sale falling through, and I can speak from experience, can be devastating.

You’d be crazy to guarantee exclusivity when negotiating sale of your company.

It would make more sense to give an absolute assurance that you’re talking to all possible buyers and that the potential buyer should understand that you might easily sell at any moment.

Exclusive negotiation is the precise opposite of a good approach.

Indeed implying that there are other negotiating parties is almost an essential component of any such negotiation.

The LOI, at least the ones I've read, prevents you from discussing sale opportunities with anyone else. It's called a "no shop" clause.

Before the LOI? Go crazy.

I’d rather not do the deal than have a no shop clause.

A no shop clause destroys so much deal leverage. I can see why the buyer would want it.

In fact a no shop clause is indistinguishable from an exclusivity agreement.

If the buyer absolutely required it I’d put a hefty non refundable price on it, probably 50% of deal value. Such a commitment has to work both ways.

As others say, once you reach the point of a letter of intent-- there's no way a buyer wants you carrying their LOI around to everyone in the world trying to get a better offer while the buyer is committing resources trying to get the deal done.

It's reasonable to expect a ("reverse") break-up fee, but it is not likely to be half the deal value.

Maybe a no shop clause should have a tight time to live.... “ok we commit but only if you put the money in our account within seven days, after that shopping is ok”

Deals take a lot longer than 7 days to close-- especially real acquisitions, but even asset purchases usually take months.

There's a lot of misconceptions here around how corporate acquisitions work. Here's typically how things work in practice when companies are sold:

- Seller attempts to garner interest, sometimes facilitated by an investment bank.

- Buyers indicate interest informally, eventually culminating in a Letter of Intent (LOI) from each buyer indicating a price and other important factors related to a deal.

- A cricitical component of the LOI is an exclusivity period - a duration of time where the buyer is able to conduct due diligence in exclusivity. It's clearly in the best interest of the seller to minimize the duration of the exclusivity period.

- Discoveries in the exclusivity period are typically grounds for renegotiation. Vulture buyers typically crush sellers and completely renegotiate a deal in this period banking on the fact that the seller has no alternatives post exclusivity. Good buyers know their reputation is at stake if they renegotiate an LOI and will only do so if material things show up in diligence (reasonably common).

- The LOI is not an obligation to purchase. Mostly the buyer is putting their reputation on the line.

- Earnest money is extremely rare in corporate acquisitions because the buyer universe is sufficiently small such that reputation is a sufficient motivator for good behavior. That said, anything is negotiable and you can go against tradition at any point if you have enough leverage (interested buyers).

In the OPs case, the buyer was not disclosed. Did they lose any reputation? How to roll the ball to let people know that someone screwed you up without damaging own reputation?

I’m sure they did. All of Baremetrics lawyers and investors know who it is. Investor circles are small - word gets around. Same with lawyers. The number of times I’ve heard “yeah, we know those guys, I wouldn’t recommend working with them” in board meetings is high.

Brokers are pretty well connected and ours made sure to spread their name around. They'll have a hard time buying a company through typical routes for a while.

I'm also perfectly happy to let anyone know in private who it is. :) DM me on Twitter (@Shpigford) or email: josh@baremetrics.com

The way it's worked for me is more like:

1. Buyer approaches seller for strategic reasons.

2. Seller tries frantically to probe interest elsewhere while early acquisition discussions continue.

3. Buyer writes a LOI, seller demands reverse break-up fee and changes, tries to stall to continue discussions in #2 without scaring away buyer.

4. Eventually some LOI gets signed.

What does "changes" mean in this context and what constitutes a reasonable reverse break-up fee?

Also in #2, does "probe interest" mean getting them to sign a LOI?

> What does "changes" mean in this context and what constitutes a reasonable reverse break-up fee?

It's unlikely whatever the buyer throws over the wall first is exactly what you want to sign.

> Also in #2, does "probe interest" mean getting them to sign a LOI?

If company A approaches you, wanting to acquire you, you want to really quickly figure out if company B, company C, and company D are interested before you commit to a period of exclusivity with A.


> If company A approaches you, wanting to acquire you, you want to really quickly figure out if company B, company C, and company D are interested before you commit to a period of exclusivity with A.

Let's say that company A, B and C are interested (with A being interested the most), what would be the next step? Can you get an offer without a LOI?

Forgive my ignorance but if a buyer indicates interest, is it ok for the seller to ask for a LOI?

Or if the buyer doesn't mention it explicitly, does it mean that they're not serious enough?

Who should mention the first amount of money first, buyer or seller?

Good luck finding a counterparty that won't ask for a no shop clause. As a VC all our term sheets have legally binding no shop and confidentiality clauses. That's industry standard.

No shop clauses are normal -- no serious buyer would move forward with diligence without it

And that's certainly your prerogative. Your preferences aside, a "no shop" clause is the norm.

This is wishful thinking at best.

For better or worse, exclusivity in an LOI is the norm. Obviously, you don't have to accept the LOI, but any LOI that is missing exclusivity is usually a sign of inexperience and honestly is cause for concern.

I agree in this case the author created this problem for himself by not following some norms, namely getting a non-refundable deposit for his time and energy.

lesson learned for seller and a good reminder for the rest of us.

~$8m price. Asked for $25,000 break fee to cover our costs. Was balked at. Have no reason to believe they were not serious buyers as they bought another company or two.

I'm based in Europe but together with a partner I'm a buyer of small tech businesses. We have bought businesses so are credible and are always interested in buying more. We could pay $8m if an interesting business came along.

The issue is that a lot of smaller deals fall through, either because of unrealistic final price expectations by the seller or because some metric that is super important to the business was calculated and supplied in the wrong way (i.e. churn). Or there are issues in structuring the contract because the seller (or his legal advisor) "overengineers" the contract -- lawyers can and sometimes do end up killing deals.

As a buyer, if I pay you a $25k fee, you now have leverage over me. Because if the deal doesn't happen I'm out $25k. If I don't pay you anything you're incentivized to get the deal done and try and draft a balanced sale/purchase agreement that works for seller and buyer. That means both parties making concessions on terms. In my mind, that is healthy, because if we finalise the deal you're getting a bag of money.

Let's say there is a clause we just can't find each other on. No worries, we can jointly decide to walk away. If I paid you and you're not willing to budge, then I'm out $25k if I walk away. It doesn't keep the discussion balanced.

Add to that that some people might (in the end) be unsure whether they even want to sell or not, and you end up in a situation where it's all mostly uncertainty (for both parties) until the deal closes.

>Let's say there is a clause we just can't find each other on. No worries, we can jointly decide to walk away. If I paid you and you're not willing to budge, then I'm out $25k if I walk away. It doesn't keep the discussion balanced.

