Ask HN: How do you come back from a failed acquisition?

Most importantly, don't despair. Things may not turn out exactly the way you want them to, but they will turn out ok. You live in a great time and have phenomenal skills and experiences. You'll do ok. Never lose sight of that.

It's great that you asked the question. When you're overtaken by waves of emotions, it helps to get an impartial perspective. Here is what I think about your situation. In the movie Lincoln, Daniel Day-Lewis delivers this line:

  A compass, I learnt when I was surveying, it'll point you to
  True North from where you're standing, but it's got no advice
  about the swamps and deserts and chasms that you'll encounter
  along the way. If in pursuit of your destination, you plunge
  ahead, heedless of obstacles, and achieve nothing more than to
  sink in a swamp... What's the use of knowing True North?

You just screwed up with your tactics and fell into a swamp. That's ok -- just make sure to learn your lesson. Deals fall through. No deal is ever done until the paperwork is signed and money is in the bank. When it comes to deals, never put your eggs in one basket. I'm sure you already got it, so there is no use brooding over it. It's time to move on.

The biggest question you need to answer right now is if you still believe your startup is the True North. Is it the best possible thing you could be working on? From your question it sounds like you still believe that. If you do, good. Then it's time to fight like hell. If you don't, there is no harm done. If it's not the True North, what does it matter if you fell in a swamp? You can pull the plug and start again, with the new, truer direction, now based on everything you've learned.

If you still believe in your company, then fight! I don't know the details of your particular situation (valuation, metrics, team size, runway, amount of money you need to get to the next milestone, etc.) so I can't give tactical advice on how to get out of your particular swamp (or even if it's possible). Pick five advisors you really trust. Poll them on what they think you can do to get out of your situation and move on to building your company. Then decide on the best strategy and fight like hell to make it happen.

Feel free to contact me privately if you need to (email in profile), and good luck! Don't despair. Take a day off and do what you have to do to forget about your company for that day. Then pick yourself up and get into work. It's the first day of your company's new life. Where do you want to take it?

It's such a good feeling to read a post like yours. Thanks for caring so deeply about others.

email in profile

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Whoops, thanks. Fixed.

vague lessons to learn

I've never been in this position, but this story reminds me of PG's "startups in 13 sentences" (http://www.paulgraham.com/13sentences.html) and more precisely the 13th rule:

13. Deals fall through.

One of the most useful skills we learned from Viaweb was not getting our hopes up. We probably had 20 deals of various types fall through. After the first 10 or so we learned to treat deals as background processes that we should ignore till they terminated. It's very dangerous to morale to start to depend on deals closing, not just because they so often don't, but because it makes them less likely to.

If you follow the advice to "treat deals as background processes that we should ignore till they terminate" then you won't "lose months of traction" when an acquisition deal falls through.

I recall another post by pg (probably one of his essays) where he warns against letting VC courtship get in the way of building the product and getting users.

Couldn't agree more. Even in my very short experience I noticed that there is a trend for deal talks to consume a lot of time and energy, and to fall through. If the deal is very interesting it's difficult to treat it as a background process, but at least you should never put yourself in the position where your future depends on the deal closing.

If you only have one exit opportunity (via one bigco) that's problematic. Is that actually the case?

Think like a board member/advisor who doesn't have to actually do the work. IS the company valuable without bigco?

Consider the emotional aspects to be unrecoverable sunk costs. (And, it doesn't matter to the market if you're pumped or despondent.) Is there a way to extract value from what has been created? Is the value worth the time*labor cost?

>we nearly had an exit within 2 years

You might want to reconsider a the nature of an exit to be a series of opportunities that present themselves with increasing frequency as your company creates value. Even a [hair salon | food truck | gardening service] doesn't have a once-in-the-life-of-a-company opportunity to exit. Software companies shouldn't have one chance either.

And a funny thing happens as you create value--you'll become less and less interested in the bigco's and exits that do present themselves.

It sounds like you have created a lot of value. If that's the case, don't let emotions of hopes-dashed weigh you down. Focus on your business and create more value.

That sucks. I spent a very unpleasant 9 months in the early '00s at a startup I founded bouncing from big valley tech co to big valley tech co chasing acquisition deals, each of which consumed 3-4 months of effort and attention, each of which involved us eventually getting into the mindset of being acquired by that company, each of which failed.

Deals fall through; that's just what they do. Yours fell through because a director at the acquirer objected. Others fall through because the market shifts suddenly, or because a competitor to your acquirer spooks them by picking up one of your competitors, or because you lose a key person, or because their business development person leaves, or they get a new CEO, or because a bluebird deal happens for them and they pick up some totally unrelated company that ices you out of their plans for a year.

