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Ask HN: YC rejected. Now an acquisition scenario came up. Help?

35 pointsby man_bear_pigover 11 years ago
Anyone out there that can help me?<p>So I found out the unfortunate news that I didn&#x27;t get the interview for YC W&#x27;14. However, yesterday, I received an inbound inquiry on my startup from a global player asking if we want to sit down for a potential acquisition discussion.<p>Quick Background: - my company is in public beta and haven&#x27;t even launched yet! No crazy traction, proprietary technologies, some revenue (nothing meaningful). - we&#x27;re going to start our angel fundraising efforts soon - player is the largest in the space (I&#x27;m not even sure if I can disclose details&#x2F;name that&#x27;s why I&#x27;m not disclosing specifics). - they specifically said that their senior M&amp;A team and C-level execs have been thinking about building a product similar to ours and would want to discuss potential for team&#x2F;product acquisition.<p>There&#x27;s a million scenarios&#x2F;questions going through my head from fundraising to why I didn&#x27;t even get a YC interview.<p>Anyone who can opine on the best way to approach this would be greatly appreciated.

16 comments

OmarIsmailover 11 years ago
YC&#x27;s advice around these kind of talks is that they&#x27;re a colossal waste of time. If you&#x27;re interested in an acquihire situation then there may be some value in meeting, but otherwise the chances of something meaningful coming from this is very low.<p>Remember, for these M&amp;A guys, meeting people like you is there job. For them having these meetings is a productive use of their time. It costs them nothing, and they only gain more insight into the marketplace.<p>What do you get out of these meetings? They&#x27;re not going to tell you anything special&#x2F;secret about their product&#x2F;market.<p>What I&#x27;ve seen some people do is have an initial call&#x2F;meeting (don&#x27;t travel for it) for about an hour to feel things out. If it seems like there&#x27;s genuine interest then have there be a &quot;break up&quot; penalty. i.e. if things don&#x27;t work out they pay you $5-10K.<p>That way you get something for your time if it doesn&#x27;t work out, and if they&#x27;re not serious they won&#x27;t agree to it.
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gizmoover 11 years ago
It doesn&#x27;t hurt to be a cynical in this situation. They will want to do &quot;due diligence&quot; which means they discover many valuable things about your product before they have really committed to anything. This is certainly to their advantage. They are also likely to make you a low-ball offer if you come across as inexperienced or gullible.<p>When you engage in any sort of negotiation with M&amp;A guys (who are bound to be much better at negotiating than you are) you really need some sort of leverage or you&#x27;ll get a raw deal. So unless there are multiple suitors that you can play off against each other this is likely to turn out to be an expensive distraction for you.
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christophersleeover 11 years ago
From my experience, I would open the discussion with them and be honest about where you are trying to go with the product. Offer up potential partnership arrangements&#x2F;rev share (whatever makes plausible sense.)<p>In my opinion, if they could (and it&#x27;s rare that they would) knock you off overnight, then maybe you don&#x27;t have a business to begin with. YMMV with that one, but thats what I generally think about it.<p>Although everyone will say, don&#x27;t let it be a distraction. It&#x27;s a HUGE distraction. Your motivation to continuing building the product may wane, you may start to devote a lot of time to the negotiation strategy. It&#x27;s a distraction.<p>Now should you get to the point where you think the acquisition is a good route for you, really the only way to improve the offer is to have other offers (whether that&#x27;s raising money, or a different acquisition offer.) If you have little revenue to speak of, I&#x27;m not sure how you argue you should get a 5000x multiple instead of a 300x multiple.
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alexjarvisover 11 years ago
Had a friend who was recently in a similar situation minus the YC part and basically it turned out to be a massive waste of time (and legal fees) when they decided he wasn&#x27;t the &#x27;right fit&#x27; for their culture. It was more of an acqui-hire, but the lessons learned are still relevant here. Start discussions but don&#x27;t let it take over everything as they might just be testing the water.<p>So in summary, continue business as usual while you negotiate and be skeptical of their motivations.
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quizoticover 11 years ago
1. Why are you still mourning YC&#x27;14? 2. Why are you asking for uninformed advice on a public forum?<p>In situations like these, I like the Mathew Looks rule.<p>Mathew was a USCF expert on my high school chess team, trying to teach me to be a better player. He set up a chess position with chances for both sides, and asked which side I liked better. &quot;I have no idea,&quot; I replied. &quot;That&#x27;s why you lose. It doesn&#x27;t matter whether you&#x27;re right or wrong. It matters that you have an opinion.&quot;<p>Form your own opinion about this situation. Like it. Feel confident about it. Then follow through, as well you can.<p>It doesn&#x27;t matter what anyone else thinks. It matters what you think.
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colbyhover 11 years ago
Are you properly incorporated yet? If so, ask for their specific legal advice and take the meeting. Don&#x27;t disclose anything that the potential acquirers could use to build their own product and see if their interest is sincere. If so, then make a decision. Until then chances are they are really just trying to pick your brain for insights before they build their own competitor.<p>The way I see it is that if the fit is good and the money is solid then maybe it&#x27;s worth it. If not you have at least one fantastic example of validation when it comes time to raise funds...