Balanced? Utter nonsense and I suspect you know it. You know that proceeding past an LOI involves the seller accruing costs, sinking massive amounts of time on activities other than working on their business, and, more often than not, becoming emotionally invested in 'doing the deal'. Buyers buy businesses a lot more frequently than sellers sell businesses, and that makes the transaction a "home game" for the buyer, giving buyers an advantage.

Not providing any earnest money minimizes buyer risk, allows buyers an opportunity for a cheap education on the ins and outs of a successful business, and invites other tactics to tilt negotiations away from the seller - all the reasons selling a business becomes one of the most painful experiences of an entrepreneur's professional life.

If you're not prepared to provide any earnest money, you probably haven't done enough work to decide whether you're really entering into an LOI. Hopefully, the sellers negotiating with buyers like you figure that out and push back.

If you asked them for a commitment (i.e stop looking for other buyers) then you should be ready to commit too. If not money, what would be your commitment?

Agreed - I sold a tech company in the UK for $6M a 2.5 years ago. The idea of a buyer paying a deposit is pipe-dream, as a seller you have to take a risk, you have to pay significant legal fees and a retainer to the broker and of course the due diligence is painful and time consuming. One thing that you can do is get to know the buyer well, before you commit, I studied their financials in depth, this gave me the confidence to go-ahead, knowing that they had the cash available. Unexpectedly to me, it was the buyer’s lawyer’s who nearly scuppered the deal on several occasions when I completely lost my temper with them - they were awful to deal with, extremely anal over minor details, impractical also untrustworthy, they kept resurrecting issues we thought had been resolved.

This is the only reality based, sensible comment in this whole thread. Well done.

This is fairly common in M&A and is called a "reverse termination or reverse breakup fee". In addition to the direct cost of having a deal fall through, you can imagine other damages from having a major competitor scrutinize your books.

Some notable reverse break up fees include: * a 6 Billion dollar fee AT&T incurred for failing to complete a purchase of T-mobile. * A 10 Billion fee (avoided) if Verizon backed out of buying Vodafone's stake in Verizon.

Usually not at the LOI stage, no. The ones you quote a post purchase agreements I believe.

If cost ATT $4B after it failed to merge to T-Mobile.


Breakup fee is opposite of what I think you mean

It can be structured in either direction.

Or just have the buyer pay both sides' acquisition related fees from the get go (legal, accounting, etc).

No you don’t want your lawyers getting paid by your buyers. Massive conflict of interest

I don’t see why they would agree to that

This is very painful to hear. I've tried selling my main company to 4 different buyers now... every single time we get past the LOI phase, they see all our financials in plain sight, and there's always some stupid hangup/ghosting/sketchiness exactly like in this article.

Very disappointing, considering how transparent we are up front sending every financial, and there's no real 'discoveries' later that would change their mind. It's just general terrible flakiness.

One guy's excuse was that his brother had put all his money into collateral without his knowledge, and that discovery phase was a waste of 5 months.

This last one, we thought we learned our lesson so we demanded proof of funds, as well as much more thorough checks....... and they just magically ghosted us LITERALLY after I FedExed the signed agreement... so after months and months of due diligience. They change their mind after about 100 confirmations from their lawyers, accountants, financers... and just ghost hours after I send it.

It has been greatly discouraging to me, as the 3 serious attempts to sell have essentially crushed our momentum, and now the company is dying/dead. I won't say that its a direct result of it, but we ran it very conservatively during these times as not to upset anything, and those were the times we needed to be running more aggressively to keep up with competition.

The company is essentially insolvent now, with a large amount of debt. I also made the bad mistake (I was quite young) to originally put the company card on an Amex applied for by me (I had 820 credit at the time). Because of inability to pay back debt on this company, my personal credit is now destroyed.

So.. going from 820 credit, making hundreds of thousands profit per month... to freelancing to pay bills with a 590 credit. Such is the life of an entrepreneur and the brutal lessons one learns along the way.

PS... I found out later our accountant had dementia, and did all our taxes wrong. My biggest advice, have an accountant who is really on point, and accept absolutely nothing less. Don't fall for the illusion of the pain of having to "retrain" someone if you don't think your accountant is 100%. Just find someone who is fucking good, and if they show a red flag, find someone you fully trust. My business partner has also been ruined in the past by incompetent accountants.

Require 10% of the deal in escrow after the first 2 weeks in the discovery phase. If the deal doesn't go through, the amount in escrow defaults to you. If they jerk you around on the escrow, cut them loose, they're not actually interested in acquisition

Great point. This is what happens in a real estate. A letter of intent should have earnest money deposited into an escrow (because the offer is being made in "earnest") and each contingency should have an expiration date. Upon expiration of the due diligence contingency, for example, the earnest money deposit becomes non-refundable and credited towards the purchase price. If the buyer defaults after the due diligence contingency then the earnest money goes to the seller.

Does anyone have a link to a sample LOI for selling startups or M&A in general?

bump. also looking for this.

I've handled a decent volume of small tech startup m&a and I've never seen an escrow. Better advice is for the sellers to spend a decent amount of time in person with the buyers. Get to know who you are dealing with. It's a lot easier for a buyer to mislead (intentionally or otherwise) via email as opposed to in person lunches and dinners.

You're advising people to play poker (guess intentions face to face), but only have your side put chips on the table?

Actually the opposite. If chips represent time, I'm advising that the seller force the buyer to spend time (in person) with them to reflect commitment. A classic example is whether or not the seller can get a meeting with the buyer's CEO (depending on the relative sizes of the two companies, it could be a lower level exec too). A CEO will not waste his or her time on a dozen meetings with a dozen different companies to support an m&a fishing expedition. But if the list is narrowed down to just 1 candidate, and certainly if the deal is progressing, then the CEO (or other C level exec) is usually eager to meet with the seller's management team.

This still requires the selling side to guess the buying side's time commitments/availability and intentions. The escrow cuts through all the bullshit.

Clearly we will disagree with eachother here; but I am truly at a loss for how a 1 hour lunch is commensurate with a month+ of discovery effort.

This is how I approach any serious business deals – put up or shut up. Either you agree to this kind of deal or you pull out. Either one is fine, but make it clear.

I'm very sorry for your circumstances, but are the "every buyer ghosted me when they saw our financials" and "our accountant had dementia" elements of this related? How could millions of dollars of net income go to insolvent so quickly?

There are two sides to this general issue, and while there are bad buyers there are people dishonestly presenting their companies. Not that you are, but it seems like a very low-trust business environment in both directions. More lately than it used to be.

There's obviously a lot more nuance to the situation. I'm here just posting my in-passing rambling, glossing over most details. In general, any mistakes made were clearly presented, and no numbers were deceivingly absent or misrepresented.

