Ask HN: my startup got acquisition interest, what's next? | Hacker News Reader

Ask HN: my startup got acquisition interest, what's next?

Recently, my startup got acquisition interest from another large company. Did a long telephonic conversation on our vision, product, etc. and it seems they are interested in taking this to next step. They've asked for our revenue and other metrics.

Now my question:

a) Should I ask them to sign NDA?

b) Should I insist on a ball park figure first before revealing key information? (They vaugely know the number of customers we have and general product price point)

I had casually asked for a ball park figure on phone but they said they would first need to meet us face-to-face to see if it is a strong fit.

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I sold a 100% bootstrapped site in the low 8 figures recently. Here's my advice: hire a lawyer with many many acquisitions under her belt. Don't hire a banker unless they've sold companies to the other strategic buyers in your space. Get another buyer interested asap (I had good luck doing this via Linkedin). Nothing will motivate the best price and closing like a competitor in the wings. You'd be surprised how many deals fall thru during due diligence, so keep your head... The deal isn't done till you get the wire transfer. Don't take an offer unless you would be truly happy with just the cash. Earnouts and stock are very very risky and not dependent on your actions. Don't reveal anything that could hurt you until they give a term sheet and you "go exclusive" AND I strongly encourage you to have a break up fee. You can tell them revenue and user data before you sign a term sheet, but I'd be careful about naming customers or revealing how your technology works until there is a penalty for them walking away, leaving you with lawyer bills.

Here is how my first acquisition interest played out:

VC: "We want to buy your company". Me: "Umm. Okay. But, I am still developing". VC:"No worries. Come down". I do (plane flight). Show up in this big office. They make me wait in a huge room at a table that could seat 20. One guy walks in with a thick printout, throws it on the table so the printout slides to me and says "This is how we value a company. Read it." I read it and the value of my company would be based solely on revenue.

What I learned: Don't let them put you in the defensive position. If there is a strong fit then revenue and metrics shouldn't play much of a role (at least initially). If you are taking the time to meet them face-to-face then I don't think it is too much to ask for a ball park figure.

Hope this helps.

Interesting. Thanks for talking about your experience.

This is an easy one - ask your lawyer. If you don't have one, now is the time to get one. Choose a firm that has a reputation for startups.

Startup lawyers know everything about acquisitions. They see them first hand from a unique vantage point: CEOs tell them stuff they won't tell investors, and vice versa. They are the only people that know the whole picture.

Actually, we are not based out of valley/US and finding the right kind of lawyer in our region for such a situation may be hard.

You don't need to be based in the US to hire an attorney in the US. No one in my company has ever met our lawyer in person, and he did quite a bit of work for us.

Keep talking, but don't let them distract you from the main work of building the business.

If you really want to have an exit then you need others involved as well - other buyers and smart experienced people to help with valuation and legals.

DEcide what you are worth - and use gut feel (your number) and someone that can give you a quick and dirty valuation. If you actually have revenue or even profit then this stuff is easier, but mainly it's doe by comparing you to other deals.

Reach out to other likely buyers and let them know that these guys (named or not) are sniffing around. The code words used by big companies are that your are 'in play' and you want to court the decent buyers before creating an auction situation.

Control the process yourself once you have the buyers lines up. Give them consistent information, deadlines for tabled offers and then start playing them off against each other. YOu'll get a great understanding of how they operate and can choose the company with the best money AND fit.

Before you share anything too private then do make them sign an NDA - you should have a stock one, and the negotiation process to get them to sign will be a good telltale.

Oh- and the unsolicited offerer should always come to see you - at least at first. No acquirer is too important to come to see you.

If we are talking anything 7-figures or above...find an investment bank/broker.

Sure you'll end up paying them a hefty cut...but you won't get screwed.

Plus, if you're getting interest from one large company, there are probably others interested as well and a good broker can run an auction for you to get a much better deal than trying to do it alone.

Selling your company isn't something you should do by yourself in my experience.

From my experience, investment bankers don't really know much of anything. I would shy away from this.

Bad experience? Well, if you find the right IB, it can make all the difference. (from my experience)

this basically explains it all (from TS founder, David Cohen):

http://www.davidgcohen.com/2010/06/18/you-have-acquisition-i...

Yep, I read it. In fact, David absolutely insists on getting a ball park figure first. That's what I wanted to get advice on from HN.

First question is, Do you want to sell?

If not drop, then drop the distraction and get back to work.

If maybe, decide if you really want to go work for the big company and if so, hire a pit bull to work out the deal on your behalf, then get back to coding in case it does not go through.

Flirting can lead to marriage, but it can also lead to a case of the clap. If your product is strong, there are "plenty of fish" as they say.

If you have someone on your advisory board who has been through this before, even in an unrelated space, spend quite a while talking to them. Possibly offer them a slice to come in and help you get this done at good terms.

If you don't, consider finding someone as a last minute advisory board member explicitly for this purpose.

Get an outsider who can give you concrete unbiased advice on your process. An attorney is ok, but generally an investment banker who specializes in your size company is best. See the threads listed in previous comment.

Nothing like competitive tension between 2 or more acquirers to drive up the valuation. So let the current acquirer's competitors know that you have an offer from XYZ.

Get a Lawyer!!!!

a) No, NDA's may hurt you in the sales process, as it binds you both. The only thing you need to protect is your IP which can be done through patenting if you want to go that way, but basically it's the execution they should be interested in, not the underlying tech. However, when it comes to facts and figures, you should talk that over with your business lawyer as whatever you represent may become binding.

b) No. Never tell a car salesman what you're willing to pay for a car. That becomes the starting point from which he'll only go up. In your case, the reverse. I'd hire an independent auditor to valuate your business, giving you a high, low and median selling point from where you can intelligently negotiate.

Your diligence needs to be done as to whether or not they're actually a good fit to buy (qualified?) and research them to see if it looks like they may be interested in your company from more than just a buying perspective, because they could just be shopping you and there's no need to disclose everything.

So you are recommending not to reveal revenues right now and instead tell them what auditor says the company is worth?

I'm recommending that you be open and honest with your revenues as they fall into the context of a potential sale. Once you've been able to pull all of the information together (year over year revenues, adoption rates as compared to the total market, etc.) together and undergo an audit for the true value of the business, you'll be in a better position to negotiate a sale to one or more parties.

If your suitor doesn't come right out with a great offer and their own NDA accompanying it, which should go hand in hand, I wouldn't recommend entering any type of secrecy agreement with them and open up a potential sale to other suitors, if they do exist. If this big company you speak of will not prove to you that they're serious at the outset, it's probably just a cursory fishing expedition to begin to assess the market and you'd just be a starting point, so yes, I'd keep my pants on until you know they're serious. After all, they're approaching you. Let them do the talking for awhile.

But the best piece of advice which is echoing in the thread is to lawyer-up asap, and don't go buying that new piece of shiny consumerism just yet.

Making the first offer can have a strong anchoring effect on the product's perceived value (to both parties).

Here's a good article on general negotiation from HBS: http://hbswk.hbs.edu/archive/4302.html

I completely agree that you should not worry about the NDA, but you should consult a lawyer nonetheless. jsavimbi is correct that the NDA is only going to bind you. As for the second point, I believe that you should not start with an indication of your value if you can help it, but you can provide revenue results. Your revenue now is not going to be your revenue in the future. As long as you are making anything, you are doing well. There is a big difference between $0 and $1. You should not disclose everything, though, until they provide you with more details, and let them make the first bids. As was said, this is the starting point of negotiations.

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