gametheoreticover 11 years ago
Disclaimer: I don&#x27;t know anything about anything.<p>&gt;my company is in public beta and haven&#x27;t even launched yet!<p>Buy low, sell high. You don&#x27;t approach this early for no reason.<p>&gt;they specifically said that their senior M&amp;A team and C-level execs have been thinking about building a product similar to ours<p>That was meant to scare you. Ironically, if you&#x27;re smart, it achieves the opposite. &quot;Ok, so why don&#x27;t you? What does a 6-man startup have that a global player doesn&#x27;t?&quot;<p>My tentative vote, pending further information: Nay. From your thread comments, you seem psyched about the product - see how far that enthusiasm can push your product before you risk losing it. When you&#x27;re enthusiastic, you want to &quot;control your own destiny,&quot; as they say in college football. Also, beware &quot;best case scenario&quot; bias. If it were me, I would promise you creative control, teams on top of teams beneath you, fair captain. But where do you see that. Google acqui-kills 100 companies a year.
alexnewmanover 11 years ago
The &quot;YC advice&quot; is similar to the oversimplifications I have heard, pawned off as wisdom. Take it as a chance to listen, learn and develope a relationship with those guys. Just make sure you understand who the decision makers are, and only deal with them.
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diorrayover 11 years ago
If you don&#x27;t love your product, just sell it.
mtabiniover 11 years ago
What do <i>you</i> want out of this?<p>Unless you can answer this question, any advice is essentially pointless. In my experience, you can imagine up all the scenarios in the world (I know I have many times), but reality depends on so many factors outside your control that things are likely to go in a direction you do not expect anyway.<p>Regardless of whether you want be acquired or not, you should take that meeting. You have nothing to lose, and everything to gain: Even if nothing comes of it, it will be an opportunity to gather valuable information, create useful connections that could be useful later on, or lead to other business opportunities that aren&#x27;t even on your radar right now.<p>Most importantly, you need to look at this and every other meeting you take as the beginning of a negotiation—even if you never discuss an actual business opportunity. And the trick with being a good negotiator is not necessarily to win, because nobody wins all the time. Instead, the trick is to stay in control of the process. Talk to these folks, and see what they want. A company that is serious about acquiring you will want to get to know you first, understand your strengths and weaknesses, and so on. Your job is to steer the discussion in a direction that&#x27;s worthwhile to you and never, ever, ever, ever (ever!) let it take more of your time than it deserves.<p>So many of the other folks who have commented seem to worry about this being a waste of time, or the other company attempting to steal your ideas and businesses through the due diligence process. But how else are you ever going to get a deal done if you don&#x27;t interact? In my experience, due diligence is the <i>last</i> step of an M&amp;A exercise: after the parties have agreed on all the terms, its role is to simply make sure that neither party is trying to pull one over the other. And it&#x27;s an expensive process, so no-one really wants to do it until they&#x27;re sure they want to go ahead with the deal.<p>So, nobody is going to start a serious negotiation by asking to look at your financials or read through your source code (and, if they do, you should probably walk away) until they are willing to put a commitment of their own on the table. In the meantime, just let the discussion take its course and push back, firmly but politely, every time you feel that the process asks more of your involvement than you feel is warranted at that particular time. Again, any serious businessperson won&#x27;t mind—heck, they may even try to measure up your worth by seeing how far you&#x27;re willing to be pushed before you start pushing back.<p>Oh, and you should run—_run_—and find a good advisor. This is the kind of discussion you want to sound off with someone who can help you examine your specific situation… which is hard to do in a public forum like HN :-)
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wellboyover 11 years ago
Will this be able to make $100M&#x2F;year in revenue within the next 3 years?<p>If it won&#x27;t probably be able to make &gt;$10M rev&#x2F;year, you&#x27;re not super passionate about it and they want to buy it for $3M+, I&#x27;d go for it.
dsugarmanover 11 years ago
Acquisition talks are usually a huge distraction. They will likely drag you out and hurt the moral of the team to get a sweetheart deal if they really are that interested.
andrewhillmanover 11 years ago
If you are looking for a job, take the meeting.
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Sujanover 11 years ago
Do you love the idea and product?
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yeover 11 years ago
Is the offer that good?<p>If you do sell it now, do you have other startup ideas worth working on? (I assume this was your best one).<p>Is there any vesting involved, or is it a cash deal?
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accountofthedayover 11 years ago
uninformed prediction: &quot;pg called us to correct their mistake, we got an interview and we&#x27;re in&quot; by the end of next week, though you might be asked not to talk about it in public. meanwhile, nothing will come of the &quot;acquisition&quot; talks.
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