The accountant issue is related because there were a number of major issues that lead to the downfall. One being the entire year-long+ selling debacle, the other other was accounting issues.

FWIW, both brokers (2 deals on 1, 1 on another) both said "we've never seen anything like this in the entire time of doing this." I think a lot of it was just bad luck, or low quality buyers and not having experience to see certain red flags.

As far as insolvency so quickly, we were a 2 man company with 0 employees. I started the company several years ago with zero business experience and we grew it to 11 million per year. So there were many mistakes along the way (all of which were clearly laid out to potential buyers btw). We re-invested almost all our money to grow bigger and quickly.

I'm so sorry. I hope you bounce back and have an exit on your next try such that you don't worry about fico.

Thank you, I appreciate it Mr. 5752

"I found out later our accountant had dementia, and did all our taxes wrong"

Holy shit. I can't even imagine if that happens to my business. But really, you always want a second set of eyes to review your taxes, always. Even if you are not the expert, never trust the accountant. I always manually verify the drafts myself even if I don't quite understand everything on it. But I have a high level idea of the important line items. I have caught errors by my CPA (without dementia). So always verify yourself before taxes are filed.

Yes.. great advice. They're all fixed now, thankfully, but yes that lesson was a painful one.

Even if you don't understand something you can always phone your accountant and ask them to explain it.

So so sorry to hear this. It reminds me of this post from pg: http://www.paulgraham.com/corpdev.html

I am sorry to hear that you experienced that. I am curious to know why you did not run the business as a profitable going concern instead of selling?

After years of doing it, I was very very sick of it and just wanted out. I'm a developer by "heart" and I just want to build and tinker. I do love spreadsheets, and I love the thrill/ups/downs of business, but the monotony is what kills me. I have another company I'm investing all my time into that I am optimistic of, and it's new and fresh again.

Sounds like you are going in with eyes wide open this time. Best of luck with the new venture. Thank you for sharing your story.

Thanks friend, I appreciate it. It's been quite brutal, but who I am at the end and at the start are very different, and I'm very thankful for that, even if I quite literally have nothing to show for it.

May I ask you what was your business?

Thanks for sharing this, a lot to learn from here. I hope you're doing well (sounds like it despite the circumstances).

Also: I wanted to say kudos for your profile link.

Hahahaha.. I had forgotten about that.

"In many ways, I feel like my job as CEO and Founder is to absorb all of the insane parts of running a business so my team can focus on building, learning and enjoying their jobs."

This is spot on. I would extend to senior leadership in general.

I've heard this too, except it got really annoying to be working crazy hours doing annoying crap while you have a team of devs working 40 hrs working on interesting tech with not much pressure. I burnt out, now I delegate lots of crap work and it works better for me and I think the team as well as they get a wider perspective.

> I burnt out, now I delegate lots of crap work and it works better for me and I think the team as well as they get a wider perspective.

I think this is an underrated (but very accurate) opinion.

While I'm not the founder of a company, I do have the tendency to shield my team from much of the insanity I deal with on a daily basis.

I've made active, conscious efforts to stop doing this.

When you shield your team from the harder, more hectic parts of the job, several things happen:

(1) You burn out. A burned out leader is not an effective one. You're not doing your team any favors by forcing yourself into an impossible position.

(2) Your team won't understand the pressures that are driving the business. Having a nice, relaxed work-week is great, but employees should at least be aware of high-pressure situations in the business.

(3) Your team will get bored. Great teams like to work on challenging issues, and high-impact engineers like to work on high-impact problems. They want to grow. Exposing people to issues outside of their direct control and comfort zones will actually help make them more satisfied at work, even if it does come with a little added stress.

These are issues that I've been working on, personally, for years. The gut reaction of "protecting" teams is often times not the best one for anyone involved.

"They want to grow"

I've never experienced a manager who seemed really in tune with how I think one should treat people. They usually intend well, but effusive over the top praise makes me uncomfortable for several reasons;* the only thing worse than that is demanding contradictory or impossible things.

It seems to me that a leader needs to be a like a coach. I haven't even ever played team sports, but it seems intuitively obvious to me that you reward people by gradually trusting them more as they prove themselves, and continually stretching what is asked of them to find limits and what fits them best. And you shape everything around the good people you can find, rather than trying to get people who are plug and play for a pre-existing approach.

The hard part I think is that it is so easy to ask far less of someone than they are capable in one area, and more than they are capable of in another. Both can lead to demoralization or even disaster.

*If you're continually praising me, it starts to seem as though you had low expectations and you're not raising them fast enough. Or you think I'm easily manipulated.

Regarding 1st point: If you manage people-this is inevitable. I had plenty of situations where you know way more than you can tell anyone,yet you neet to put a face on just so could people carry on working. In most cases it's better for one person to be worried rather than the entire team.

Are we talking about business decisions? My experience is, that developers are only interested in taking that risk, if they also get a share in the company and get access to internals. "Your house, your decision, your money. We are just the hired gun to do the carpenting."


However, granting visibility to decisions (and the information that leads to them), when possible, is a great tool.

A generic example might be that a major client will sign onboard if a new API feature is implemented. Just asking a development team to build the feature will get it done, but in my experience, teams will feel significantly more included (and important) if they have the context of why it needs to be built.

The decision to pull resources off of already-planned tasks to build the new feature shouldn't be made by the developers, but understanding that they're helping the business in a major way can really help cohesion, inclusion, and perceived impact. Those are things that make people feel fulfilled and important at work.

Ok, yes, i understand and i agree.

Some do, some don’t. If a developer wants to start their own company or move into leadership in a larger company then they need to start thinking this way. There is a vanishingly small number of senior ICs/researchers who get paid the big bucks to work on purely self-determined technical problems. It’s much easier to just learn a bit about business.

awesome post, thank you! certainly addresses some issues ive had at work recently.

One way I've heard the role of product manager described as is a "shit umbrella".

This is applied to managers in general:

- Good managers are shit umbrellas

- Bad managers are shit funnels

beautiful metaphor. anyway, I quasi-agree, though I've become suspicious of managers who claims to be an umbrella protecting their team from the rain. Half the time, they're really just trying to make sure their team doesn't see the forecast and quit.

I guess umbrellas also keep the sun out.

What you need are those clear plastic umbrellas, no rain, but all the sun.


Raining shit would be opaque, tho

I need this on a motivational poster or something.

I couldn't agree more.

Totally stealing this one.

Unfortunately, in my experience, I've had my fair share of "shit funnels" or "shit multipliers." That applies to any manager role, really.

As a former product manager, I think of it as being at the bottom of a canyon and shit rolling in from both edges of the canyon (business and technical). It's a hard job to do well and keep everyone happy.