You're lucky the acquirer told you the deal was dead. That doesn't always happen; dead deals can limp along for months and months, especially if you don't know how to qualify them. This is a reason people hire "business development" people for their startups, but frankly having a BD person might just mean you'll be exposed to more of these horrible prospective deals; if people aren't banging down your door, it's not in a BD person's interests to qualify deals strongly.

My advice is, go into every potential acquisition as if it could not possibly happen. Maximum jaundice! Assume it's going to fall through. Shield your team from the talks. Decline to introduce the acquirer to most people on your team until things have materialized. Talk to people who have sold companies before about the steps their deals went through so you can judge what "real" is (it's probably not just "signed MOU"). Certainly don't expose yourself before the CEO has signed off.

A possible added benefit to this posture is that it also plays hard to get, which while it won't actually increase the valuation you get might keep you from blundering into unnecessary concessions.

My guess is you weren't really all that far into the deal, because no part of your posting talks about vast and intractable legal fees. So, cheer up: you could have been a couple more steps down the road, and a couple hundred thousand dollars in hock to the lawyers too.

If there is a lesson to learn, perhaps it's that there's more than one perspective on looking at something. It sounds as if you've been thinking a lot about all the positives of an acquisition - this is no bad thing, but perhaps you would feel less depressed and dispirited if you considered the other side of the coin.

I think an acquisition is a little like a marriage. Nearly everyone goes into them for the 'right reasons'. Both parties are really excited for the future, and looking forward to the adventure - but even then, we know that many marriages (and acquisitions) end up in failure. It would not be the first time a company has been acquired with promises of growth and development only to find that business priorities change, and they're suddenly getting scattered around the acquirer.

Let me give you an anecdote to balance your own. About three years ago I was working for a start-up that got acquired by a big, publicly listed company with a ~$1 billion market cap with several 'A-Listers' on the board. We were really excited: we were going to have access to many more markets, be able to accelerate a lot of the stuff we were doing, just like you.

Two years later, the entire group was worth less than the amount they'd paid for us, and our market cap had gone from $1 billion to 8 million. Last I heard (by this point I had left), they had just declared Chapter 11.

The moral of this story, if there is one, is that you just don't know what's going to happen. Is your company really "about to crash and burn"? Is it that bad? Maybe not (...at least, I'd assume so). Is a "disruptive startup" one that exits in two years? Would being acquired let you keep being disruptive? I think it's great you posted your experiences here - but maybe, and it might just be me reading this into what you've written, you're letting the moment of the now cloud your judgement.

The issue here is that both sides want the acquisition, and it's being blocked for external reasons that have nothing to do with the fundamentals.

I'm generally pretty negative on the build-to-flip mentality. However, sometimes an acquisition is the right thing, and I also think this investor is a horrible person for blocking an acquisition that both sides clearly want, just to serve his own career goals.

Investors ought to be passive beneficiaries. Yes, their financial interests deserve respect. No, they shouldn't be the real bosses. Funding ought to be the commodity, almost like a utility; talent ought to be treated as scarce and precious (because true talent is). But in the modern Valley, it's gone the other way.

You are totally free to only accept money from investors who will have no control over your company.

As you know, VC is a reputation economy and the VCs all talk and collude. VCs can get whatever terms they want because they know that if you say no, they'll bad-mouth you to the rest of the investor community. It's extortion.

People don't end up in those kinds of deals because they're stupid. Not all of them, at least. Often, they have no other choice because an investor will either back them or end them, the latter being a power they have in this backward, feudalistic reputation economy.

If you feel that way about investors, don't take outside investment. We didn't. Things worked out peachy.

It's a strange thing, to feel entitled to set the terms under which people give you their money. We didn't like the available terms. I don't have much nice to say about the venture capitalists I've known. But I don't have an elaborate worldview built around those impressions, and you do. You should try to shake it off.

Investors become owners. Since when do owners have no say in when they sell their property?

It's not at all true that all investors end up with control. In fact, in the large, most investors don't.

Neither here nor there, though, because it was a buyer's side investor that scotched this deal.

the VC who backs this large co won't do the deal for internal politics reasons

"internal politics" is a problem to solve. The VC is backing the $6b company, and not yours? This is where your VCs/advisers/backers should provide that "non-financial assistance" they love to talk about.

My advice is this: You and your co-founders should each take a couple of days (separately, not together) off, away from the office, in some quiet contemplative place (most hotels in America fit the bill) where you can each do some thinking about what is important to you. Don't plan to do any work during this period, turn off your email and phone and just think about what's most important to you for the business. If you can come back from the short retreat with a clear destination for the business, you've achieved the initial goal. Then, take a day or two to discuss with your co-founders, with brutal honesty and candour, about the overlap and differences in your respective view of the business. If there's still a lot of overlap, then take whatever time you need to come up with a plan.