You are a creative fellow

This touches me on a spiritual level.

such good PM/managers/leaders are very rare. Instead it is usually this way https://cheezburger.com/4626943488/corporate-ladder , just with even more levels in real life and resulting amplification of the signal.

I strongly disagree with this. You and everyone in your company are on a journey together, a leader who thinks that it’s their job to curate that journey inevitably fails. People know when you’re stressed or when things are tough... when you try to hide these things or deflect them away you erode trust and ultimately performance.

The role of a good leader is contextualize hard information and provide support for the team as they internalize it and then act upon it...

> provide support for the team

I'd be more specific and state that they should be consciously building systems to manage these things, even if it's done manually by them. This provides clarity about what and how things are being done, and let's them more easily scale (or kill) the process.

The kill part is important because when you are thinking systematically you're more likely to be able to communicate the details, or other people can observe it and make recommendations. It's hard to kill things that leaders are effectively doing in secret and stealing time and attention from an org.

> You and everyone in your company are on a journey together

Perhaps your comment was intended very narrowly, but this strikes me ... so not the way the 99.999% of people who are not in the founder/Valley/HN bubble think about their job. Chances are you employ these people, even at a small startup.

Best description I ever heard: “The job of the manager is to eliminate uncertainty.”

Alas, some seem to be more interested in making sure everyone knows who's in charge and who's a peon in their little fiefdom.

all leadership, generally.

understand enough broader context to set direction, then distill, cut, and communicate what your team needs to know to do the work

Two quick thoughts on this.

1) The amount of transparency that this company shows is insane. I have a hard time imagining any one else in this situation sharing the way they do. I hope it works out for them long term.

2) The due diligence work they did for this deal was absolutely not a waste (even if they never sell the company). Having gone through this process once will make it orders of magnitude easier if they sell in the future (especially gathering and organizing documents from the very early stages). Even if they don't sell, the process would have shown light on potential liabilities and issues they hadn't even been thinking about. This is helpful regardless of who owns the company. Maybe not worth the time and money; but definitely not a waste.

It wouldn't feel great seeing this as an employee of the company. The only reason you are not sold to the highest bidder was because the ceo got played.

> The only reason you are not sold to the highest bidder was because the ceo got played.

The truth is that the only reason you aren't sold to the highest bidder is that there was no highest bidder interested in buying. Just people motivated enough to do the courting rituals required to get a peek beneath the sheets.

I fucking wish some of the companies I've been at sold to the highest bidder when they had the chance.

Exits are better than layoffs.

There is always a non insignificant chance that exits will be followed by layoffs

True, but layoff + severance < layoff + severance + liquidity event

How about cases where due to liquidity preferences, no one but founders get money at the liquidity event? A small exit is often 0 for employees.

then you worked at a bad company with a bad outlook and should have been prepping to leave anyway?

I think it's a company culture thing. I mean, I could have kept it buried and just hope nobody at the company found out but that's not how we roll. ¯\_(ツ)_/¯

Why? Do you have previous experience selling a company? If you were in his place, what would you have done differently to avoid being "played"?

> Even if they don't sell, the process would have shown light on potential liabilities and issues they hadn't even been thinking about.

If I recall correctly, some VC's make their companies put together quarterly reports of similar nature to a normal publicly traded company. It sounds like it would have similar value.

Doing so requires significant thought and focus, and provides a structure and cadence to the business.

Common practice from VC is to do a 3rd party financial audit - billed to the startup in the end. Very expensive, but as you mention, it helps uncover potential ticking time bombs.

It's easy to complain about a heavy, expensive finance audit, but startups commonly are setup or practicing mildly to extremely incorrectly. It's just too risky not to do it.

Tech audits seem to fly under the radar a lot. Post deal, I've had one principal complain to me a portfolio company was using a single table for users & bookings just more columns - what. Ruined the company for 14 months to fix the tech with all the deployed money and the business never recovered. Extreme, but there should be someone looking.

"was using a single table for users & bookings just more columns" Could elaborate more on this point please ? Thanks.

They were a ticket/booking platform for concerts in ASEAN.

I don't know much else beyond they had a single table which contained both users and bookings where new bookings were just in new columns next to the user info. If the user w/ the most bookings had 51 then they had at least 51 columns. Every time the max bookings user added a new booking they would add more columns - what.

If the DB data structure of the core business looks like that, you can imagine the rest built on top looks absolutely terrible.

Diligence would've easily seen this, but it was never performed. The VC never made that mistake again. Trust but verify.

Thanks so much for the kind words!

Totally agree the diligence work, in the long run, wasn't a waste. At the very least, we organized a lot of documents I'd forgotten about.

It's not uncommon for potential acquirers to feign interest in a purchase so they can derail your business for months while your competition (their actual investments) pull ahead.

If not derail then just to get a ton of valuable business insight that isn't available publicly. A while ago a large software company dragged us through this process for months, and eventually backed out at the last minute. A short while later they had a complete clone of our service ready for launch.

Large mergers use 5% of the purchase price as a backout fee so the cost and waste of time is assigned back to the initial party. Still wasteful.

In the best position, I would assign a price as is no insider knowledge given. If they are interested they will buy because they already have research done prior.

This is what I was thinking as I read the article. Is this legally actionable? I'm guessing not, but you probably have a fresh understanding.

Have you tried to getting a patent? Does this help in any way?

A patent is only worth what you're willing to pay in legal fees to defend it.

A patent in and of itself doesn't prevent that from happening.

I recall going to man a booth at a trade show, and being warned about VCs and VC-wannabes just asking a lot of questions of everybody. They aren't interested at all in your product, they're (only) interested in you as a member of the tech community.

They go around collecting data points to get a gestalt of current and future trends. I recall talking to at least two people who asked a lot of very general questions after segueing away from our product.

Silicon Valley (TV Series) calls it 'brain raping'. Although this also includes getting you to reveal IP. Worth watching that episode.

VCs will also fake interest to try and build a deck of possible companies to invest in. Then they go to their financial backers, and say hey! give us more money to invest. they talk about their financial opportunities, and then if they raise funds, maybe invest in you.

Could you provide examples of that?

Sure, Amazon does it all the time to small startups. They fly you into Seattle, setup a fancy meeting with strategy teams and M&A, make you run through a pitch deck, explain every aspect of your business. They take diligent notes until they fully understand your inner workings, they tell you thanks, you'll hear from us soon.

And nothing happens, 6 months later AWS launches your exact product.

Founders need to be extremely careful when talking to potential acquirers. Dollar signs cloud your vision and you need to understand why they're talking to you. It may be genuine interest or it may be deceit in order to gain a competitive edge.

This is not an example. This is an explanation of how it could happen.

Can you share an actual case? Such as, a startup that went through this.

Lulu.com - book self publishing. Discussions between Amazon & Lulu led to the reproduction of every use case over the following 24 months. I worked at Lulu.

Yes (sort of - I can’t share the name because this was a friend’s startup and I don’t want to gossip explicitly) but this exact thing happened:

Amazon went through an acquisition process and on the day of closing, as everyone was in the room and documents were being signed, Amazon reps came back from a break in the meetings and said “Oh sorry for the delay — we’ve actually got an internal team working on this already. Our mistake. We’ll still do the deal because there’s some value here, but we’re going to lower the price by 20%. Take it or leave it.”

(They did the deal, but man, f-that.)

Amazon’s flash sale site, my habit, was launched this way.

Source: I worked for a flash sale company they did this to.

Having been involved in the other side of these types of transactions usually the large company is actually interested in making the purchase because buying a successful product is easier than building your own even if you're something as big as Amazon. however often during Discovery you find out major problems with the company that you want to acquire that make it become pointless to actually do it. usually by the time something like this happens and a large company is looking to make an acquisition there already a good portion of the route down figuring out what they would have done in the first place. the Delta on building a flashlight over Amazon's general retail presence isn't that huge so in a lot of cases they would be looking to acquire interesting pieces of tack or the customer base as a way to bootstrap their version. If during due diligence that showed to not be feasible then the deal wouldn't go through. They're also very likely to be talking to several companies in a similar area.

I'm not saying it doesn't happen but I'm just explaining what happens on the other side.

I've also seen some areas where we used a technical due diligence team so that there was no IP crossover and it turns out that the company that we wanted to acquire was either way too difficult to onboard due to the way that they built their systems or they just wanted way more money then we were willing to pay because our use of their systems was different than their grand vision and they were pricing on their grand vision. also in one of those cases we were playing the two companies off of each other for price and then decided not to build a product at all.

And sometimes like the atom bomb all it takes is a due-diligence person saying there isn't much here for everyone else to realize that it's actually quite easy to build but it was very expensive and difficult to prove that you could build it in the first place. See Groupon for example of the explosion of daily deal websites after Groupon proved that they could "make money" off of it.

I thought Woot.com was an early player in that space.

What is/was the site?

It would be unlikely that anyone would/could share public details about such a thing given the NDA (and potentially LOI) terms that are signed prior to something like this happening. It happens though.

Yeah. A small company I used to work for had a phase where Amazon contacted us and wanted to potentially partner up. CEO went and spoke at Amazon and they got to see our goodies and then nothing came of it.

I think that their intention was to duplicate what we were doing if they got on the other side and thought it was valuable.

Turns out the company was/is floating on investor money like so many startup ponzi schemes. I suspect Amazon just didn't think it was worth it.

Why don't companies go in with something akin to an NDA saying you can't use any of this information to directly compete with us for x years? Seems like this would be standard if it's common practice to steal businesses while feigning interesting in acquisition.

Two things:

1) Good luck getting $BIGCORP to sign that.

2) If you get #1 done, good luck enforcing it.

The typical construct for a big company to use is they get a technical expert from a completely different part of the company that has basically no stake in the group that is evaluating the acquisition to do the technical due diligence. This is where you see all of the secret sauce. Usually they picked someone that I won't have a problem saying no to anyone actually asking them for information.

However the real protection is in the details in the amount of work that actually has to happen to copy a company. I've done technical due diligence work before and I really wouldn't be able to replicate what I saw in a 6 hour code review of 30000 lines of code any faster than I could just coat it from scratch. the most part you're doing basically the same thing you would do on a security audit of code which is looking for intellectual property theft or the overall quality of the code and things like did one person maintain the entire thing or was it actually a team effort which helps you decide who you want to acquire from the company. generally the whole point of these deep investigations is to mitigate risk for the purchasing company not to steal ip.

At the end of one of those investigations you basically say yes it's risky no it's not this is who worked on it this is who didn't this is my estimate for how long it would take to pull into our code base or move over power systems or here is a flexible I think that could basis versus how much technical debt I think there is. but really all they want out of you is is this a risk to buy this company or does it seem straightforward. Then you go back to your completely unrelated arm of the company and do your actual job.

Maybe they do, but they can't afford the litigation. Like "you can beat the rap, but not the ride."

There's an early episode of Silicon Valley where they go through something similar.

I believe that's also not one but two episodes of Silicon Valley. The second time they believe they've figured out how to avoid it happening to them again.

Silicon Valley,while hilarious,has tons of invaluable business lessons.I think I could probably even say it's one of the best series about business. It covers absolutely every aspect of building, growing, maintaining and ultimately selling a business.

Mercifully, I've avoided any conversations like the Season 1 finale, but I think we all laughed because we recall some absolutely ridiculous rabbit hole we went down at some point. Once in a while you learn something surprising (which just reinforces the behavior), but mostly you just feel foolish. Especially if you get caught doing it.

Could that mean that if you upload your code to AWS they can steal your software design? I think yes.

Jeffrey Kaplan, in his book "Start Up", would talk about how Microsoft would do this in the days when it was particularly powerful.

Think about it this way: You always want to learn about opportunities and potential competitors. The biz dev team may say, hey we should maybe acquire this company, and the product people may say, no this is a good idea but we should copy it. It doesn't have to stem from a sinister intent.

The same can be true of interviews! Sometimes companies interview very senior people as a way of gathering business intelligence. People can be flattered and want to talk about their successes.

> Microsoft would do this in the days when it was particularly powerful

They were so notorious for it back then, that when they attempted to do it to Netscape, Marc Andreessen went into the meeting knowing ahead of time to document everything. That documentation was useful later during the anti-trust proceedings.

From the 2000 Wired article The Truth, The Whole Truth, and Nothing But The Truth:

> It was two months later, on June 21, that Reback received a call from Jim Clark, the chair of one of his firm's newest clients, Netscape. Earlier that day, Clark said, a team of Microsoft executives had visited Netscape's headquarters, met with its CEO, Jim Barksdale, its technical wunderkind, Marc Andreessen, and its marketing chief, Mike Homer, and offered them a "special relationship." If Netscape would abandon much of the browser market to Microsoft; if it would agree not to compete with Microsoft in other areas; if it would let Microsoft invest in Netscape and have a seat on its board, everything between the two companies would be wine and roses. If not ...

> "They basically said, OK, we have this nice shit sandwich for you," Mike Homer told me later. "You can put a little mustard on it if you want. You can put a little ketchup on it. But you're going to eat the fucking thing or we're going to put you out of business."

> The next day, Reback phoned Joel Klein, the former deputy White House counsel who had recently been named the second-ranking lawyer in the antitrust division, and persuaded him to send Netscape a CID for some detailed notes Andreessen had taken during the meeting.