The game plan here is simple: get clear, define some goals, build some consensus and come up with a plan.

I get the sense that you've got a lot of pain, confusion and doubt clouding your thinking right now, so taking a few steps away from all the noise of operations should help you find what you need to find.

Good luck with it all.

> we've built a startup that's so disruptive, we nearly had an exit within 2 years - but now we're about to crash and burn.

But what about making money? Is it so disruptive you haven't been able to charge for it yet? That sounds like a consumer app. Are you another Instagram? Could you be Snapchat? (snicker)

In all reality, either you are so disruptive that you need help finding a way to make money, or you should be able to raise more money if it's something that's actually adding value. Something is fishy when your current investors are dropping you after this deal fell through, either the company is in more dire of a situation that you can see, or something else is up.

I don't know what actual advice to give other than take a close look at what you're doing to see if it's truly providing value not just "disruptive" and if there is an opportunity to start generating revenue to fund yourself. That's the most obvious solution to a startups cash flow problems. If you are solving someones pain point, I bet there's a few people out there willing to pay for it.

My terminology is going to be off because its been a while, but if they are serious have them sign a term sheet, that has a exit clause; if for some reason the deal falls through they reimburse you for the time spent. If they are serious about the deal they will sign it, a 500K exit clause, as an example, is small change to a 6b company but can mean alot to a small startup. I know this does not help with your current situation, but might be useful for people reading who will find themselves in an acquisition.

If a product is so disruptive, how can it possibly fail within two years? I think you are misguided.

If a product is so disruptive, how can it possibly fail within two years?

Running out of money tends to have that effect.

The problem with VC is that the VCs (in consumer web) aren't really into technology per se. They're trying to take advantage of the short-term, emerging natural monopolies that technology creates. This means they force fast growth whether it makes sense for the company or not, and even if it's a sound business, it will have to ask for money in 18 months regardless-- because it's been forced to grow headcount and scope so dramatically.

It really is a rigged game. The more traditional approach to business (10 to 30 percent growth, getting rich slowly) isn't allowed.

There's a good chance "internal politics" was a made up excuse when they decided that the acquisition simply wasn't worth the $$$. Then your corpdev or VP contacts don't look like assholes for backing out, because, you see, it was someone else's fault.

We went through a similar situation. Signed an LOI for 8 digits. Went through 6 weeks of DD and the deal fell through because of the board.

I have never been so disheartened in my life.

You really have to ask yourself - why you started the company? My co-founder and I decided we didn't want to be in the business forever, but had to get to cash flow positive to make it easier to get board approval by pre-IPO companies.

We hustled to cash flow positive in 6 months and we're acquired 9 months later.

It's a marathon, not a sprint. Keep your head up. We found it really valuable to be open with people you trust and talk through things. Happy to chat by phone or grab coffee if you need someone to talk to.

So near and yet so far. You got this close to a deal. Just hang in there, if there is one there ought to be others right (?!). Startups are hard for this and a myriad other reasons. you know it. Right from getting the product right, getting traction, raising funding, and the exit. You seem to have lined so many of the ducks so far. Like a marathon, just hang in there buddy. you have what it takes. Like someone mentioned, take a day or two off to clear the head, and refocus. Fight, fight, never give up !

The largest lesson should be to not put your company on hold, not for anybody, not for any opportunity. Deals fall apart all the time, for many reasons. Work your company hard, until it is self-sufficient, and don't let anything get you off track.

For your company specifically, your description doesn't sound like politics, that sounds like someone found a red flag in a due diligence effort, and nobody wants to tell you what that red flag is.

huh? If the product is that good, you should be able to find others who are interested in it, or if you are making money from it - be able to survive?

Rule 13: http://www.paulgraham.com/13sentences.html

If internal politics is the major reason for the acquisition not going through, then your product must be good enough to attract other bigcos. Seems like the progress you had with the acquisition talks would also be a selling point to VCs when you raise your next round.

Hindsight: Always deal directly with the decision maker. Don't put all the eggs in one basket / Have mitigation strategies. Does show validation.

Foresight: Leverage nimbilness. Read up on other aquisition cases. Maybe 3rd year is the charm?

Take the company off hold and keep pushing along. Focus on what's next. They might come back to you. Seriously. Don't count it, but it does happen in M&A. Next time you can ask for more $$.

Please contact me, details in profile.

I sincerely hope that what I have to say here helps you: http://michaelochurch.wordpress.com/2013/11/30/heres-the-hn-...

Did you double-post your comment and then delete one?

Make 'em pay. Become so successful that the VC who screwed the deal looks like an idiot.