> Asked by Tobey why he'd taken notes on the meeting, Andreessen replied, "I thought that it might be a topic of discussion at some point with the US government on antitrust issues." (During the trial, Microsoft would cite the comment as evidence that the meeting was a setup, and Netscape and the DOJ would retort that Andreessen was just being sarcastic. "Bullshit, on both counts," Andreessen told me. "I'd read all the books. I knew their MO. We were a little startup. They were Microsoft, coming to town. I thought, Uh-oh. I know what happens now.")


Did you mean "Startup: A Silicon Valley Adventure" by Jerry Kaplan?

Yes, an old book but still a good one.

Every large or strong human goes through a phase in life where they learn the hard way that they have to be extra careful not to smash things. The bigger you are, the less sympathy you get (you clumsy oaf).

Microsoft is fond of workaholic coders and bizdevs. The number of those who are Big and Tall is small, and the number of workaholic coders who are also weightlifters is tiny. So you look at things that are completely obvious to you and the other person has absolutely no framework for contemplation. And if you are living by the Golden Rule (who has the gold makes the rules) then you don't have to learn anything at all.

But it sure would be nice for the rest of us if they did.

There's got to be a business in here somewhere. A company that acts as a middleman that sorts through all your financials for you, does all the communicating, drafts all legal paperwork and just gives you quick regular updates through the process. That way you can keep running your company during all of this madness.

I wish I knew more about selling and acquiring companies since it seems like a business well worth launching if it's feasible, which I don't even know if it is.

It can't really work that way. There are diligence firms that provide quality of earnings analysis, compliance analysis, intellectual property audits, etc. But potential buyers always have questions that require input from staff.

The executive team has to be very involved in the process. Their involvement naturally drags management/staff into it.

Business brokers? Fe international, quiet light brokerage, empire flippers. They don't do all of this but they do filter buyers.

The world of business brokers is 75% charlatans and 24% outright frauds. Good ones do exist, but bad ones are abundant. If you need a broker, find one via a referral from someone that has sold their business via a broker.

The three I named are all big players in the field.

The lesson I'm taking away from this is that if you're going to go through the steps of a M&A process, make sure there's something in it for you besides just the check at the end of the process.

Off the top of my head, having a very detailed understanding of your burn rate and assets should be useful information for any business. Maybe you have some unprofitable projects, or maybe just for applying for a business loan.

When we take risks we try to account for Murphy's law. If you've looked at things like unpaid bills and back taxes, maybe the confidence intervals get a little better?

If you have internal accounting and general counsel, they usually do a shitload of the heavy lifting (they outsource it to paralegals and associates most of the time). I've been through it before. It's still very painful, but this type of thing does exist... kinda.

An investment bank?

My lower class upbringing is showing, is that what an investment bank does?

Yes - this is a major function of private equity in general. They even have investment banks and firms that specialize in "buy side" versus "sell side" of the transaction.

Not for small companies that generally do less than $2M in revenue.

We do as low as $1m ARR: discretioncapital.com

Yes but you are not a traditional Private Equity if I understand correctly.

PE is buy side, parent asked about sell side.

I work for a relatively small company.It is simple as well,it sells training. If we'd have to supply all the necessary info to a company that'd take care of it, that alone would probably take months and months and they'd still have to query back and fort every day.

That's called an investment bank

We could call it middlemetrics.com


A friend of mine who sold his company told me that it's common to get approached and if the buyer is serious things move very fast. Most of the time though it's just a game of delay to keep competition in control and get more insights. So, if buyer is interested they will make an offer quickly (initially maybe too low), but they show they are serious by doing so. Dont get dragged in meetings or fly around to meet buyers like crazy. Better to focus on growing the business.

What software/service do you use for your data room?

I didn't fully appreciate the value of our data room until it mattered. Since the last deal, we've kept our data room impeccable and exceptionally granular. We're also way more sensitive about the timing of what we share and what we black-box for as long as possible. There's a strategy for managing your data room in situations like this, so I encourage talking with mentors/advisors if it's your first time.

This is also true for general communication to the team about offers like this. It's way too distracting and too high of a risk to morale if the deal falls apart.

Can you go into more detail on your data room? Thanks.

Anyone have an idea on why 3.7x revenue for SaaS was considered a fair valuation? I thought SaaS was always closer to 5-6x

BareMetrics MRR is public, check it out:


20% growth last year or 1.7% per month. That's considered slow for a SaaS. That's likely what's driving the 3.7x multiple.

Fair and thank you for that. Wouldn't their value to Stripe be much more than 3.75x in this case?

Basically, there are 3 types of buyers: value PE, growth PE and strategic. Value pays 3-4x, growth 4-7x, strategics ¯\_(ツ)_/¯ Stripe would be a strategic for Baremetrics.

Hmm ... Where did you get these multiples from? Based on what I've seen in many sources (here's one that I have at hand, by McKinsey: https://www.mckinsey.com/business-functions/strategy-and-cor...), high-growth tech/IT startups are valued (and, I assume, could be acquired) at > 15x, sometimes even > 20x.

For public companies, growing > 40%, ARR > $100Mn, NDR>125$ revenue multiples are sky-high ATM.

For private companies at around $1Mn-$3Mn ARR growing sub-20% YoY there are very few buyers in the first place.

I was definitely talking about the first category (though not necessarily public only; AFAIK there are some [many?] private companies that fit that profile). I agree that those revenue multiples are high, though I'm not sure I would refer to them as "sky-high". Who knows what kind of numbers we will see in the future ... ;-)

Compared to public markets yes, but there are 100s of buyers, particularly if you’re (adjusted) EBITDA profitable, but even if just break even.

Public company multiples, VC investment valuations and lower middle market PE exit multiples are very different markets.

The multiples come from direct personal experience.

Understood. Though I would expect some overlap between the first two markets. I'm curious about reasons and rationale, underlying potential differences between valuation and/or multiples within relevant categories. Any pointers or links to corresponding content, by any chance?

And for the record, make sure you keep track of price/earnings vs price/revenue multiples :)

Due diligence works both ways and it pays to do your homework on potential buyers and to ask them to prove their claims, or even ask them to put some money down, before proceeding.

I don't know the company or what they do but cynical me can also imagine a third party pretending to want to acquire in order to gain inside knowledge.

>or even ask them to put some money down, before proceeding.

Yep. Just look at mature markets like housing. You don't see anyone wasting time without a deposit, which will be kept if the buyer doesn't go through with the closing.

Won't put down a earnest money deposit? They aren't serious. For all you know the do this knowing they won't pull the trigger, but to justify their job/identifying an opportunity, then being the hero when they "find something off" and save the company from a bad deal (which they manufactured in the first place)

Remember having a meeting with a charity org. They wanted to spend quite a bit of money on a CRM implementation.We had a few different companies in a room.After going through the entire block of ideas of what and how they want,my manager asked them: have you got money for this? Turns out their sponsor promised the money but then there are conditions and etc..This was for a simple dev project...

So hard! And this is a reality even you're not trying to sell but are doing as part of your regular corp responsibility! I've been on the founder side in convs like this, both real+fake, so some advice I got here that has resonated the most:

1. Assume 95+% of inbounds won't go through, even if 'serious'

2. Use every ask from the acquirer to get a parallel give: if they're serious, they'll increasingly show they're not the 95% here

3. Almost all teams are not emotionally equipped to understand the 95% no-deal thing, unless you're say a VP-only company (???). As soon as they hear potential acquirer, it's natural to think "maybe 30% chance for one, so 100% across 3-4 inbounds", not "maybe 5% for just one if we qualify it more." It's hard to do anything if you're worrying about your kid's college tuition for 6mo wrt to a fragile deal's ups and downs that you have little control over.

A common path here is to understand indiv employee personal goals, and only bring in the acquirer in front of them, such as for interviews or whatever, only once you've gotten a deal to the 99% point (one of the biggest asks). Baremetrics is going for more transparency afaict, so having someone to help contextualize for both its ~first-time ceo + employees would seem required to avoid morale going through the ringer.

4. Don't optimize for building to exit, but do treat as part of general BD. (Though I feel most YC etc. co's don't do this, and the wave of quick-flip startup people is poisoning the well for follow-on founders more serious about high-trust areas like enterprise.)

==> 4b. This kind of distinction can be all sorts of confusing for team members too, who aren't thinking about BD+Prod+... etc. strategy all day but how to make an X do a Y. They can make bad high-level decisions if it takes center stage.

==> 4c. More likely outcome is becoming colleagues with folks for future accounts/partnerships/etc., and even hires. So do that!

Want to sell your startup: don't be desperate; people smell that--and it stinks.

Attract buyers (put out press releases about how well you're doing--hire a PR firm), and then Say No. Tell them are too busy to prepare financials, and your lawyers refuse to waste their time. Just say no But Be NICE About it.

This works like a motherfucker because (A) People Really Want What They Can't Have... and (B) They Already Really, Really Want It Because Of The Press Releases. (C) Hire a Real Negotiator--and a person who is dispassionate about the business. Pay them a percentage of the gross profits; of course you tell them a bottom line number which is the lowest offer you'd accept.

Put the sale money in escrow and you each pay 50% of the due diligence cost After the money is in the bank.

Jay Jamison (when he was a VC) gave me a great advice once.

"Companies are bought not sold"

This is a hoary old chestnut; my dad told me this back in the 1990s.

> This is a hoary old chestnut

As is the phrase "hoary old chestnut"

5mm is just too low for a web based SaaS business. You’ve already done the hard work of getting some PMF validation. Why not double down and try to scale the business? Going from 5mm to 15mm is way easier than 0mm to 5mm.

That's the route we're going down now! As I mentioned in the article:

> For me, this came at a time where, personally, life was…draining. Outside of work I wasn’t in a great place mentally. I was dealing with some family issues that were consuming every ounce of my mental energy. I was depressed, anxious and the most stressed I’ve ever been and the prospect of being able to sell the company and give myself and my brain a break was very appealing.

Hearing many horror stories over backing out at last minute, I wonder why breakup fees and escrow are not more popular in startup world.

E.g. if you would like to acquire for $5mln you need to deposit $100k. If you walk out, this is a breakup fee. If startup bails it also have to pay same amount to the acquire.

Part of any acquisition is getting a look at your books.

Now the buyer knows exactly how much runway you have left and all they have to do is drag their feet until you get desperate to make a deal.

Either you have to be cashflow positive, or keep at least two buyers on the hook past whatever disclosure phase nets them this sort of information. I think maybe one company I ever worked for was clever and healthy enough to do this. And even on that one, things went a bit touch and go. One of the worst kludges we ever did, it came out later, was worth a month of payroll, which got us through that acquisition without bouncing checks.

(Still the longest single method body I've seen a human create, and from someone I thought would never write code like that.)

Wow I'm struggling to imagine how a too-long method could keep the wolf from the door for a month. More details please, if you can.

Horrible messy business logic to fulfill a short term contract. It's been a long time, but if memory serves it was used for data ingestion. The file was 6000 lines, the worst method was over a third of that, closer to half.

It never really worked, as some of us predicted while the project was being ramped up. Without going into too much detail (most of which has gone from my head anyway), the speed of light won and we used a different architecture which obsoleted most of that code.

However, if I and the other people who said it couldn't be done had gotten our way, that sale would have gone much worse for us. Decisions from incomplete data and all that jazz. It went live and the customer and we cashed the check with less than two months of operating capital left, while the lawyers were still futzing around with term sheets.

The irony is this was also the owner who thought he was rallying the troops and instead filled us with existential dread every time he tried to give us a speech. Why I wasn't aware we were scraping bottom of the barrel until six months later, I'll never know.

The typical terms sheet has an 'out' in that any surprises during DD are grounds for annulment without compensation.

Similar to a home purchase...and I imagine that even with an immaculate company or home you can always find something to satisfy that clause and give you an out.

Beware of terms that require the target to pay for DD if the deal goes sour.

Unless you’re in England, where people can drop out or change their price on a house sale or purchase at any time, even after months of legal red tape.

English process of buying a house is an equivalent of 5 seconds film thst is being played in slow-mo for 20 hours. Again, England has some very odd land nad property ownership types thst simply don't exist anywhere else in the world and usually complicate the process a lot. Regardless of it, the lawyer are alway the winners on this one.

What would you spend months on when buying a house? Over here (NL) a buyer inspection is a 30 minute affair. Then you sign a purchase contract straight away, three days to back out.

Oh it’s insane. You’ve never seen a process like it. Nothing happens, but it takes forever. Half of the sale chains fall apart during the wait. Brexit delays seem a whole lot more obvious in that context.

Tye typical reason for long closings, at least in the US, is sale contingencies and financing. If sale of your existing home is contingent on closing on your new home, and that sale is contingent on another closing, things can take awhile to sort out (and not much time at all to blow up).

Financing can also take quite a long time, especially if you have a non-traditional income stream (i.e. you're a startup founder).

A buyer who doesn't have the money now, doesn't have the money. The only reason to humor such people is if you have the asset priced too high. In that case, those might be the only people interested...

In the UK, ordinary families don't have access to large amounts of ready cash - the money they intend to spend on your house is currently tied up in their existing house. So if you want the deepest pool of buyers (& hence to realise the best price for your property) you have to accept being part of a chain of house buyers, all of whom need to perform a dance where they simultaneously sell their houses to each other in order to raise the cash they need to buy the next property in the chain.

It should be unsurprising that this process is widely regarded to be more stressful than anything other than death in the family or divorce.

If my inspector was done in 30 minutes, I'd tell him to go home and hire a different one.

That being said, it depends on where you are. Some places it can take a week to go from first seeing to buying, other places it can take months. Some places, closing costs are a few thousand, some they are 15k. There's a lot of variety across places even in the same state in the US.

In NL as well. It is not rare at all to do a 'bouwkundige inspectie', that is definitely not a 30 minute affair depending on the kind of building. People doing their own inspections tend to overlook important things.

It is standard in bigger corporate M&As, but a tiny startup isn't going to have the leverage to pull it off.

A contract is only worth as much as you are willing to pay to enforce it. It makes sense to pay an army of lawyers for years to pursue a $100m breakup fee. For $100k, not so much.

Quod licet Iovi, non licet bovi

The solution though is escrow. Upon agreement, you have them wire the money to an escrow agent. If they back out, the escrow goes to you. There's no need for follow-on lawyering. (And no, no escrow agent worthwhile is going to be pressured easily into giving a large corporation their $100k back).

A company sales can go wrong for many reasons, how do you differentiate between a legitimate reason to not proceed to the sale and a "last minute backing out"?

I assume that's what a LOI (which is all that the founder had) is for: it comes before any legally binding agreements and allows both parties to be sure they get what they want without bad surprises.

Usually happens in steps. You provide some info they decide to proceed to next phase. Price get attached then.

Apparently something like that is done sometimes: https://www.bloomberg.com/opinion/articles/2019-03-15/don-t-...

I've seen million dollar deposits get forfeited, people are insane! It might honestly be a good business model on its own.

Losing a million dollar deposit makes total sense if the alternative is losing more than a million dollars.

This is why reputations in M&A matter.

Most high-reputation firms wouldn't hesitate to leave a poor founder swinging in the wind. What's she going to do, sue them? Any lawyer capable of handling that case, the M&A dudes already have on retainer.

The companies getting purchased usually don't have enough leverage to get a breakup fee.

Same thing happen to me. Only it was 2 mil instead of 5 and I did not really have to do any due diligence as I was selling my product, not my company. So other then spending some time and paying couple of grand to have lawyer go over the agreements I did not suffer much.

But boy, was I disappointed ;(

You lost a few grand?

More like missing out on 2 mil

Exactly. Already had some savings. Add 2 mil and was thinking early retirement. Well maybe some work when I feel like here and there but life with no financial pressure ;)

Spending $5 on a losing lottery ticket isn't missing out on $100 million.

I know what you mean, but we're talking about someone's perception, not the mathematical way to see things.

Also, winning the lottery and almost selling your business don't have nearly the same probability.

Is there any forum or group that has people that can advise on such matters?

I know HN is one but it's too big/too impersonal for this.

I mean a place for founders to find "mentors" (i.e. people with more experience or people that have done similar things before) that would be willing to help them with things as a sale to a big company or how to structure a deal.

There’s a global peer group called Entrepreneurs Organization I’ve been part of for five years that satisfies this for me. It’s for founders/owners with $1m+ in revenue. 14,000 members around the world broken up into smaller chapters. The NYC chapter has 200 members, for instance. eonetwork.org

YPO is another one, though for larger companies ($8+ million in revenue).

I'm in a program in NYC called https://www.venwise.com/, it's a moderated CxO peer group that meets for a long session every month and does exactly this.


Anything in London?

Funnily enough, WeWork Labs

I wish people would name names. That would discourage this type of behavior.

Sadly it's very common to hear from many reasonably serious potential acquirers before something is consummated. 10 is not unusual I think. It's best to always focus on your business and growing it, assume the acquisition isn't going to close and not getting distracted by it. Avoid any legal or other costs until it's basically negotiated/closed and they're putting some non-refundable closing money down.

Can breakup fees be negotiated in these kinds of deals to protect the would-be acquired company? Seems like the company to be acquired bears all the risk.

You can negotiate anything you want, and I'm not joking or being sarcastic about it.

A lot of people in this thread will say: well, it's unusual or non-standard to do x y z. Good. Most of the interest a company receives re acquisition is going to be pure bullshit at best and malevolent at worst. Ideally you cause the majority of both types to turn tail and run away immediately. If you're not careful you'll waste an enormous amount of valuable time dealing with bogus acquisition (and partnership) interest. Big companies waste a lot of time and money screwing around with: let's make a deal; they can afford it.

The break-up fee should not be layered under 27 conditionals. As someone pointed out, the acquiring company will bury you under a mountain of difficult to fight legal justifications to get out of the break-up fee if they can. And they're almost always going to be far stronger financially than you are.

A fee is going into the company bank account no matter what, without conditions, if you want to get serious about an acquisition. You're going to pay us for our time - risk, legal costs, etc. - if you're serious. The mental approach is simple: don't like the arrangement? Fuck off right now so I can get back to running my business. That's not standard? Too bad. It's your business, you can do anything you want to in that respect. Don't let people tell you that you can't do it, you certainly can. If a company is very serious about buying you, they won't run away if you put this on the table up front, they'll be willing to discuss it at least.

Thanks for the reply, I agree with you. Parenthetically, I know you can negotiate anything you want. I went to law school (though never practiced) and I find one of the common misconceptions is that contracts are these highly fomulaic documents with no room for creativity. The reality is, as you say, that you can put whatever you want in there. Contract law is mostly about enforcing the freely-negotiated agreements between parties. I wrote a lot of contracts that were highly specific to the scenarios in question and there was a ton of creativity - only trick was to use very precise language (verbose bordering on annoying).

My question was more whether this is something that is done in such contexts, namely smallish acquisitions. I think you're right that Baremetrics made a mistake here in not insisting on some of the things you mentioned.

One of the best parts of Baremetrics is that it's an "Open Startup". I can't help but think that the acquisition is clearly not open if he didn't talk about it during the acquisition and doesn't name names here.

I think he's right not to dox the company, but perhaps in the future having an "open acquisition process" could have avoided some of the headache.

I threw around the idea but the reality was I wasn't in a strong position to try to negotiate that with a potential buyer.

Acquisitions are incredibly closed-door and so finding a buyer who was willing to be open about the process would have been nearly impossible.

Rule number one: Nothing is real till the money hits the bank account. The rest is all foreplay.

This has been posted half a dozen times, but now gets 250+ up-votes and 150+ comments?

> You see, it turns out they’d misrepresented their funding situation at the beginning.

it’s so aggravating when my business partners can’t see these posers from a mile away.


I can't even visit OP as my pi.hole blocks it :)

Let me guess: another spam^H^Hads analytics^H^H^Hspy business there under the pretext of 'better user satisfaction'.

No, Baremetrics is a Stripe-et-al analytics service.

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